Social Security Benefits as a Percentage of Total Federal Budget Expenditures. Ultimately, Congress adopted a phased-in increase in the full retirement age beginning in 2000. Washington, DC: Social Security Administration. The poverty rate of the working-age population has not exhibited a strong trend since the mid-1960s, and today's poverty rate for that group (10.8percent) is close to that which prevailed in 1966 (10.5percent). 0000004685 00000 n In the last half of the 20th century, the percentage of men 65 and older participating in the labor force fell from 45.8percent to 16.9percent (Purcell 2000). According to the Act of 1939, monthly benefit amounts could be paid to members of his family (for many years) on the basis of his average monthly earnings, not on his relatively short cumulative earnings history. Policymakers were most likely stung by criticism in 1983 that the system needed an overhaul just 6years after the amendments of 1977.18 The saving argument, however, has been discussed extensively since the amendments of 1983 and, unlike in the 1940s, Congress has allowed the scheduled payroll tax increases to take effect. In addition, the issue over reserve funding has resurfaced in the modern era. A wife of a retired worker was eligible for a 50percent benefit, provided she was at least 65.

Washington, DC: CRS, Library of Congress. There is evidence that policymakers in 1983 did not discuss the trust fund accumulation in terms of the saving argument just outlined. Available at http://www.cbo.gov/showdoc.cfm?index=5822&sequence=0. Pushed for better wages/hours, improved work conditions, and end to child labor.

[CES] Committee on Economic Security. To illustrate, consider again the worker who averages $100 a month during the period 1937 to 1941 (that is, AMW=$100). Report of the National Commission on Social Security Reform. In particular, the article discusses themes regarding program growth, pay-as-you-go financing, reserve funding, rates of return on payroll contributions, and the adequacy of benefits. Although the program was not changed substantially during the war years and the initial postwar period, the 1950s were a transformational decade in the program's history: benefit amounts were increased substantially, coverage under the program became close to universal, and a new disability insurance benefit was offered. Social Security Financing Reform: Lessons from the 1983 Amendments.

10. Another change in the benefit structure, although affecting relatively small numbers of beneficiaries initially, occurred in the 1950s and set an important precedent. As important as this debate is, it is worth noting that even with trust fund financing the current system is insolvent over the long term.22. Laws that created government land grants and subsidies for railway construction. Ultimately lost to McKinley, Organization for farmer's interests. 1956. By 1990, for persons aged65 to 69, every $3 of annual earnings in excess of $9,360 reduced benefits by $1 (the test had already been eliminated by this time for those aged70 and older). (In fact, the specific money-back guarantee provision was replaced with a smaller lump-sum death payment to some survivors.) Washington, DC: Social Security Administration, Office of Library, Records, and Reprographics. Available at http://www.socialsecurity.gov/history/notchbase.html. In Chart1, a timeline of key milestones in the history of the Social Security program is presented with an overview of selected program changes and demographic events, from the start of the program in 1935 up through 2003.

Trust fund ratios, which are the ratios of the trust fund to annual benefit payments and other costs in a given year, are very high in the early years of the Social Security program but decline sharply in the 1940s (Chart6). 19. This Act provided for unemployment insurance, old-age insurance, and means-tested welfare programs. 2000. The Townsend plan, which was noncontributory, offered persons 60 and older a pension of $200 a month, provided that they did not work and that they spent the entire pension each month (DeWitt 2001).

0000007185 00000 n 12. How Pension Financing Affects Returns to Different Generations. Legislative actions in the 1970s had profound effects on the Social Security program and, indeed, set the stage for many of today's reform debates. The Townsend Plan's Pension Scheme. Unemployment insurance continues to this day, and AFDC is the forerunner to the current Temporary Assistance for Needy Families program. Social Security Bulletin 23(8): 2030. The cost of living had increased 72percent during the decade of the 1940s (Christgau 1960), but the benefit formula remained unchanged. In a pay-go framework, benefit increases require increases in payroll tax revenue. The authors suggest that "maybe half, at best" of the surpluses represent savings in an economic sense. Benefit increases legislated by Congress accelerated sharply in the early 1970s, which when combined with difficult economic conditions and a fully mature Social Security program caused concern about the program's financial status. Committee on Ways and Means, U.S. House of Representatives. Average number children who would be born to a woman in her lifetime. One of the most striking facts about Social Security on the eve of its 15th anniversary was its relatively small size. parties did. 0000136258 00000 n Washington, DC: CBO. 18. 1997.

