Social Security Act
The Social Security Act of 1935 is a law enacted by the 74th United States Congress and signed into law by U.S. President Franklin D. Roosevelt on August 14, 1935. The law created the Social Security program as well as insurance against unemployment. The law was part of Roosevelt's New Deal domestic program.
By 1930, the United States was one of the few industrialized countries without any national social security system. Amid the Great Depression, the physician Francis Townsend galvanized support behind a proposal to issue direct payments to older people. Responding to that movement, Roosevelt organized a committee led by Secretary of Labor Frances Perkins to develop a major social welfare program proposal. Roosevelt presented the plan in early 1935 and signed the Social Security Act into law on August 14, 1935. The Supreme Court upheld the act in two major cases decided in 1937.
The law established the Social Security program. The old-age program is offset by payroll taxes, and over the ensuing decades, it contributed to a dramatic decline in poverty among older people, and spending on Social Security became a significant part of the federal budget. The Social Security Act also established an unemployment insurance program administered by the states and the Aid to Dependent Children program, which provided aid to families headed by single mothers. The law was later amended by acts such as the Social Security Amendments of 1965, which established two major healthcare programs: Medicare and Medicaid.
Background and history
Industrialization and the urbanization in the 20th century created many new social problems and transformed ideas of how society and the government should function together because of them.By the 1930s, the United States was one of the few modern industrial countries in which people faced the Depression without any national system of social security, though a handful of states had poorly-funded old-age insurance programs. The federal government had provided pensions to veterans in the aftermath of the Civil War and other wars, and some states had established voluntary old-age pension systems, but otherwise, the United States had little experience with social insurance programs. For most American workers, retirement during old age was not a realistic option. By 1931, only 12 states had enacted old age pension laws, although that year fourteen state governors advocated that their legislatures enact measures related to pensions. In the 1930s, the physician Francis Townsend galvanized support for his pension proposal, which called for the federal government to issue direct $200-a-month payments to the elderly. Historian Isser Woloch writes that the development of the Social Security Act reflected the ambivalent attitudes of President Franklin D. Roosevelt, who envisioned a "comprehensive umbrella of social security" for every citizen "from cradle to grave", including unemployment insurance, national health insurance, and old-age pensions; however, this vision was tempered due to Roosevelt's "instinctive deference to state governments" and "aversion to anything resembling a permanent 'dole, among other factors. Roosevelt was attracted to the general thinking behind Townsend's plan because it would provide for those no longer capable of working, stimulate demand in the economy, and decrease the supply of labor. In 1934, the Dill-Connery bill for federal funding of state pensions programs, passed the House of Representatives and came near passage in the Senate that May. According to one study, ‘Roosevelt took ‘no open stand on the bill, but called supporters to the White House and persuaded them to delay passage until the administration prepared its own, "more comprehensive version.”’
A similar delay took place in relation to unemployment insurance. Congress had, as noted by one study, “been debating the issue since the Hoover administration, and by 1934, a majority of its members favored unemployment compensation in some form or other.” In February 1934, the Wagner-Lewis bill was introduced, which sought to establish a system of unemployment insurance. The Wagner-Lewis bill was favored by Roosevelt, although Republicans and more conservative Democrats strongly opposed it and “was not pushed by the administration with any real vigor. Nevertheless, many close observers believed that had Roosevelt taken a decided stand in favor of the bill it would have been passed by Congress. As with the Dill-Connery bill, the Wagner-Lewis bill failed to pass. According to friends of Roosevelt’s, “his only purpose was to have the problems studied more carefully and that he believed public sentiment was not yet sufficiently crystallized in favor of such a program.”
In 1934, Roosevelt charged the Committee on Economic Security, chaired by Secretary of Labor Frances Perkins, with developing an old-age pension program, an unemployment insurance system, and a national health insurance program. The national health insurance proposal was later dropped in the face of lobbying by the American Medical Association. The committee developed an unemployment insurance program that would be largely administered by the states as well as an old-age plan; at Roosevelt's insistence, it would be funded by individual contributions from workers.
In January 1935, Roosevelt proposed the Social Security Act, which he presented as a more practical alternative to the Townsend Plan. After a series of congressional hearings, the Social Security Act became law in August 1935. During the congressional debate over Social Security, the program was expanded to provide payments to widows and dependents of Social Security recipients. Job categories that were not covered by the act included workers in agricultural labor, domestic service, government employees, and many teachers, nurses, hospital employees, librarians, and social workers. As a result,
65 percent of the African American workforce was excluded from the initial Social Security program. Many of these workers were covered only later on, when Social Security was expanded in 1950 and then in 1954.The program was funded through a newly established payroll tax, which later became known as the Federal Insurance Contributions Act tax. Social Security taxes would be collected from employers by the states, with employers and employees contributing equally to the tax. Because the Social Security tax was regressive, and Social Security benefits were based on how much each individual had paid into the system, the program would not contribute to income redistribution in the way that some reformers, including Perkins, had hoped. In addition to creating the program, the Social Security Act also established a state-administered unemployment insurance system and the Aid to Dependent Children, which provided aid to families headed by single mothers. Roosevelt believed that social security should cover everyone, stating that “I see no reason why every child, from the day he is born, shouldn’t be a member of the social security system. When he begins to grow up, he should know he will have old-age benefits direct from the insurance system to which he will belong all his life. If he is out of work, he gets a benefit. If he is sick or crippled, he gets a benefit….I don’t see why not. Cradle to the grave-from the cradle to the grave they ought to be in a social insurance system.” Compared with the social security systems in Western Europe, the Social Security Act of 1935 was rather conservative. However, it was the first time that the federal government took responsibility for the economic security of the aged, the temporarily unemployed, dependent children, and the handicapped.