Social Security

"I see no reason why every child from the day he is born, shouldn't be a member of the social security system. When he begins to grow up, he should know he will have old-age benefits direct from the insurance system to which he will belong all his life. If he is out of work, he gets a benefit. If he is sick, or crippled, he gets a benefit.… Cradle to the grave—from the cradle to the grave they ought to be in a social insurance system." —President Franklin Roosevelt, speaking to Secretary of Labor Frances Perkins.

President Franklin D. Roosevelt (1882–1945; served 1933–45) envisioned a social security program for the people of the United States. He eagerly shared his ideas with his secretary of labor, Frances Perkins (1882–1965), as the process of developing such a program got under way in 1934. The words that open this chapter, relayed by Perkins in her 1946 book, The Roosevelt I Knew, became known as Roosevelt's "cradle to grave" statement. The words reveal the deep sense of responsibility Roosevelt felt toward all Americans, who were caught in a desperate struggle to survive the Great Depression of the 1930s.

The Great Depression was the worst economic crisis in U.S. history. The stock market crashed in October 1929; a banking crisis followed. Stores closed, 25 to 30 percent of workers lost their jobs, and people could not pay their bills or buy enough food for their families. Hunger and breadlines became common, and people began to lose their homes because they could not make their regular loan payments. Overcome by the Depression, the nation and its president struggled for solutions.

The Social Security Act of 1935 was one measure in a sweeping series of legislative relief and recovery measures known as the New Deal. Designed to bring prosperity back to the United States, the New Deal programs were created under the guidance of President Roosevelt. The Social Security Act was one of the most important and revolutionary pieces of social legislation ever passed by the U.S. Congress. Social legislation refers to laws that address social issues such as oldage retirement payments, unemployment support, and health care.

The Social Security Act was considered revolutionary because the U.S. government had never before taken on the responsibility of social insurance for its people. Social insurance is a system of government-sponsored social programs that are designed to protect a nation's citizens—especially the aged, the very needy, and the disabled—against economic hardship. Such programs include old-age retirement income, cash payments for the unemployed, and certain health care benefits.

By the early 1930s the Great Depression had driven many unemployed Americans and elderly citizens into desperate poverty. Convinced that the people of the United States needed some form of long-term social insurance, President Roosevelt notified Congress on June 8, 1934, of his intention to develop such a program. Enlisting the help of Secretary of Labor Perkins, he established the Committee on Economic Security on June 29, 1934, to work out the details. Only thirteen and a half months later Roosevelt signed into law the Social Security Act of 1935. Believing the government had created an economic safety net, Americans climbed on the bandwagon of Social Security. They have been fiercely protective of it ever since.

The move from farms to cities

Certain historical forces in the late nineteenth and early twentieth century made 1934 and 1935 the right time to introduce social insurance in the United States. Social insurance answers a basic human need—the need to face the future with some assurance of economic security. At one time or another all people endure illness, job loss, disability, or old age. Before the twentieth century most Americans lived on family farms and relied on the support of large extended families. In that agricultural society a farmer who owned his own land could at least feed his family in hard times. Fiercely independent Americans never thought of the government as a source of help. However, during the late nineteenth and early twentieth century increasing numbers of Americans left their land and the safety of family to seek jobs in city factories. Only 28 percent of the U.S. population lived in cities in 1890, but by 1930 56 percent lived in the industrialized cities. Their income and livelihood depended entirely on wages from their job. If they lost their job due to injury, illness, or growing old, they and their families found themselves in a desperate situation.

Western Europe had experienced similar population movement as factories sprang up in its towns and cities. As early as the 1880s European governments established social insurance programs to deal with workers injured on the job and to provide for health care. By the time the United States adopted a nationwide social insurance program in 1935, at least thirty-four European nations already operated such programs.

Self-reliance

Why did the issue of social insurance go unaddressed in America for so long? The answer lies in the uniquely American belief in self-reliance—taking care of oneself. Most Americans steadfastly resisted any suggestion that they needed help, especially from the government. Any help coming from government sources seemed a threat to personal liberty. For the truly needy, help came from charities, volunteer programs, and women's "mutual aid" societies. Nevertheless, ideas of social insurance modeled on European plans began to take root in the minds of a handful of American university professors. In 1907 they formed the American Association for Labor Legislation (AALL). The members of the AALL began calling for unemployment and old-age insurance programs. Some forward-thinking states began to listen.

