Social Security

I

Introduction

Social Security, public programs designed to provide income and services to individuals in the event of retirement, sickness, disability, death, or unemployment. In the United States, the term social security refers specifically to the programs established in 1935 under the Social Security Act. In particular, it refers to the social insurance portion of that act, which uses contributions made by workers and employers to provide income to people and their families during retirement or in the case of involuntary unemployment, disability, or death.

II

Early Forms of Social Support

Societies throughout history have devised ways to support people who cannot support themselves, particularly older people, people with disabilities, and people without family. The Code of Hammurabi, a body of laws created by King Hammurabi of Babylonia in the 18th century bc, is one of the oldest documents to discuss social support. The code defined the rights that widows and orphans should have to the estates of their relatives.

Religious and moral teachings in most societies have also encouraged people to help one another through acts of individual goodwill. Until the past few centuries, however, no society had a universal, publicly financed social support system. One of the first publicly financed systems developed in the late 16th century in England, out of a series of legislative acts known as poor laws. Under these laws, local governments built almshouses, large facilities that housed those too old or unfit for work. Poor laws also established workhouses, public housing and work facilities for the unemployed. In addition, poor laws provided for some so-called outdoor relief, which offered assistance to the poor and unemployed outside of almshouses or workhouses. The funding of poor law measures, unlike that of later social insurance programs, came from general taxes rather than from those of the people being supported. The modern-day counterpart of the type of support once provided by the poor laws is usually called welfare. However, poor laws foreshadowed the development of social insurance in Europe and Social Security in the United States in that they established a framework of public support for the elderly, the disabled, and the unemployed.

In the 1700s, British settlers of North America established poor laws in their new colonies. These laws became the foundation for the first social support systems in Canada and the United States. Some people also received support from membership organizations, including fraternal orders and friendly societies (work-based organizations similar to craft guilds). These organizations provided financial support to their members and to the families of their members when a member could not work due to a disability or death.

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The need for a more extensive social support system grew in the United States during the mid- to late 1800s because of changes in labor patterns that came with the Industrial Revolution. Before industrialization, most people worked on farms. Large families provided the labor necessary to run a farm, and most people lived in extended families, which encompassed several generations of relatives. In extended families, healthy working-age members could support their young, elderly, and infirm relatives. However, with the rise of factory, office, and service jobs located outside of the home, people no longer needed to live in large families to make a living. Many jobs actually required that people move far away from their extended families. With this change in work, people began to have small, nuclear families, which included only a couple and their children. In the shift from extended families to nuclear families, many people lost their most reliable source of support—a large network of relatives. As a result, increasing numbers of people ended up in poverty if they could not work or if they had no family members to support them in their old age.

One response to this shift in work patterns was the development of pension programs and insurance plans. During the 1800s trade unions developed their own insurance plans and mutual associations—groups that pooled funds contributed by employees and employers to finance insurance benefits. Railroad workers established particularly strong insurance and pension programs. A Railroad Retirement Act was later written into federal law along with Social Security. Corporations began offering pension plans in the late 1800s. By the early 1900s, many state and local governments offered pensions to government employees such as teachers, police officers, and firefighters. Private insurance companies had also begun offering health and disability insurance policies by this time. (See also Retirement Plans.)

One of the widest-ranging systems of social support in the United States prior to passage of the Social Security Act developed during the American Civil War (1861-1865). In 1862, the federal government created a generous pension program for Union war veterans disabled in battle and for their families. Later amendments to this legislation gave benefits to Union veterans in their old age and to those disabled outside of battle. As extensive as this pension program was, it covered only a minor portion of the U.S. population, and it lasted only into the early 1900s.

During the early 1900s most states enacted workers’ compensation laws that required businesses to pay benefits to employees injured on the job or to the families of workers who died because of work-related accidents or illnesses. Workers’ compensation and employer-sponsored pension programs formed the foundation of a growing system of privately funded social insurance, though with public oversight. However, these types of support still covered only a minority of U.S. citizens. Some states also enacted mandatory old-age pension laws, designed to cover all citizens, but many of these laws were quickly declared unconstitutional and repealed. Several attempts by states to develop health insurance systems also failed against tests of constitutionality.

Economic security declined for all U.S. citizens in 1929 when the stock market crashed, triggering the Great Depression—a period of severe unemployment throughout the country. Millions of people fell into poverty. Economic hardships were particularly severe for the oldest members of the population. In response, in the early 1930s several states managed to enact and maintain old-age pension and unemployment insurance programs. Political pressure for a national social insurance program increased as the depression persisted and deepened.

III

The Social Security Act

In 1934 President Franklin Roosevelt created a Committee on Economic Security to draft a program of guaranteed social support for all U.S. citizens who were economically vulnerable during the Great Depression of the 1930s. In part, Roosevelt was responding to several radical proposals designed to stimulate the economy. One proposal would have distributed $200 per month to every aged family with the requirement that the money be spent during that month. In early 1935 the committee submitted its Economic Security Bill to the Congress of the United States. Congress subsequently changed the name of the bill to Social Security and approved it by the middle of 1935. President Roosevelt signed the Social Security Act into law in August of that year. The core of the Social Security Act was to protect all citizens against the economic risks of unemployment and old age.