Support for automatically linking benefit increases to inflation was provided by a variety of policymakers, including those who feared that the ad hoc approach led to a "political bidding up" of benefit levels (Myers 1993, 261). The monthly retirement benefit equals $26.25 in this case, or 50percent more than was payable ($17.50) under the original Act. The federal government oppressed this movement and opened fire on Arapahoe, U.S. forces shoot and kill hundreds of Sioux Indians - Elimination, Process of forcing air through molten iron to remove excess carbon and produce steel, Vertical: Integrating all steps in production to streamline manufacturing Horizontal: Integrating all facilities in one process (c. monopolization), Vertically integrated steel industry.

By 1973, average widow benefits had reached $157.40 or, on an annual basis, about 89percent of that year's poverty level. The difficulties that led to the creation of the Greenspan Commission were economic in nature and largely unforeseen.

The rates for high and low earners are 35percent and 56percent, respectively.21 Financial advisors often recommend having retirement income sufficient to replace 60percent to 80percent of preretirement earnings (EBRI 19962005), but even from the program's earliest days, policymakers have expected individuals to supplement Social Security with savings, pensions, and other income.

Those amendments also allowed for monthly benefits to begin in 1940. The Power to Choose.

In 1950, the first general benefit increase in the program's history occurred, which averaged 77percent (Table1). 1999.

2004.

These concerns culminated in the first large-scale legislative efforts to control program size (the amendments of 1977).

Women (but not men) were allowed to receive actuarially reduced retirement benefits as early as the age of 62.8 This option was later extended to men, and today most individuals claim benefits at the early retirement age of 62.9, The 1960s witnessed several changes to the Social Security program, but, in a sense, they followed the path laid out by the amendments of the 1950s.10 Several ad hoc increases were made to benefit levels, payroll taxes, and the taxable maximum. Carnegie hires Clay Frick to break up union. The amendments of 1980 and 1981 limited program benefits by reducing total benefits paid to families of disabled workers and by ending child benefits for college students. However, the old-age insurance programthe precursor to today's Old-Age, Survivors, and Disability Insurance, or Social Security, programwas not designed specifically to deal with the economic crisis of that era.

SOURCE: Data are from historical poverty tables from the Census Bureau (2005). Black farmers share same difficulties as white farmers, and need to work together. The 1970s were a watershed decade in program history. 21. Many reform plans (from a variety of political viewpoints) call for increasing benefits paid to aged widow(er)s. The provision of family benefits, however, weakened the connection between contributions and benefits. 14. Decline in popularity of Knights of Labor. The poverty rate among the elderly has fallen from 35.2percent in 1959 to 10.2percent today, with sharp declines in poverty occurring in the 1970s. As previously discussed, the Act of 1939 was partly a result of Senator Vandenberg's explicit efforts to reduce the buildup of reserves. Table3.

Schottland, CharlesI.

Social Security coverage is extended to several groups, including farm and domestic workers, self-employed persons, and others. Although a 20percent general benefit increase was paid in 1972, legislation in that year also incorporated provisions that would replace ad hoc increases with automatic adjustments based on price growth. Koitz, David.

"The Roots of Social Security." SOURCES: A. and B.: Based on data from the. Research Note No.

Schieber and Shoven (1999, 207) argue that it is unlikely that the surpluses are fully saved, even when one accounts for the additional possibility that government has spent some of the surpluses on public investments (such as roads, education, and so on).

SOURCES: Calculations are based on data from the 2004. As a result, debates about reserve funding died down until the amendments of 1977 and 1983, and the Social Security program operated for many years as if it were approximately following a pay-as-you-go, or pay-go, approach to funding benefits.7. Agenda included free coinage of silver, graduated income tax, regulation of RR, increased democracy. Although relatively minor in the context of the overall program, the recent period has seen consistent policy action in one area: changes to Social Security's retirement earnings test(RET). 0000001046 00000 n 4. The flawed method was corrected by the amendments of 1977, but individuals eligible for benefits before 1979 were allowed to keep the windfall benefits, and those workers retiring as late as 1983 were partially protected under transitional guarantees.14 The amendments of 1977 also accelerated scheduled increases in the payroll tax and made near-term (ad hoc) increases to taxable maximum amounts. Washington, DC: Congressional Research Service.

Because benefits were not scheduled to begin until 1942, the program was scheduled to build up a sizable reserve in the early years. The amendments of 1950 brought 9million workers into covered employment (Christgau 1960), including regularly employed farm and domestic workers and, with some exceptions, self-employed persons.

