The Social Security Act, signed into law by President Franklin D. Roosevelt in 1935, created Social Security, a federal safety net for elderly, unemployed and disadvantaged Americans. The main stipulation of the original Social Security Act was to pay financial benefits to retirees over age 65 based on lifetime payroll tax contributions. The Act also established the Social Security Board, which later became the Social Security Administration, to structure the Social Security Act and figure out the logistics of implementing it.
Tens of millions of people in the United States have received financial assistance through the Social Security Act since its inception. Still, the program was wrought with challenges from the start and has been a political hot topic for years, its existence threatened time and again. Here’s everything you need to know about what the Social Security Act did, why it was created and the future of Social Security in America.
Early Social Assistance in America
Economic security has always been a major issue in an unstable, unequal world with an aging population. Societies throughout history have tackled the issue in various ways, but the disadvantaged relied mostly on charity from the wealthy or from family and friends.
In the early 17th century, England established “poor laws,” acknowledging the government’s responsibility to care for its less-fortunate citizens.
The Pilgrims brought these laws with them to the New World. Eventually, colonial governments created new laws to care for the poor and destitute, deeming which citizens were worthy or unworthy of different types of assistance. Poorhouses or outdoor relief (where people were given monetary or other assistance to keep them out of a poorhouse) were common means of public assistance.
By the mid-19th century, conditions in poorhouses were often deplorable. Yet thanks to deteriorating economic conditions they were also packed to the rafters, and local governments struggled to keep up with the overwhelming need.
Early Forms of Social Security
A large segment of American citizens received an early form of social security decades before President Franklin D. Roosevelt signed the Social Security Act of 1935.
Starting in 1862, hundreds of thousands of veterans disabled in the Civil War and their widows and orphans could apply for a government pension for veterans. In 1890, the law was amended to include any disabled Civil War veteran, regardless of how the disability occurred. In 1906, the law was amended again to include old age as a criterion.
Company pension plans came on the scene in 1882 when the Alfred Dolge Company created a pension fund for its employees. A handful of companies followed suit, but few employees received even a nickel. Most of the companies went out of business before the pensions could be distributed, or the pensions were never dispersed.
Industrial Revolution in America
According to the Social Security Administration, four changes beginning in the late 19th century helped abolish the economic security policies of the time: the Industrial Revolution, America’s urbanization, the vanishing extended family and a longer life expectancy.
Prior to the Industrial Revolution, many people were farmers and managed to support themselves during hard times, and extended family often lived together on family farms and cared for one another as they aged or struggled.
The Industrial Revolution, however, enticed people to flock to cities for jobs that were often threatened by layoffs and recession, leaving many without a way to support themselves if they lost their job. The urbanization of American also found many people leaving their extended family behind to fend for themselves.
As sanitary and general conditions in America improved, the life expectancy of its citizens did, too. When more and more people grew older, many were unable to work or became sick and required care.
Impact of The Great Depression
The Great Depression left millions of people unemployed and struggling to put food on the table. It struck the elderly especially hard and many states passed legislation to protect their elder citizens.
But most elder-assistance programs of the time were a dismal failure. They were underfunded, poorly run and, in some cases, flat out ignored by officials. Those seniors who received assistance only got about 65 cents a day.
As the depression raged on, government officials and frustrated private citizens alike moved to find ways to help struggling Americans and introduced plans to increase economic security. Most ideas were basically federal or state financed pension plans. Some included all citizens while others included only the elderly.
None of the plans became law; however, many had huge followings and initiated spirited dialogue about how to care for the disadvantaged and the elderly.
Roosevelt’s Radical Idea: Social Security
Until Franklin D. Roosevelt became president, most social assistance plans in America were dependent on the government, charities and private citizens doling out money to people in need.
Roosevelt, however, borrowed a page from Europe’s economic security rulebook and took a different approach. He proposed a program in which people contributed to their own future economic security by contributing a portion of their work income through payroll tax deductions.
Basically, the current working generation would pay into the program and finance the retired generation’s monthly allowance.
Social Security Benefits
In June 1934, President Roosevelt created the Committee on Economic Security (CES) and tasked them with creating an economic security bill. Led by the first woman to hold a U.S. cabinet post, Secretary of Labor Frances Perkins, the CES drafted the Social Security Act aimed at giving people economic security throughout their lives.
The bill included:
- an old-age pension program
- unemployment insurance funded by employers
- health insurance for people in financial distress
- financial assistance for widows with children
- financial assistance for disabled individuals
After much debate, Congress passed the Social Security Act to provide benefits to retirees based on their earnings history and on August 14, 1935, Roosevelt signed it into law. This firmly placed the burden of economic security for American citizens on the federal government’s shoulders.