The Social Security Act was a comprehensive law consisting of 11 titles, or subjects. Six of the titles detailed specific programs, while the others established methods of taxation to fund the programs, formed the organization of the controlling government body (the Social Security Board), and established guidelines for the creation of public health facilities. The six original programs were Old-Age Assistance, Old-Age Benefits (for retirement), Unemployment Compensation, Aid to Dependent Children (ADC), Maternal and Child Welfare, and Aid to the Blind. To most Americans Old-Age Benefits for retired adults became synonymous with the term social security. The federal government alone operated this program, whereas states ran the others with grants from the federal government.

Only Old-Age Benefits and Unemployment Compensation operated as social insurance programs. The federal government deducted taxes from workers’ pay to finance Social Security benefits, while states collected a tax from employers to finance unemployment benefits. Social Security and unemployment benefits came directly out of funds established to hold these taxes, rather than from general tax revenues. The other four program titles of the Social Security Act were forms of welfare, funded by general federal revenues. Old-Age Assistance and Aid to the Blind were meant primarily to supplement Old-Age Benefits, or to provide income to people ineligible for those benefits. Maternal and Child Welfare funded health-care programs for poor mothers and their children and for disabled children, as well as programs to protect and care for homeless, neglected, and otherwise endangered children. Aid to Dependent Children provided support for children living with only one parent or with relatives other than their parents.

In 1937 the government began issuing Social Security identification cards to all citizens. Each card had a unique number that the government used to keep track of a person’s earnings and the taxes collected from those earnings that went to finance Social Security benefits. Two titles of the Social Security Act specified the manner in which taxes would be deducted from workers’ earnings to finance both old-age benefits and unemployment compensation. These tax laws were later written into the code of the Internal Revenue Service. The Social Security tax became known by the name of one of these laws, the Federal Insurance Contributions Act (FICA).

The government began collecting Social Security taxes in 1937 and putting them in a trust fund—a fund that the government could use to pay benefits, cover administrative costs, and invest in securities to earn interest. To build up the trust fund, the government paid only single, lump-sum benefits to people who retired before 1940. Regular benefit payments, paid out monthly, began in that year. Workers could retire and become eligible for benefits at age 65.

IV

Amendments to the Social Security Act

Since its inception in 1935, the U.S. government has modified the Social Security Act more than 20 times by major amendments. One of the first amendments, passed in 1939, added benefit support for the dependents (family members) of retired workers and for survivors of deceased workers. In the same year, the Social Security Board was absorbed into the cabinet-level Federal Security Agency. The government underwent a reorganization in 1946 and replaced the board with the Social Security Administration (SSA), still within the Federal Security Agency. In 1949 the government reorganized the SSA, moving the administration of Unemployment Compensation to the U.S. Department of Labor.

In 1953 the government abolished the Federal Security Agency, and the Social Security Administration became part of the new Cabinet-level agency of Health, Education, and Welfare. In 1956, under President Dwight Eisenhower, the U.S. Congress added monthly benefits for disabled workers to Social Security. Along with the amendment of 1939 for benefits to dependents and survivors, this new amendment created the form of Social Security that still exists today, which is known as Old-Age, Survivors’, and Disability Insurance (OASDI).

A 1965 amendment signed into law by President Lyndon Johnson created Medicare (see Medicare and Medicaid), a program that provides hospital insurance to the elderly, along with supplementary medical insurance for other medical costs. A 1972 amendment to Social Security added Cost of Living Adjustments (COLAs) to increase benefit payments in keeping with inflation (see Cost of Living). Another 1972 amendment combined the original Old-Age Assistance and Aid to the Blind programs with new provisions for assistance to disabled people, which created a new program called Supplemental Security Income (SSI). The federal government handled most of the administration of this new program. In 1980 the SSA became a division of the U.S. Department of Health and Human Services, the federal agency that replaced the health and social welfare components of Health Education and Welfare in 1979.

During the 1970s and 1980s, concern arose about the financial integrity of the Social Security trust funds. The balance was shifting between money coming in from taxes and benefits going out of the funds, and it became clear that the trust funds could be depleted without some reforms to Social Security operations. To stem these developments, the administration of President Ronald Reagan passed a set of major legislative changes to Social Security laws in 1983. These changes included the cancellation and, in some cases, taxation of certain benefits. The Congress also legislated a gradual increase in the full retirement age, raising it from 65 to 67 for individuals born in 1960 or later. The Reagan administration also began to consider returning the SSA to its original status as an independent agency. Many members of Congress and the president’s Cabinet felt that this change would make the SSA more efficient and fiscally responsible and would demonstrate the government’s renewed commitment to Social Security. Over a decade later, in 1995, the SSA once again became an independent agency.

The following year, President Bill Clinton signed a set of major welfare reform bills into law. Under these reforms, the program called Aid to Families with Dependent Children (AFDC), a revision of the original ADC program, was abolished and replaced by Temporary Aid for Needy Families (TANF). This program placed time limits on benefits to poor families with dependent children and set work requirements for receiving those benefits.

As originally passed, the Social Security Act prohibited payment of retirement benefits to senior citizens who continued to earn income from regular employment. Amendments in the 1950s, 1960s, and 1970s defined specific earnings limits and allowed benefit payments to be reduced—rather than entirely eliminated—when these limits were exceeded. Since 1983 those 70 or older have been able to continue working without any earnings limits. Amendments to the Social Security Act passed in 1996 relaxed earnings limits for senior citizens who had reached full retirement age (65 to 67 depending on year of birth). Amendments in 1999 created stronger incentives and better supports for the disabled to engage in productive work. In 2000 Congress entirely eliminated the earnings limit for seniors who had reached the full retirement age, giving more seniors the freedom to work without reducing their Social Security benefits.