However, the robust wartime economy of the 1940s led to higher-than-expected payroll tax revenues and fewer-than-expected retirement claims, resulting in an accelerated trust fund buildup relative to projections. See Board of Trustees (2004, TableVI.F11) for projections of replacement rates for future retirees. SOURCE: Tabulations were done by the Office of the Chief Actuary, Social Security Administration. Earnings below $9,360 (the exempt amount) had no effect on benefits. These new workers would generally not have much in the way of covered earnings from 1937 to 1950. For a discussion of the flawed benefit formula and the "notch" issue, see "Notch" Commission (1994). Thus, the natural problems that arise in reforming Social Security will be complicated by efforts to deal with the financial problems occurring in other entitlement programs.

0000004225 00000 n Retirement benefits, under the 1935 Act, were to be paid only if the individual was no longer engaged in regular employment. Social Security trust funds face exhaustion; Greenspan Commission recommends reforms, many of which are included in the 1983 Amendments; remaining gender distinctions in Social Security are eliminated. 2005. For example, since 1940, the Social Security program has awarded benefits to more than 41million children, approximately half of whom have received benefits as a result of a parent's death. Battle between guards and union workers result in workers taking over plant, but retaken by National Guard. ["Notch" Commission] Commission on the Social Security "Notch" Issue (1994). Social Security Amendments of 1939 create dependent and survivor benefits; they also redistribute benefits toward early participants and away from later participants. The 1939 amendments made a seemingly subtle but, in reality, a fundamental change to the benefit formula. Schieber and Shoven (1999, 22) note that, in 1930, a substantial majority of men 65 and older were out of work or on temporary layoff. 0000000949 00000 n More than half of newly awarded retired-worker benefits in 2003 (excluding conversions from the disability program) went to persons who were aged62 at the time the benefit was awarded (SSA 2003, Table6.A4). New York: Meredith Publishing.

+p= In addition, from the beginning, the Social Security program has embodied social insurance principles that were widely discussed even before the onset of the Great Depression. ______.

Today, disabled workers can be of any age (under the full retirement age), and they number more than 5.5million (SSA 2003, Table5.A17).

From that point forward, Social Security debates have no longer focused on expanding the program on a large scale but rather on limiting program growth or finding additional sources of revenue. Temporary victory for American Indians. A "new start" formula was instituted that allowed the computation of benefits on the basis of average monthly wages after 1950 (if that yielded higher benefits). 15. "Fifty Years of Social Security." Washington, DC: U.S. Government Printing Office. The retirement earnings test is eliminated for persons at or above the full retirement age.

______. The 1939 amendments defined the test of retirement (commonly referred to as the retirement earnings test) as earnings of less than $15 a month; earnings in excess of this amount precluded payment of benefits. Congress corrects technical flaw in automatic indexing provisions. Although the Roosevelt administration agreed to the revisions of the tax schedule in the amendments of 1939, it generally opposed the payroll tax freezes that occurred during the 1940s (Schieber and Shoven 1999).

Final Report on the Social Security "Notch" Issue. Because payroll taxes on the employee, under the 1935 Act, were not scheduled to rise above 3percent of wages, the provision guaranteed that all workers in covered employment (or their estates) would, at minimum, have their payroll taxes refunded to them. 0000006317 00000 n General benefit increases legislated in 1952, 1954, and 1958 further increased benefits by 12.5percent, 13percent, and 7percent, respectively. To put this in perspective, program costs as a percentage of GDP are projected to rise by about 2percentage points during the next 25years (Board of Trustees 2004, TableVI.F5)a period that covers the retirement of the large baby-boom generation. 0000004044 00000 n

The amendments of 1983, to a large extent, followed the recommendation of the National Commission on Social Security Reform (commonly known as the Greenspan Commission after its chairman Alan Greenspan). 1963. "Older Workers: Employment and Retirement Trends." NOTES: "Average benefit increases" are listed by year of amendments; other figures are listed by year they were in effect. Specifically, they equaled 40percent of the first $50 of average monthly wages(AMW) in covered employment, plus 10percent of the next $200 of AMW. Plant reopens with no unionized workers. Data are not available for 1945 and 1948. b. Automatic cost-of-living adjustments are enacted. This website is produced and published at U.S. taxpayer expense.

Some members supported an increase in the full retirement age under Social Security, while others supported future tax increases. 6. Green Book (Overview of Entitlement Programs: Background Material and Data on Programs Within the Jurisdiction of the Committee on Ways and Means). Following the amendments of 1977, forecasts indicated that the system would be characterized by (marginally) adequate funds in the near term and surpluses in the 1990s and early 21st century.