States pass social insurance legislation

The AALL promoted practical programs rather than just ideas. They informed Americans about the social insurance programs in Europe. The first results of the AALL's efforts came in 1909, when Wisconsin, Minnesota, and New York passed legislation for workers' compensation (cash payments for those injured on the job). By 1920 forty-three states had passed such laws. States also began to enact old-age insurance legislation. Old-age insurance provides cash payments for elderly people who no longer work. By the early 1930s approximately thirty-five states had old-age insurance plans. However, generally these plans were inadequate and differed widely from state to state. For example, payments in Montana were roughly $7.28 per month, but in Maryland they were $30 per month.

As the economic misery of the Great Depression deepened in 1930, 1931, and 1932, confidence in traditional sources of security evaporated. Family farms and city jobs were both failing to some degree. Charities and volunteer organizations were overwhelmed by the needs of the elderly and increasing numbers of unemployed people; these organizations could not provide adequate help. Suddenly some form of national unemployment insurance and old-age insurance seemed essential to everyday Americans. Social insurance was an idea whose time had finally come.

Committee on Economic Security

On June 8, 1934, President Roosevelt notified Congress of his intention to establish a social insurance program. On June 29, 1934, he created the Committee on Economic Security to develop a permanent system of social insurance for the people of the United States. He set December 1934 as the date for the committee to report its recommendations to him.

Roosevelt insisted that Frances Perkins (1882–1965), the secretary of labor, be chairperson of the committee. An effective and trusted adviser of Roosevelt, Perkins appointed the members of the committee mostly from the president's cabinet. Those appointed to the committee were Henry Morgenthau Jr. (1891–1967), Secretary of the Treasury; Homer Cummings (1870–1956), Attorney General; Henry A. Wallace (1888–1965), Secretary of Agriculture; and Harry Hopkins (1890–1946), Director of the Federal Emergency Relief Administration (FERA). The committee turned out to be an excellent mix. Ideas about how to approach the complicated program came from people with different perspectives. For example, Morgenthau and members of the Treasury Department explored and put forth very conservative approaches as well as wide-open ways to finance such a program. Cummings, the attorney general, analyzed legal and constitutional problems that might arise. From his perspective as the head of a relief agency, Hopkins presented the most pressing needs of people caught up in the Depression.

After assembling the Committee on Economic Security, Perkins established the Technical Board as part of the committee. The Technical Board's role was to analyze and put together how the whole social insurance program would be carried out. Unemployment insurance seemed the most urgent social insurance need. The only plan in existence in the United States was the Wisconsin plan adopted in 1932, so Perkins selected a team of individuals from the University of Wisconsin to work on a national plan. The team included Arthur J. Altmeyer (1891–1972), Edwin E. Witte, and a young assistant, Wilbur J. Cohen. All were experts in Wisconsin's social insurance thinking. As months of intense discussions, meetings, and congressional hearings unfolded, it would be Altmeyer and Witte, along with Frances Perkins, who controlled virtually all development of the economic security proposals. Eventually Altmeyer would become known as the "father of Social Security."

Early ideas for the social insurance plan

The members of the Committee on Economic Security first focused on an unemployment insurance scheme. They began by looking at plans and proposals devised between roughly 1932 and early 1934, including two that had already been introduced to Congress. An unemployment insurance bill, the Wagner-Lewis Bill, had gone to Congress for debate and hearings in February 1934. Senator Robert F. Wagner (1877–1953) of New York had introduced it into the Senate and Representative David J. Lewis of Maryland into the House of Representatives. The bill called for a payroll tax (a tax on wages paid to employees). For example, if an employer or a company had a yearly payroll of $100,000, a certain percentage—perhaps 1 percent, or $1,000—would be due each year. The money would be deposited into an unemployment fund held in the U.S. Treasury in Washington, D.C. Each state would be free to adopt its own law for distribution of the unemployment funds. This plan included a benefit for the employers: They could deduct the federal tax they paid into the fund from their company's federal tax bill. This plan was referred to as a "federal-state" plan, because the federal and state governments would need to work together to carry it out. Another bill, the Dill-Connery Old Age Pension Bill, had also been working its way through Congress in early 1934. This bill attempted to establish a uniform nationwide approach to old-age pension plans (cash payments, usually made monthly, to retired workers)

