The Social Security Act became law on August 14, 1935. The act was passed during the Great Depression and when America was shifting away from a country where the majority of Americans lived and worked on farms. Many of those Americans were provided with economic security by extended family members. However, the Great Depression and the great draught of that era shattered this paradigm. The Act provided a social insurance program designed to pay retired workers age 65 or older continuing income after retirement. It was envisioned that millions of Americans should not be destitute to the magnitude seen during that era. It cost the country a great deal to provide and partially sustain those who lost their farms or jobs.
Social Security was originally designed to be self-supporting. In 1934, Roosevelt put together the Committee on Economic Security and this committee hired actuaries to look into the future of the program. The actuaries predicted that the percentage of Americans over 65 would increase to 12.65% in 1990 and that retiree costs would soar. They were off. The actual figure turned out to be 12.49%. To address this foreseen problem, the Committee conceived of the Trust Fund. Republicans of the day criticized the idea claiming that the reserve was not really a reserve at all as it contained nothing but the government’s promise to pay. Answering to heavy criticism that the fund was only an invitation for Congress to dip into it, Arthur Altmeyer, head of the Security Board, suggested that maybe the government should invest in sound private securities and thus insulate the program from Congress’s eager hands? Arthur Vandenberg, a Republican Senator from Michigan, snickered, “That would be socialism!”
In response, amendments in 1939 were passed that provided dependents benefits (spouse and children of the worker) and survivor benefits (to the family of a worker who died a premature death). The amendments also required increasing benefits for the first generation of retirees and, in essence, added an element of need. The changes soaked up surplus taxes to keep the government from grabbing it and reduced the rate at which reserves would accumulate in the trust fund. Many believe that this is the root of the current problem of social security.
Social Security was not favored among conservatives at the program’s inception. Many claimed the program would bankrupt the nation. Barry Goldwater tried to repeal it and conservative David Stockman described the program as a “monster” during the Reagan administration.
However, what is clear is that even in the ’30s, people were aware that a coming problem would arise. In the next post on Social Security we will talk about when the problem arose (in the ’70s) and how the government addressed it.
More history of social security can be found on its website. Some information from this post was obtained from “A Question of Numbers,” by Roger Lowenstein.
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