The paradox of the 1940s is that the robust economy led to a substantial buildup of reserves (even at the 2percent combined payroll tax rate) but that proponents of the reserve approach to financing lost the political argument over tax increases.

John Muir was one of the founders, as was many transcendentalists. Some authors have argued that the system reached maturity in the 1970s because the percentage of elderly receiving benefits (about 90percent) matched the percentage of workers in covered employment (Schieber and Shoven 1999, 9495). NOTE: "Scaled workers" refer to hypothetical workers, developed by. - Overturned by Supreme Court later, as railroads involved interstate commerce. A significant period of industrialization and urbanization also preceded the advent of social insurance programs in the United States.

1939. The first four decades of the Social Security program were, in general, ones of expansion. The original Social Security Act assessedon both employees and employersa 1percent payroll tax on the first $3,000 of annual earnings, starting in 1937. Philadelphia: University of Pennsylvania Press. [CBO] Congressional Budget Office.

0000136361 00000 n The Roosevelt administration argued that it was inappropriate to leave future administrations and Congresses with large benefit liabilities (once the program matured) and a limited reserve fund. In addition, by decade's end, the Social Security program was paying much higher benefits and had added a new Disability Insurance(DI) component. McSteen, MarthaA. Nevertheless, it does embody two important principles that still guide benefit payments today: benefits depend on work in covered employment, and benefits replace a higher proportion of earnings for low earners. The debate over whether the program should build up a large reserve (or trust fund) to pay future benefits continued in the 1940s. 0000061326 00000 n Ball, RobertM. 1985. The program and policy history of the Medicare program is beyond the scope of this article, but interested readers can find research material at the history section of the Web site of the Centers for Medicare and Medicaid Services. Changes to the earnings test are an important policy theme in Social Security's history. The congressional response to the acceleration of the reserve buildup was to prevent the scheduled increases in the payroll tax from taking effect.

General George Custer is defeated by Sioux. The Real Deal. The effort to shift benefits to early participants in the program and away from later participants was done for economic, distributional, and political reasons. Specifically, monthly benefits equaled 1/2 of 1percent of the first $3,000 of cumulative wages, plus 1/12 of 1percent of the next $42,000, plus 1/24 of 1percent of the next $84,000. 0000009507 00000 n The original Social Security Act of 1935 was amended even before the program became truly operational, but some of the principles embodied in the Act still underlie the program today. The last major amendments to the Social Security Act occurred in 1983.17 The amendments of 1983 are unusual in one sense: they were necessitated by severe short-term financial problems, but they have resulted in the long-run buildup of a large trust fund that will be drawn down as the baby boomers retire. Large benefit increases, a new benefit formula that was erroneously generous, and other changes in the early 1970s created a situation in which annual program costs, as a share of gross domestic product, increased during a 12-year period from about 3percent to 5percent. kV|FC=@7=v,E}O>Y,5?AZNw.%.

Available at http://www.socialsecurity.gov/history/percent.html. For example, Social Security developed in such a way that many early participants (as well as many current beneficiaries) received a very good deal on their Social Security taxes (CBO 2004). However, a coalition of lawmakers who were opposed to reserve funding and tax increases prevailed. Board of Trustees of the Federal Old-Age and Survivors Insurance and Disability Insurance Trust Funds. Approximately 25million widow(er)s have been awarded benefits.6 Indeed, the concerns regarding adequate benefits for family members still resonate today. Annual Statistical Supplement to the Social Security Bulletin, 2003. PatriciaP. Martin and DavidA. Weaver are with the Office of Retirement Policy, Office of Policy, Social Security Administration. Andrew Carnegie later asserted that the wealthy few should give back to society so the government wouldn't have to intervene.

Under intermediate assumptions, the Old-Age and Survivors Insurance and Disability Insurance Trust Funds will be exhausted in 2042 (Board of Trustees 2004). In 1950, about 1 in 50 Americans received Social Security; currently, 1 in 6 does. This transfer of wealth to earlier program participants may or may not have been good social policy, but it cannot be undone and does influence today's reform discussions regarding rates of return on payroll taxes and system financing. However, the looming retirement of the baby boomers and several other demographic factors will, according to projections, result in the exhaustion of the trust fund by 2042. Some proponents of the Social Security program feared that the not yet mature system would be replaced by an expanded means-tested program or a noncontributory Townsend-like plan (Ball 1985). Dependent children of retired or deceased workers received a 50percent benefit. The original Social Security Act, signed into law on August14, 1935, grew out of the work of the Committee on Economic Security, a cabinet-level group appointed by President FranklinD. Roosevelt just one year earlier. Broadly, the history of the program can be divided into two periods: an expansionary period lasting approximately 40years, which was followed by a period in which fiscal concerns were predominant. 1962.

