(bumped up from earlier this evening — it is the most fascinating history, and a true must-read! – Susan)
In the first post on our nation’s Social Security system I tried to give a brief history of how the program came about and the immediate needs of people suffering from the Depression that caused FDR to propose and the Congress to enact the 1935 Social Security Act.
In this the second installment of the series I want to deal with two things. One, what were the provisions of the 1935 Social Security Act, and two, how has the 1935 Social Security Act program been changed or altered over the years.
The Social Security Act of 1935 created several different, wide-ranging, and separate programs. The Act created unemployment insurance, old-age assistance (essentially welfare), old-age benefits (we now call this Social Security), aid to dependent children, and grants to the states to provide various forms of medical care.
Below is a description of all of those programs, or Titles, the 1935 Social Security Act created with a brief description of each program.
Title I – Grants to States for Old-Age Assistance was designed to provide “financial assistance” to “aged needy individuals” immediately. In other words, this program was a welfare program for the aged and was to be administered by the individual states following federal guidelines and paid for out of the General Fund.
Title II – Federal Old Age Benefits.” Title II of the 1935 Social Security Act created a social insurance program designed to pay retired workers age 65 or older a continuing income after retirement beginning in 1942. (First contributions had to be collected and a fund built up before being able to pay benefits.)
The Title II program would be paid for by contributions from both the individual and the employer and put into a Trust Fund (created in 1939) separate from the General Fund and for the express purpose of funding old age benefits. This is the program most of us mean when we say, “Social Security.”
Title III – This was also a grant program that provided financial assistance to the states for Unemployment Compensation and Administration and paid for out of the General Fund.
Title IV – Grants to States for Aid to Dependent Children paid for through the General Fund. In effect this was another welfare program.
Title V – Grants to the States for Maternal and Child Welfare, again paid for through the General Fund.
Title VI – Public Health Work, again paid for through the General Fund.
Title X – Grants to States for Aid to the Blind again paid for through the general Fund.
Titles VII, VIII, IX, and XI are administrative in nature and set up the Social Security Board and detailed how contributions/taxes would be collected especially for Title II.
As you can see, The 1935 Social Security Act was a very broad and all-encompassing program extending a social safety net far and wide for those suffering during the Depression and beyond. And except for Title II, all of these programs would be paid for through the General Fund.
[I can’t help but make a snarky remark here. Look at the specifics of this program and how it is targeted to help people in need and compare it to the Christmas tree approach of the current stimulus package.]
Over the years each of these programs has been referred to as “Social Security” since they were all created by the 1935 Social Security Act. But as you see, they are really separate and distinct programs funded in different ways. I tell you this now because I want you to know this and keep this in mind because the unscrupulous among us have sometimes deliberately misled people regarding some of these programs to try and achieve their own selfish agendas, especially as regards wanting to change the old age insurance benefits, or Title II of the Social Security program.
The Title II program is funded by FICA taxes. In short, the individual contributes into the system and the employer is taxed an equal amount. The self-employed must make both contributions. All of this money goes into a separate account, or Trust Fund, to be used expressly for and exclusively for those who contribute into Title II. None of this money ever goes into the General Fund. NOT EVER. Furthermore, no one can receive benefits under Title II unless they paid into the system for at least 40 quarters. If you did not pay into the system you are not eligible to receive any benefits. Therefore, no illegal alien can, and more importantly does not receive any monies from Title II, the Social Security old age insurance program – not one dime! (This is true even if they paid into the system under a phony or even stolen Social Security number, as some do.)
It is a different matter with the other programs that the 1935 Social Security Act created, as you will read a bit later.
Changes Made to 1935 Social Security Act
Now let’s look at how The 1935 Social Security Act has changed over the years. As I researched this I was amazed at how stable the program has been since its inception. It has occasionally been slightly tinkered with here and there, but by and large it is remarkable how few changes there have been. The main changes have tended to be in one of two categories. The first category increases benefits going to recipients, and the second is continually making the program more financially sound.
I am not going to list each and every minute change to this act. If you are interested in minutia you can go to Social Security History and the Social Security Administration has listed them all. I will only hit the highlights.
The original Social Security Act was mostly a white male program. According to Wikipedia most women and minorities were excluded from receiving benefits from all of the various programs through how employment was defined and through specific listing of the job categories that were or were not covered. Certain jobs were just plain and explicitly excluded from the program. For example, most agricultural workers were excluded, as well as nurses, teachers, hospital workers, librarians, and domestic workers to name just a few.
Since many of the programs were also administered by the states, even more discrimination crept into the programs at that level. Fortunately, the practice of discrimination began to change in the late 1930’s as shifting gender roles and positions of minorities in society began to change. By the 1950’s the debate changed from which occupations should be covered by Social Security to achieving universal coverage.