Congressional hearings on both bills were in full swing in the spring of 1934. An endless stream of interested parties testified, and the hearings began to drag into summer. The weather in Washington, D.C., in the summer grows hot and humid. Air-conditioning did not exist. By June 1934 Congress was exhausted and grumpy. President Roosevelt sent them home, assuring them that by December his Committee on Economic Security would prepare recommendations on the social insurance issue. The members of Congress gladly turned over their findings to the committee and went home.

A nationwide debate on social insurance

President Roosevelt sent Frances Perkins on a speech-making mission throughout the Depression-weary nation to promote social insurance issues. Perkins suggested that aiding the unemployed and the aged in good times and in bad could help prevent economic depressions in the future. She explained that people receiving social insurance payments would have a little money to spend on goods, thus helping businesses. And for the first time in U.S. history, everyday Americans began to talk and write about social insurance and even seemingly accept the notion that the government could and indeed should help the elderly and the unemployed on a long-term basis.

Francis E. Townsend (1867–1960) and Huey P. Long (1893–1935) began to boldly interject their ideas into the public debate on social insurance. Townsend was a medical doctor who had recently moved from a long-time practice in Idaho to Long Beach, California. Retired and with little income, he became nearly destitute (very poor). He also watched other elderly people in Long Beach struggling to get enough to eat each day. He wrote a letter to the editor of the Long Beach Telegram, proposing a 2 percent national sales tax. From the proceeds a $200-a-month payment would be made to every nonemployed citizen over sixty who was not a criminal. Each recipient would be required to spend the entire amount each month to keep the economy going. The amount Townsend proposed in 1934—$200 a month—is roughly equivalent to $3,900 per month in 1998 dollars. Newspapers throughout the country published the letter, and Townsend Clubs sprang up nationwide. President Roosevelt and all those deeply involved in trying to set up a social insurance plan knew Townsend's plan would bankrupt the country. But those who would have been eligible for the benefits saw the plan as an immediate way out of economic misery.

The public popularity of the Townsend plan put some pressure on Roosevelt, but he was even more alarmed by the rising popularity of Huey P. Long (1893–1935). Long, a senator from Louisiana, intended to run for president in 1936. In 1933 he loudly proposed his "Share-the-Wealth" plan in hopes of gathering in many supporters. Long's slogans of "soak the rich," "every man a king," and "a chicken in every pot" appealed to many economically disadvantaged Americans. To finance his plan, Long proposed huge taxes on incomes over $1 million and inheritances over $5 million. With the proceeds he would fund old-age pensions for those over sixty, health care programs, free college education, unemployment insurance, and public relief payments to the very poor. Long played on a belief widely held by Americans—that the greed of the wealthy was to blame for the Great Depression. By 1934 Share-the-Wealth societies had enrolled five million members. Pressure from the Townsend plan supporters and the Share-the-Wealth movement no doubt propelled Roosevelt, Perkins, and the Committee on Economic Security to form a workable plan as soon as possible.

Recommendations readied

President Roosevelt expected recommendations from the committee by December 1, 1934, but the deadline came and went. The committee had worked intensively for nearly six months to resolve conflicting positions on the various programs that fell under social insurance. The old-age pension or retirement plan was at last resolved. Committee members decided on a funding approach in which employees would contribute a percentage of their salary to the pension fund and employers would make an equal contribution for each employee. Employees would gradually accumulate credits to receive cash payments in old age.

Deciding how to fund unemployment insurance (payments to help the unemployed get by from month to month) took more time than anything else. When the December 1 deadline passed, Perkins demanded that the committee meet at her apartment at eight o'clock one evening during the week of Christmas. She disconnected the phone, set out a few bottles of beverages to cheer spirits, and declared that they would work all night if necessary to resolve the problem. At two in the morning all present agreed to the federal-state plan originally introduced in the Wagner-Lewis Bill. President Roosevelt would finally have a social insurance bill to take to Congress.

