The Continuing Battle Over Social Security

During the Great Depression following the stock market crash of October 1929, President Franklin Roosevelt recognized that millions of Americans had no reliable income for the allegedly “golden years” of their old age.  He appointed a committee on economic security under Frances Perkins, his secretary of labor.  It designed the Social Security Act which was enacted by Congress on August 14, 1935.

Ironically, under its conservative chancellor Otto von Bismarck, Germany had become the first country in the world to adopt an old-age social insurance program in 1889.  Emperor William I had insisted that ". . .those who are disabled from work by age and invalidity have a well-grounded claim to care from the state."

FDR made social security a part of his New Deal in order to limit not only the most severe hardships of old age, poverty, and unemployment but also to lighten the burdens of widows and fatherless children.  It was the first time a U.S. administration provided federal benefits to retirees and the unemployed, as well as a lump-sum benefit at death.

These payments were to be financed by a payroll tax on current workers' wages, half as a payroll tax on employee remuneration and half paid by the employers.  The law also gave money to states to provide assistance to the old, unemployment compensation, families with dependent children, maternal and child welfare, public health services, and the blind.  Today the Federal Insurance Contributions Act (FICA) tax deposits are administered by the Federal Old-Age and Survivors Insurance Trust Fund, the Federal Disability Insurance Trust Fund, the Federal Hospital Insurance Trust Fund, and the Federal Supplementary Medical Insurance Trust Fund.

Today the social security program is the single largest expenditure in the federal budget.  While social security takes 29 percent, 21 percent go for discretionary defense and 20 percent for Medicare and Medicaid.  Currently social security payments are estimated to keep roughly 40 percent of all Americans age 65 or older out of poverty.

Social Security’s board of trustees recently announced that in 2011 the program served 56 million beneficiaries while 158 million workers paid into it.  In 2010, total income was $781 billion and expenditures $713 billion, for a surplus of $68.6 billion.  For 2023, total income and interest earned on assets may no longer cover the payouts needed.  By 2035, the ratio of potential retirees to working age persons is estimated to be 37 percent, so that less than three potential income earners will have to provide the expenditures for every retiree in the population.  Without legislative changes, the trust fund would be exhausted by 2036.

Opponents of the New Deal have always been decrying its social security legislation as “socialism” and as a violation of the American tradition of individualism and self-reliance.  Among the recent Republican contenders for the presidency, Michele Bachmann, Newt Gingrich, Ron Paul, Rick Perry, and Mitt Romney, but not Rick Santorum, occasionally characterized social security as unconstitutional, a fraud, or a Ponzi scheme; or they asked for its privatization.  The defenders of America’s social security legislation, however, continue to argue that its federal guarantees provide at least a minimum of protection from abject poverty, particularly where there are no or only insufficient private pensions and no or only insufficient private savings.

During a speech on April 5, 2005, in Parkersburg, West Virginia, President George W. Bush openly erroneously stated that all of the social security surplus revenue had been spent.  He claimed that "There is no trust fund, just IOUs that I saw firsthand that future generations will pay for, either in higher taxes or reduced benefits, or cuts to other critical government programs."  Since then proposals to privatize social security were increasingly thrown into the debate over the future of the program.

President Obama responded with an executive order creating the bipartisan National Commission on Fiscal Responsibility and Reform co-chaired by Alan Simpson and Erskine Bowles.  It was to identify "…policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run."  After making ten specific recommendations to ensure the sustainability of social security, the Commission’s final vote failed when 11 out of 18 members voted in favor but the required majority of 14 did not materialize.

For more detailed information about the history of America’s social security system, read Nancy Altman’s book on The Battle for Social Security: From FDR's Vision to Bush's Gamble.