Before Title II even paid out any benefits retirees there were changes made to the program in 1939. Originally benefits were to be paid only to the worker. The 1939 Amendments added two new categories of benefits. Payments could now be made to the spouse and minor children of a retired worker, and second, in the event of a premature death a survivor’s benefit was added.
The 1939 Amendments also increased Title II benefit amounts and moved up the start of the program from 1942 to 1940.
The taxing provisions of Title VIII [see above] were also removed in 1939 (would not have been constitutional) and authority to tax was placed with the IRS (constitutional) and renamed Federal Insurance Contributions Act, or as we affectionately know it today, FICA.
However, the most significant change in 1939 was the creation of a Trust Fund managed by the Secretary of the Treasury for any surplus monies collected. These excess funds could be invested in both marketable and non-marketable securities. I could do an entire post on the Trust Fund and how it operates; it is that all-encompassing. There is not enough room in this post to detail its inner workings.
For ten years between 1940 and 1950 only one significant change was made to any of the programs. The Social Security Board was abolished in 1946 and replaced by the Social Security Administration (SSA) headed by a single Commissioner. The SSA still exists today.
Benefit levels however, remained very low. According to the official Social Security History web pages, “……. until 1951, the average value of the welfare benefits received under the old-age assistance provisions of the Act [Title I] were higher than the retirement benefits received under Social Security [Title II] provision. And there were more elderly Americans receiving old-age assistance than were receiving Social Security.”
So several amendments to the Act were made in 1950. Again, from the official history page of the Social Security website, “These amendments increased benefits for existing beneficiaries for the first time …….and they dramatically increased the value of the program to future beneficiaries. By February 1951 there were more Social Security retirees than welfare pensioners, and by August of that year, the average Social Security retirement benefit exceeded the average old-age welfare assistance grant for the first time.”
Today most people know that the Title II program has an annual cost-of-living (COLA) clause. This was not always the case. The first retirees received the same monthly benefit for the remainder of their life. But that also changed in 1950 when a COLA was enacted by Congress. At that time these increases were not automatic and were enacted by Congress periodically as necessary. It was not until 1972 that Congress enacted legislation providing for an annual automatic COLA based on the average increase in consumer prices.
Also in the 1950’sthe disability provisions were strengthened.
1960’s and 1970’s
The decade of the 60’s brought several significant and major changes to the Social Security Act. Retirees were given a choice of early retirement with a reduced annual benefit.
But by far the biggest change in the decade of the 1960’s was signed into law by President Lyndon Johnson on July 30, 1965. The Medicare program extended health coverage to retirees by helping them pay for hospital and medical expenses.
Like Title II of the 1935 Act, Medicare is a social insurance plan for people aged 65 or older. It operates as a single-payer heath care plan. This program consists of two parts. Part A is for hospital insurance, and Part B is for medical insurance. The 1965 amendment did not provide for prescriptions in most instances. It would be 30 more years before prescription drugs would be added to the program. Medicare is paid for by additional FICA taxes and is administered by The Centers for Medicare and Medicaid Services (CMS), which is part of the Department of Health and Human Services (HHS). [Snarky comment #2, for those keeping count- which thankfully Tom Daschle will not be heading.]
Above is video of President Johnson signing the Medicare Bill and Former President Harry Truman signing up for Medicare.
As mentioned earlier, another major change in the 1970’s was the introduction of the permanent COLA.
There were a series of Amendments made in 1977 to deal with projected shortfalls due to the bad economy of the 70’s. And for the first time the issue of a projected shortfall due to the baby boom is mentioned and a slight FICA increase was made.
Supplemental Security Income
If you remember, The 1935 Social Security Act created several different programs. Except for title II, the other programs were administered by the states with partial funding from the federal government.
Over the years the programs varied tremendously from state to state with payments to recipients varying by as much as 300% between the states. There were also over 1000 agencies administering these programs. It was a bureaucratic nightmare rife with confusion and inequalities.
In 1969 President Richard Nixon changed that. He initiated reforms that would “bring reason, order, and purpose into a tangle of overlapping programs.” At Nixon’s instance Congress federalized Title I, Title X, and the disabled category (created in the fifties) by creating the Supplemental Security Income program (SSI) in the Social Security Amendments of 1972.
The Social Security Administration, created in 1946 to administer Title II, was chosen to administer this new SSI program because of its reputation for successful administration of the Title II program and because of its nationwide field offices and data-processing and record keeping skills.
However, Supplemental Security Income (SSI) is a Federal income supplement program funded by general tax revenues, not with Social Security or FICA taxes.
In keeping with the original Titles and the disability amendment SSI is designed to help the aged, blind, and disabled people, who have little or no income, and provides cash to meet basic needs for food, clothing, and shelter.
