The SOCIAL SECURITY ACT of 1935 has evolved during the last seven decades, from an ambitious legislation to cover some of the needy people in the society in times of distress, to a system that provides wide benefits to a very large number of Americans in various different ways. In the process it has become much more fair to women and poor.
THE ACT OF 1935
The Act of 1935 primarily established the universal retirement benefits for the workers. In addition, it also introduced several other benefits like unemployment insurance, welfare benefits for poor families and the handicapped, temporary assistance to needy families and health insurance for aged and disabled. In addition, it also laid down a system for grants to states for Medical assistance programs as well as states’ child health insurance programs.
Its provisions were grouped under 11 different TITLES. Title I laid down grants to states for old-age assistance, while title II laid down the Federal old-age benefits. Titles III, IV and V dealt with benefits for the unemployed, dependent children and maternal and child welfare respectively. Titles VI pertained to public health works while Title VII established the Social Security Board. Title VIII and IX dealt with the payroll taxes from employees and employers respectively. Title X provided benefits to the blind, and the last sections dealt with general matters like definitions.
1939 saw certain major changes in the Act. The first was the removal of the payroll taxes that were prescribed by Title VIII of the original Act. These were shifted in to the Internal Revenue Code and renamed the “Federal Insurance Contributions Act.”
The second major amendment was widening of benefits for the family, by increasing the federal funding for the Aid to Dependent Children and raising the maximum their eligibility to 18. Wives, elderly widows, and dependent survivors of covered male workers could now receive old age pensions instead of lump sum payments. Simultaneously, benefits for single workers were decreased and lump-sum death payments were abolished.
The amendments established a trust fund for any surplus funds. The managing trustee of this fund is the Secretary of the Treasury. The money could be invested in both non-marketable and marketable securities.
In 1950, the non-profit workers and the self-employed, and in 1954, hotel workers, laundry workers, all agricultural workers, and state and local government employees were added to list of beneficiaries. 1956 saw a rise of tax rate to 4.0% (2.0% for the employer, 2.0% for the employee) along with addition of disability benefits. Simultaneously, women were allowed to retire at 62 with benefits reduced by 25%. In case of widows of covered workers this reduction was not applicable.
In 1961, retirement age for women was extended to 62, and tax rate was increased to 6.0%. From 1962 onwards, benefits of covered women could be collected by their dependent husbands, widowers, and children. In 1965, as part of GREAT SOCIETY program of President Lyndon B. Johnson, MEDICARE was added. At the same time, it became possible to withdraw funds from independent “Trust Fund” and park them in General Fund for additional congressional revenue. The age at which a widow could begin to get benefits was reduced to 60 in 1965, though the age was not changed for widowers. The retirement benefits of were extended to the divorcee, provided their age was 65 years, she had been married for at least 20 years and had subsequently remained unmarried and dependent.
The benefits under the Social Security Act saw a major rise of almost 20% in June 1972, whereby the average monthly payment rose from $133 to $166. This amendment also established a system of yearly cost-of-living adjustment (COLA) from 1975 that would automatically revise the benefits upwards whenever the Consumer Price Index rose by 3%. Alongside, the Supplemental Security Income (SSI) was also established to include immigrants over 65 years of age who had never paid payroll taxes. SSI was established as a welfare program, instead of a retirement benefit, because the elderly and disabled poor are entitled to SSI regardless of work history. The cost-of-living adjustment system introduced from 1975 had a mistake of double indexing that led to rise of benefits that were much higher than inflation. This was rectified in 1977 by fresh amendments.
Subsequently, in 1983 the increase in the payroll tax rate was accelerated and additional employees were added to the system. Simultaneously, retirement age for full-benefits was also increased, and the Social Security benefit became potentially taxable income. These amendments introduced the Social Security Trust Fund as an off-budget item, and the Social Security and Medicare trust funds were exempted from any general budget cuts.
Between 1935 and today, the Social Security Act has changed a lot. In the process it has become much more widely applicable and ensures far greater equity than was envisaged in its original version. It has been able to convert the system in to a dynamic and sustainable financial institution that has survived many a challenges, both economic and political in nature. While a lot of credit goes to the moderators of subsequent amendments, the success of the statute still owes much to its original shape and structure.