The bill goes to Congress

On January 17, 1935, President Roosevelt submitted the work of the Committee on Economic Security to Congress. Arthur Altmeyer (1891–1972), a member of the committee's Technical Board, wrote the bill that went before Congress. Senator Robert F. Wagner (1877–1953) introduced the bill to the Senate, where it went to the Senate Committee on Finance. Senator Pat Harrison of Mississippi skillfully shepherded the bill through the Senate hearings. Representatives David J. Lewis of Maryland and Robert L. Doughton of North Carolina introduced the bill in the House, where it went to the House Ways and Means Committee. The committees listened to vigorous testimony for the first half of 1935. During this period several experts who spoke used the term "social security" rather than "social insurance." This wording quickly took hold, and the legislation became known as the "Social Security Bill."

The recommendations of the Committee on Economic Security held up through the hearings, with one major exception: the old-age pension plans. Secretary of the Treasury Henry Morgenthau Jr. (1891–1967) testified that it would be all but impossible to collect payroll taxes from scattered farmworkers and domestic workers (such as maids and house cleaners) and from the many small businesses employing less than ten people. The Ways and Means Committee agreed. President Roosevelt, much to his dismay, felt forced to compromise on this key issue. Roosevelt had hoped to have every working person participate in the system. With this compromise only about 50 percent of the work-force would be participating.

The House and the Senate both passed their versions of the bill, then worked out differences by early August 1935. On August 14, surrounded by more than thirty individuals who had worked for the passage of the bill, President Roosevelt signed into law the Social Security Act of 1935. Roosevelt praised Frances Perkins as the one person most influential in the passage of the bill.

The Social Security Act of 1935

The Social Security Act of 1935 launched the American version of social insurance. The act had eleven parts, called titles. Title I dealt with providing monetary assistance to elderly people who had already retired before the act passed. Title II dealt with Old Age Insurance (OAI), or what eventually became known as the Social Security retirement system. Title III, considered the most important provision at the time of passage, was the unemployment insurance plan. Title IV provided support for children whose parents could not adequately care for them. The program was called the Aid to Dependent Children Program. Title V allowed for grants to states for promoting the health of mothers and children, supporting crippled children and neglected children, and retaining persons disabled in industry. Title X offered aid to the needy blind. (Titles V and X were originally the only programs dealing with the disabled.) Title VII set up a three-member Social Security Board to carry out the plan. Titles VI, VIII, IX, and XI took care of funding and administration details.

Government's quick action

From its proposal stages to final enactment, the social insurance program took less than fourteen months to become a reality. For such a complicated piece of legislation, the Social Security Act moved through Congress with remarkable speed. The United States was in the middle of the most severe economic depression in its history, and the resulting circumstances demanded quick action. The Depression disrupted families and businesses; the states, largely bankrupt, could not support even the smallest social programs. Radical, quick fixes such as the Townsend plan and Huey Long's Share-the-Wealth plan gathered wide support and pressured the government to find a workable program. With a determined calm the Committee on Economic Security, guided by Frances Perkins, Arthur Altmeyer, and Edwin Witte, put together a practical plan that Congress could pass. Perhaps most important, the plan had the unfailing support of an extremely popular president who remained involved through the whole process.

Start-up

The U.S. Postal Service took on the task of registering citizens and assigning them Social Security numbers. Well before the age of computers, the efficient postal service processed applications and assigned over thirty-five million Social Security numbers in 1936 and 1937. Paycheck withholdings for the old-age insurance started in early 1937, with the first scheduled monthly payments set to begin in 1940. Other parts of the act took effect in 1936 and 1937. The first unemployment benefit was paid in Wisconsin. During the same period, the first public assistance payments for old-age assistance, dependent children, and the blind were paid out.

Did Social Security payments make a difference for those trying to survive the Depression years? The payments in the first years were too small to provide significant help. Very few benefits (payments) reached Americans in the 1930s, and only slightly more than 222,000 people received small monthly Social Security payments in 1940. The main benefit of the Social Security program during its early years was the peace of mind it offered U.S. citizens: The program demonstrated that the federal government was committed to helping citizens maintain a decent standard of living, no matter what challenges or setbacks they faced. Although few Americans understood the entire social insurance plan, they continued to trust that President Roosevelt was looking out for their general welfare. The launching of the Social Security program marked the beginning of an era in which the federal government would play a role in the everyday life of Americans.

