Sunday, January 15, 2006

Social Security, history of

The Congressional act that created Social Security was signed into law by President Franklin D. Roosevelt on August 14, 1935, a major milestone in American history. The act at first provided income only to retired workers, and was titled Old Age Insurance (OAI). In 1939, before the first benefits were paid, the act was extended to survivors and dependents, with the title now becoming "Old Age and Survivors Insurance" (OASI). In 1956 persons under age 65 with serious disabilities became eligible for benefits (OASDI). In 1965 Medicare was added, and the Act now provided Old Age, Survivors and Dependents, and Health Insurance (OASDHI). As a result of these additions and other modifications, spending for Social Security has grown from $1 billion in 1950, 10 years after the first payments under the act were made, to more than $300 billion per year at the present time.
Initially the act excluded the self-employed, farm, and domestic workers, employees of charitable, educational, and religious organizations, clergy, employees of state and local government, military personnel, federal employees, Americans working for foreign governments or international organizations, and railroad employees who were covered by the Railroad Retirement Act. Congress extended eligibility successively to each of these groups, so that today virtually all American workers and self-employed persons have coverage.
Wages withheld from pay checks and Social Security payments made by the self-employed are put into the Social Security Trust fund. The money in this fund can be used only for two purposes: to pay benefits to eligible persons; or, for loans to the U.S. Treasury, which the Treasury can in turn loan to government departments (such as Education or Defense), with the interest and principal to be paid back into the fund. In this respect the Social Security Trust Fund is rather like a public savings account on which the federal government can draw like a credit card.
From the early days of the program and until the mid-1980s, a substantial part of the withholding taxes were paid directly over to beneficiaries, representing a sort of "pay-as-you-go" plan. Today, however, the trust fund is large and growing, and many experts think that the interest earned from loans to the federal Treasury and to government departments may eventually become large enough to cover the costs of retiree benefit payments.
Numbers of potential Social Security beneficiaries change each year because of the addition of new persons who meet the minimum qualifications for benefits (10 years of employment and payment into the program), but by 1990 approximately 180 million persons had been covered. The first person to receive benefits was Mrs. Ida Fuller, who retired from a secretarial post in a law firm in 1940 and received a monthly payment of $22. Because she lived to reach age 100 in 1975, Ida Fuller did remarkably well with her investment in Social Security-she paid in $100 but she eventually received $21,000, a rate of return that would cause great joy to most investors in annuities or the stock market. Today about 38 million persons receive benefits that average about $525 per month per retiree. As noted above, total benefits for all workers and Medicare recipients exceed $300 billion annually.
In 1972 Social Security benefits were indexed to inflation, with annual cost-of-living adjustments paid to beneficiaries annually since then. In the early 1980s, inflation combined with the growing number of beneficiaries to raise fears over the possible bankruptcy of the system, a state that came to be known as "Social Security insecurity." Congress and the President acted promptly to correct the deficiencies in the system by increasing the payroll tax and by other reforms, and today reserves in the Social Security trust fund are building up at a rate of more than $40 billion per year.
Economists like James Schulz of the Heller Center at Brandeis University in Massachusetts warn against complacency about the system. They note especially that recessions will erode payments into the trust fund because the fewer people at work the less that will be withheld from wages for payment into the trust fund. Further, they warn that the future of the system depends on the will of the American people to support it, and that tampering with withholding rates or over reliance by public officials on Social Security to loan to the Treasury for re-lending to government departments-which is as a way of avoiding tax increases to pay government expenses--could bring about disaster. Still, the size of the trust fund is expected to reach $2.5 trillion early in the next century.
When the crest of the Baby Boom generation reaches old age in 2030, the trust fund should be over $12 trillion, making a reserve which experts think will be sufficient to meet the needs of the 60 million persons then over 65-the largest number of older persons in American history.
Nordlinger, S. E. "The Social Security System at Work," in Aging, Goldstein, E. C., ed. Vol. 2, Art. 95. Boca Raton, FI.: Social Issues Resource Series, Inc., 1981. Russell, C. H. Good News About Aging. New
York: John Wiley and Sons, 1989.
Schulz, J. H. The Economics of Aging, 4th ed. Dover, Mass.: Auburn House Publishing Company, 1988.
U.S. Bureau of the Census, Statistical Abstract of the United States: 1989. 109th ed. Washington, D.C.: U.S. Government Printing Office.

0 Comments:

Post a Comment

<< Home