I am going to include this next part here, even though it is out of chronological order because it deals with SSI benefits to illegal aliens. This is often the source of the misunderstanding, urban legends, myths, or downright lies about illegals getting Social Security Title II benefits.
During President Clinton’s administration a balanced budget bill was passed and a Welfare Reform bill was passed. The Balanced Budget Act of 1997 among other provisions restored SSI eligibility to some non-citizens whose eligibility would have been terminated under the Welfare Reform Act.
Now here is where it can sometimes get dicey. Some politicians and some activist who do not like Social Security (Title II) and want to totally get rid of it, and/or who would like to make some money off of the pool of money in the Title II Trust Fund sometimes play fast and loose with the truth.
When people sometimes will say that immigrants and/or illegals are receiving Social Security what is most likely happening is that eligible aliens are receiving SSI monies. Some folks do not distinguish between Title II monies and SSI monies. And because many people do not know the difference between the two programs, and because both programs are run by the same Social Security Administration, many people believe that illegals are dipping into their retirement pot and that they will bankrupt the Title II system. They are not. They are getting SSI monies.
Beware and ask questions when someone tells you illegals are raiding the Social Security system. Ask those who are telling you these things if the immigrants or illegals are getting Title II monies or SSI monies. Now you know the difference between the two and hopefully you won’t be fooled by the games some folks like to play with your emotions.
Major changes were made to Title II by President Ronald Reagan upon the recommendations of the Greenspan Commission in the 1983 Amendments. These changes were in response to both short term and long term projected shortfalls in the system.
Contributions amounts went up for both individuals and employers, retirement age went up, some benefits were lowered, more federal employees were added into the system, taxed Social Security benefits, among many other provisions.
The original Title II program was a pay-as-you-go program. In other words, current workers paid for benefits for current retirees. This was great for the WW II retirees as 78.2 million baby boom workers could afford to pay to fund increased benefits for many years. The 1983 Amendments changed this formula. For the first time in Social Security’s Title II history the baby boom generation was funding a part of their own retirement simply because there were not enough citizens behind them to afford to continue the same benefit level for them unless they helped to pay for it up front.
1990’s and 2000’s
In addition to the changes already mentioned under SSI President Bill Clinton also made some changes to the disability portions of the act.
However it was left to President George W. Bush to make the biggest and most controversial change to the Medicare portion of Title II in 38 years. The Medicare Prescription Drug, Improvement, and Modernization Act was enacted in 2003. During hearings on the bill the projected cost of the Prescription Bill was estimated to be $400 billion.
I will let Wikipedia take up the story from here: “The MMA was signed by President George W. Bush on December 8, 2003, after passing in Congress by a close margin.
“One month later, the ten-year cost estimate was boosted to $534 billion, up more than $100 billion over the figure presented by the Bush administration during
Congressional debate. The inaccurate figure helped secure support from fiscally conservative Republicans who had promised to vote against the bill if it cost more than $400 billion. It was reported that an administration official, Thomas A. Scully, had concealed the higher estimate and threatened to fire Medicare Chief Actuary Richard Foster if he revealed it. By early 2005, the White House Budget had increased the 10-year estimate to $1.2 trillion.
“Former US Comptroller General David M. Walker has called this “…probably the most fiscally irresponsible piece of legislation since the 1960s… because we promise way more than we can afford to keep.”
One of the strongest organizations lobbying for the bill was AARP. It was during the Prescription drug debacle that I first learned, realized, or finally understood that AARP is not an advocate organization. It is an insurance company first and foremost. It will look out for its corporate interests first. And making money was clearly more important than helping poor people afford life-saving prescription drugs. To this day I refuse to join AARP for that reason alone.
President George W. Bush also attempted to privatize Social Security, but that did not fly. I think W learned an important lesson. Don’t rile up the senior set. One, they are vocal. And two, they vote!!! However, that issue is not dead and there are still many individuals and organizations who would like to privatize Title II.
We will deal with the issue of privatization in the next installment in this series entitled, “Is Social Security Really Broke?”
CAPTION: On January 31, 1940, the first monthly retirement check was issued to Ida May Fuller of Ludlow, Vermont, in the amount of $22.54.
Miss Fuller, a Legal Secretary, retired in November 1939. She started collecting benefits in January 1940 at age 65 and lived to be 100 years old, dying in 1975.
Until my next installment, please keep these figures in mind:
In 1940 when the first benefits were paid 222,488 people received benefits totaling $35,000,000.
By 2006 there were 7,235,565 people receiving benefits totaling $41,312,000,000.
Since 1935 – for 74 years -The Social Security Act has literally kept millions of retired and disabled Americans from the poor house during the ups and downs, good and bad times, and the recessions and depressions our country has faced. Not bad for a government program!!!!