Social Security Firsts

• October 14, 1936, the first Social Security field office opens for business in Austin, Texas.
• November 24, 1936, the U.S. Postal Service distributes the first applications for Social Security account numbers. The first Social Security number (SSN) issued, SSN 001-01-0001, went to Grace Dorothy Owen of Concord, New Hampshire.
• March 1937, Ernest Ackerman of Cleveland, Ohio, receives the first old-age Social Security payment. Ackerman, a motorman, retired one day after the Social Security program began in January 1937. On the one day he participated in the program, a nickel was withheld from his pay. His employer also had to pay one nickel into Social Security. When Ackerman retired, he received a seventeen-cent retirement payment.
• January 31, 1940, sixty-five-year-old Ida May Fuller of Ludlow, Vermont, receives the first-ever old-age monthly benefit check, in the amount of $22.54. A retired legal secretary, Miss Fuller died at age one hundred in January 1975. She received over $22,000 in benefits during her thirty-five years as a Social Security beneficiary.

Changes and long-term impact

The Social Security Act was the most important legislation to come out of Franklin D. Roosevelt's New Deal. It endured and evolved through the twentieth century to become essential in the life of modern America. The first major flaw in the act became apparent by 1937. The act provided only retirement benefits, and only to the worker; it made no provisions for payments for dependents (spouses or children). This flaw was corrected by amendments in 1939 when two new categories of benefits were introduced. The first provided payments, known as dependent benefits, to the spouse and minor children (under the age of eighteen) of a retired worker. The second, known as survivors' benefits, provided payments to the surviving spouse and minor children of a worker who died before age sixty-five, the designated age of retirement.

Congress continued to amend the act as times dictated. In the 1940s only 50 percent of Americans were covered by the old-age retirement plan. Congress gradually increased who was eligible until, by 2000, 98 percent of all workers were covered. Major additions to the act included Medicare (1965), a health coverage plan for Social Security recipients age sixty-five and older, and automatic yearly increases tied to cost-of-living increases (1972).

The Social Security retirement plan helped the elderly maintain financial independence. In the 1930s and 1940s, 50 percent of the elderly population lived in poverty. By 2000 only 11 percent of persons sixty-five years of age and older lived in poverty. Social Security was never intended to be the sole source of income for the elderly. However, by 2000 one-third of elderly recipients reported that the Social Security payment was their only income; for another one-third the payment was a major source of income. Approximately forty-five million people received Social Security benefits in 2000. No other U.S. government program has affected the lives of so many Americans.

For More Information

Books

altmeyer, arthur j. the formative years of social security. madison, wi: university of wisconsin press, 1968.

brinkley, alan. voices of protest: huey long, father coughlin, and the great depression. new york, ny: knopf, 1982.

lubov, roy. the struggle for social security, 1900–1935. 2nd ed. pittsburgh, pa: university of pittsburgh press, 1986.

nash, gerald d., noel h. pugach, and richard f. tomasson. social security: the first half-century. albuquerque, nm: university of new mexico press, 1988.

perkins, frances. the roosevelt i knew. new york, ny: viking press, 1946.

roosevelt, franklin d. the public papers and addresses of franklin d. roosevelt. new york, ny: random house, 1938.

schieber, sylvester j., and john b. shoven. the real deal: the history and future of social security. new haven, ct: yale university press, 1999.

witte, edwin. the development of the social security act. madison, wi: university of wisconsin press, 1962.

Periodicals

social security administration. "a brief description of the u.s. social security program." ssa publication no. 61-009, january 1997.

social security administration. "a brief history of social security." ssa publication no. 21-059, august 2000.

social security administration. "the future of social security." ssa publication no. 05-10055, july 1999.

Web Sites

"frances perkins." united states department of labor.http://www.dol.gov/asp/programs/history/perkins.htm (accessed on august 15, 2002).

perkins, frances. "the roots of social security." social security administration.http://www.ssa.gov/history/perkins5.html (accessed on august 15, 2002).

social security administration.http://www.ssa.gov (accessed on august 15, 2002).