Social Security Cards
After signing the Social Security Act, President Roosevelt established a three-person board to administer the program with the goal of starting payroll tax deductions for enrollees by January 1, 1937. It was a daunting task, but by November 1936 registration for the program began.
Not everyone could participate, though. Self-employed professionals, field hands and domestic workers were excluded.
To become eligible, workers completed an application at their local post office and received a national identity card with a unique, nine-digit identification number. Within eight days of rolling out the program, over one million workers had Social Security numbers.
Four months later, almost 26 million had enrolled despite most projected payouts being below poverty level. The Social Security card was—and still is—used to track workers earnings and benefits.
Social Security Act Amendments
Many amendments have been passed to the original Social Security Act. For instance, originally, monthly payouts of old-age benefits were slated to start on January 1, 1942. Eligible people who turned 65 prior to that date received a lump sum payment.
On August 10, 1939, an amendment passed to move up the start date to receive monthly benefits to January 1, 1940. Another amendment extended eligibility to dependents and survivors of retired workers.
In the 1950s, amendments were made which extended Social Security eligibility to domestic and farm workers, non-farm self-employed professionals and some federal employees. It also offered voluntary coverage to some state and federal employees, hundreds of thousands of nonprofit employees and workers in the Virgin Islands and Puerto Rico.
In addition, benefits were increased for millions of beneficiaries and a new contribution schedule established.
Medicare: Medical Insurance For Social Security Recipients
In 1960, President Dwight D. Eisenhower approved legislation to allow Social Security benefits for disabled workers and their dependents.
The Social Security Amendments of 1965 provided medical insurance to Social Security beneficiaries age 65 and older. This new “Medicare” program also offered people 65 and older the chance to purchase supplemental medical insurance.
In 1972, President Richard M. Nixon signed legislation to provide an automatic cost of living allowance each year to offset the cost of inflation. Prior to the new law, annual increases required Congressional approval.
Efforts to Keep Social Security Solvent
By 1977, it was clear Social Security was in financial peril. An amendment was passed changing the benefit qualification formula for people born after 1917. Other amendments were also passed including increasing the payroll tax and slightly decreasing benefits to help cut costs, leaving some beneficiaries with less money during difficult economic times.
These efforts didn’t prevent the program from facing a serious financial crisis in the 1980s, however, and President Ronald Reagan created a commission to examine how to keep Social Security in the black. In 1983, he signed legislation that gradually increased the retirement age to 67, taxed Social Security benefits and provided Social Security benefits to federal workers.
After taking office in 2001, President George W. Bush appointed another Social Security Commission with its top priority being Social Security reform. No revolutionary changes were made to keep the program solvent long-term. Still, the Bush administration extended disability benefits and food stamps to qualified immigrants and their children, eliminated wage credits for the military and expanded Medicare prescription drug coverage.
President Obama‘s administration temporarily reduced the Social Security tax rate from 6.2 to 4.2 percent in 2011 and 2012. The move helped ease financial strain on American workers but did little to stop the risk of Social Security going into future debt.
The Future of Social Security
The Social Security Act has provided Americans with much-needed financial help when they need it most. For many of America’s most vulnerable, it’s the only source of income they have.
Still, despite attempts to keep it solvent, the Social Security program faces a major long-term shortfall. The retirement age to receive full benefits continues to increase and many beneficiaries are claiming benefits much later in life to receive maximum payouts, often at age 70.
As partisan politicians continue to debate the problem each year, the Social Security Administration—which is now an independent government agency—works behind the scenes to keep Social Security intact. Administering the program is a monumental and always-changing task.
Each year, the Social Security Administration rolls out changes to the program. In 2018, they announced a two percent cost-of-living adjustment, a taxable earnings increase, an earnings limit increase for beneficiaries who still work and a slight increase in disability payments.
Despite the program’s pitfalls, most Americans want Social Security to continue and consider it a retirement lifeline, according to a National Academy of Social Insurance survey. And eighty-one percent of them are willing to pay more taxes to ensure it. Whether politicians are listening and can come up with a viable solution remains to be seen.
Sources
5 Facts About Social Security. Pew Research Center.
5 Social Security Changes to Expect in 2018. Investopedia.
Administering Social Security: Challenges Yesterday and Today. Social Security Office of Retirement and Disability.
Frances Perkins: The Force Behind Social Security. Roosevelt Institute.
Historical Background and Development of Social Security. Social Security Administration.
How FDR Created Social Security. AARP.
Key Dates in the History of Social Security. National Academy of Social Insurance.
Poor Relief in Early America. VCU Libraries Social Welfare History Project.
Social Security Turns 80: Past, Present and Future. National Academy of Social Insurance.