So, for example, someone who retired in January1942 (when benefits were scheduled to begin) after earning a total of $6,000 during the 5-year period from 1937 to 1941 would receive a benefit equal to $17.50 a month.4 This can be thought of, loosely speaking, as a typical benefit because the average worker at the time earned about $100 a month (which totals $6,000 after 5years).5 Thus, although the Social Security Act was enacted in the middle of the Great Depression, it originally envisioned relatively small benefits that were not payable for several years. "The Revised Benefit Schedule Under Federal Old-Age Insurance." Baltimore, MD: Office of the Historian, Social Security Administration.

The Social Security Program in the United States. 0000007417 00000 n This basic benefit was increased by a 1percent bonus for each year the worker earned at least $200 in covered wages. The old-age program is, of course, the precursor to today's Old-Age, Survivors, and Disability Insurance, or Social Security, program. A Knights of Labor rally ends with an explosion near police, who opened fire on rally. candidate in election of 1896. The addition of these benefits, coupled with the switch from benefit computations based on cumulative wages to those based on average wages, reinforced the insurance principles of the program and downplayed a savings or money-back approach. Under the Act of 1935, such a worker would have had a small payment (3.5percent of his small cumulative earnings) issued to his estate. The Act created several programs that, even today, form the basis for the government's role in providing income security, specifically, the old-age insurance, unemployment insurance, and Aid to Families with Dependent Children(AFDC) programs. Poverty Status of People, by Age, Race, and Hispanic Origin: 1959 to 2003.

Available at http://www.choosetosave.org/brochures/index.cfm?fa=choose. In fact, the program was expanded even before it became truly operational. Baltimore, MD: Office of the Historian, Social Security Administration. Frances Perkins (who as secretary of labor headed the Committee on Economic Security) recalled: It is interesting that the features of the old-age insurance program were not, however, generally designed to provide immediate relief from the effects of the Depression. For a discussion of the intent of policymakers in 1983, see Koitz (1997).

0000001200 00000 n Available at http://www.socialsecurity.gov/history/reports/crsleghist2.html.

The extent to which the Social Security surpluses increase national or aggregate saving is still an important (if unresolved) issue in the reform debate.

The large trust fund has generated debate about reserve funding and whether the government truly saves the annual surpluses. Darwinism applied to social entities - competition and survival of the fittest. 0000044478 00000 n Washington, DC: Social Security Administration. Available at http://www.socialsecurity.gov/history/perkins5.html. Spiritual dance performed by American Indians. Social Security Bulletin 48(8): 3644.

0000061405 00000 n 13. Schieber, SylvesterJ., and JohnB. Shoven. Because of the amendments of 1983, the full retirement age, which has been age65 for much of the program's history, is scheduled to increase gradually, reaching age67 for persons born after 1959. The payroll tax increase in 1957 was to fund the new Disability Insurance program. The shift in benefits to early participants, when coupled with delays in tax increases, prevented the buildup of a large reserve fund, which was a key goal of some policymakers.

In 1996, Congress sharply increased the exempt amounts for those at or above the full retirement age, and in 2000, it completely eliminated the test for this group.20 An earnings test still exists for early retirees and, importantly, for younger groups of beneficiaries, such as spouses and widow(er)s caring for dependent children. Photographs by Jacob Riis, revealing disparity between wealthy and poor in new york. Historical Poverty Tables. Washington, DC: Social Security Administration. intervention reaffirmed in. 17. "Restoring Financial Stability to Social Security." Statistical Abstract of the United States: 2003. Available at http://www.socialsecurity.gov/OACT/TR/TR04. trailer << /Size 526 /Info 495 0 R /Encrypt 499 0 R /Root 498 0 R /Prev 1365023 /ID[] >> startxref 0 %%EOF 498 0 obj << /Type /Catalog /Pages 485 0 R /Metadata 496 0 R /PageLabels 483 0 R >> endobj 499 0 obj << /Filter /Standard /R 2 /O (mXNy6Qr}:0\nn}) /U (l&3#\(_:-Mryg?Z`{I ) /P -60 /V 1 /Length 40 >> endobj 524 0 obj << /S 4310 /L 4689 /Filter /FlateDecode /Length 525 0 R >> stream