With all of the recent talk about social security reform and
private investment accounts, I thought we would briefly review
how our current system actually came into being.
After President Franklin Roosevelt assumed office in 1933, he
embarked on the first of his New Deal programs, which dealt
largely with public works projects, as well as banking and labor
reform. New Deal II, which Roosevelt commenced during the
second congressional term in 1935, saw more of the same, but
also, on August 14, 1935, Roosevelt signed into law the Social
Security Act (SSA), a piece of legislation which brought the
federal government into the field of social insurance for the first
time.
The Progressives back in the early 1900s had made similar
proposals, and more than one foreign nation had enacted such a
program, but the feeling among most in government up until
1935 was that America should stick to its self-reliant roots. It
was the Great Depression that changed all that.
The SSA resulted in the most far-reaching of all the New Deal
initiatives and it not only was the “cornerstone” and “supreme
achievement” of FDR”s administration, you would probably
receive few arguments when calling social security the best
government program ever, period.
The SSA provided for unemployment and old-age insurance, as
well as various public-welfare programs, with the latter including
benefit payments to the blind, dependent mothers and children,
and crippled children. But, of course, the portion of the Act
which it is most identified with is its system of old-age pension
plans which were to be financed through a payroll tax on
employers and employees.
Though the initial benefits were very modest, with retirees over
age 65 receiving monthly payments of between $15 and $22,
FDR stressed that social security was not intended to provide a
comfortable retirement, but rather it was intended to supplement
other forms of income and to protect the elderly from the
“hazards and vicissitudes of life.” It was only later that
Americans viewed social security as their primary form of
retirement income.
Social security was conservative in nature in that it was funded
through taxes on the earnings of current workers. Most countries
with similar programs finance it out of general tax revenues.
FDR opted for the payroll tax angle. As he stated, “We put those
payroll contributions there so as to give the contributors a moral,
legal, and political right to collect their pensions and their
unemployment benefits. With those taxes in there, no damn
politican can ever scrap my social security program.”
The plan certainly had its critics, chiefly because it took away
from the aforementioned American individualism. One New
Jersey senator decried that the new law would “take all the
romance out of life. We might as well take the child from the
nursery, give him a nurse, and protect him from every experience
that life affords.” In addition, social security is the most
regressive program in existence since it is funded by the uniform
tax on the current earnings of workers.
The SSA represented a milestone on the way to a welfare state.
While workers received a little protection from the scourge of
unemployment, as well as the guarantee of a minimum level of
comfort for workers in their old age, as historian David Kennedy
wrote, “It also created the potential for enormous demands on the
public purse, diminished incentives for individuals to save, and
reduced the sense of responsibility of families to care for their
own elderly members.”
And what few probably realize today, the Supreme Court
deemed many of FDR”s New Deal programs unconstitutional,
including social security. Starting with its decision to strike
down the National Industrial Recovery Act on the grounds that
Congress had allowed government intervention into intrastate
affairs, as FDR saw it, the Court began to act like a super-
legislature which was determined to thwart the will of the
American people. Thus began Roosevelt”s war against the “nine
old men.”
By February 1937, FDR was working in secret on a plan to “pack
the Court.” Eventually, legislation was working its way through
Congress which would allow the president to appoint one new
justice (up to a total of 15) for each justice who refused to retire
within six months of his 70th birthday. As historian Michael
Beschloss put it, Roosevelt “disingenuously tried to justify his
proposal with the argument that an overburdened court needed an
expanded membership to handle its caseload.”
Roosevelt lost out in Congress, but, as it turns out, the proposal
became moot when the Supreme Court reversed itself on its
earlier decisions thanks to the change in position of Justice
Roberts, who went to the liberal side and joined Chief Justice
Hughes, Brandeis, Cardozo, and Stone in a series of 5-4
decisions which ratified the guts of the New Deal. It was a
sweeping endorsement of the power of government to act for the
national welfare. And, yes, in switching his vote, Roberts”s
move was dubbed “the switch in time that saved nine.”
So through these decisions in 1937, the Court brought the
Federal Government into the field of social insurance, and gave
the broadest possible scope to the congressional power to tax and
spend for the general welfare. It was also another way of
granting the government the authority “to regulate the entire
economy under its commerce power and to use its power to tax
and spend to set up comprehensive schemes of social insurance.”
[Bernard Schwartz]
Ironically, despite all of the above, in June 1937 social security
taxes began to take a bite out of everyone”s paycheck. It not
only weakened Roosevelt”s efforts to revive the economy, it
helped to precipitate another deflationary downturn that was as
bad as that of 1929. Public consumption was blunted and more
than 2 million workers lost their jobs within months. Nice going,
FDR! Of course, as we have stated often in other stories, it was
World War II that ended the depression, not any of the well-
intentioned, and still worthy programs of New Deal I and II.
Sources:
“America: A Narrative History,” Tindall and Shi
“A History of the American People,” Paul Johnson
“American Heritage: The Presidents,” Michael Beschloss
“The Presidents,” edited by Henry Graff (article by David
Kennedy)
“The Growth of the American Republic,” Morison, Commager,
Leuchtenburg
“A History of the Supreme Court,” Bernard Schwartz
Brian Trumbore
