It is an inevitable fact of life that humans will endure hardships. Illness, injury, unemployment, and even just growing old can impact a family’s economic stability. Social Security was created to provide financial security to individuals dealing with some of these problems. With 65 million Americans relying on SS today, a change was inevitable.
And just look how it has changed over the years. When you view it through the lens of history and politics behind the scenes, you see the remarkable evolution of social security.
From 1935 to 2017, there have been many changes- some were good, and some were bad, but all of them were fundamental in shaping the program.
Civil War Pensions
As you know, the Social Security was created by President Franklin Roosevelt, but its roots date back to the 1860s. Civil War pensions were an important precursor to social security. After the war ended a much higher proportion of the population was disabled or survivors of deceased breadwinners than at any time in America’s history.
Seeing an immediate need to provide wounded soldiers and their widows, with some income, the government created a generous pension fund. It was the first full-fledged program of its kind in the U.S. In 1906 the rules of the program were revised, to include awarding benefits to soldiers reaching “old age.” But, it would still take years to create a fund for society in general.
In between Civil War Pensions and Social Security, there were other short-term solutions. The first corporate retirement plan in modern America was created by a piano builder, Alfred Dolge. Dolge’s company would withhold 1 percent of workers’ pay and add to a pension fund. Then, the company would subsequently add 6 percent interest at the end of the fiscal year.
In 1900, there were only five companies that offered employees a retirement plan. By 1932, that number increased to a meager 15 percent. However, because pensions could be withheld by the employer, only 5 percent of retirees were receiving money from these plans. This led to the need to create program that would benefit more workers when they retired.
State Old-Age Pensions
After the Great Depression, poverty among elderly citizens grew exponentially. Best estimates conclude that in 1934, 50 percent of this group were unable to support themselves financially. To address the problem, 30 states created some form of old age pension plan for their residents. Unfortunately, most of them were unsuccessful in solving the crisis.
Low participation due to many seeing this as a form of welfare, rendered state-run programs ineffective. Also, strict eligibility regulations meant many elderlies didn’t qualify for aid. In the end, only 3 percent of the elderly were receiving benefits under these states plans. The average benefit amount was a minuscule 65 cents a day.
But, in 1935 everything would change.
The New Deal
President Roosevelt took office in 1933. His priority was to stabilize the economy and provide jobs and relief to Americans left reeling by the Great Depression. During his eight years in office, he would implement a series of experimental projects and programs that were collectively known as, the New Deal. But, they were soon found to be inadequate.
So, in 1935, FDR created the Second New Deal. The Social Security Act was the biggest and most welcome part of that package. It guaranteed pensions to millions of Americans and set up a system of unemployment insurance. Additionally, it stipulated that the federal government would help care for dependent children and the disabled.
On August 14, 1935, H.R. 7260, otherwise known as the Social Security Act, was signed into law. FDR considered this to be an act of patriotism on the part of Congress. In his statement that day, he expressed concern for “young people [who] have come to wonder what would be their lot when they came to old age” as well as those who had jobs but no job security.
More important to FDR than unemployment, was the elderly living in poverty. While he acknowledged that social security would “never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life,” he did hope it would boost the standard of living for seniors.
Old Age Benefit Payments
Section 202 of the Social Security Act mandated that qualified individuals would receive benefits beginning on the date they reached 65-years old. A person must have earned at least $3000 each year to qualify for payments. Those benefits were then paid out in incremental rates as follows:
- One-half of 1 per centum of $3,000; plus
- One-twelfth of 1 per centum of the amount by which such total wages exceeded $3,000 and did not exceed $45,000; plus
- One-twenty-fourth of 1 per centum of the amount by which such total wages exceeded $45,000.
Lump sum payments from what’s now known as the Old-Age, Survivors, and Disability Insurance (OASDI) program began in January 1937. That same month, taxes started being collected to fund the program. But, the first monthly benefit payment would not come for another three years, starting in January of 1940.
Initially, benefit payments were only made to retired workers. However, a 1939 change in the law added survivors benefits and benefits for the retiree’s spouse and children. Then, in 1956, disability benefits were added to the program during the Eisenhower administration. Medicare would not happen until July of 1965.
So, you may be asking- when did Social Security start to change into what we have today? The answer is simple. It changed when it became advantageous for politicians to use the program as a political football. Now, that is not to say that every change that has been made to the program was a bad one.
With that in mind, let’s take a look at some of the better ones.
Cost of Living Adjustment
Before 1975, increases to monthly benefit payments were quite irregular and came only as a result of special acts by Congress. As a matter of fact, millions of Americans did not see a benefit increase for a decade, until 1950. Although, the increase was almost 100 percent. A payment of $22.45 jumped to $41.30. But, the Cost of Living Adjustment changed that.
The idea of Cost of Living Allowances, or COLAs, was first introduced in 1972 under Richard Nixon. COLA’s were automatic adjustments to monthly benefits based on annual increases in consumer prices. The table below, shows how much COLA increases were between 1950 and 2013:
As you can see from the chart, COLA adjustments have mostly decreased over time. Today, calculations are made based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). But the decline in payment amounts to recipients, has caused many experts to challenge the effectiveness of tying increases to the CPI-W.
Another significant change came during Bill Clinton’s presidency.
Retirement Earnings Test
On April 7, 2000 “The Senior Citizens’ Freedom to Work Act of 2000” was signed into law. It eliminated the Retirement Earnings Test (RET) for those beneficiaries at or above Normal Retirement Age. The new legislation allowed for recipients to continue working after retirement without being penalized. This was the only major change under Clinton.
The Bush and Obama Years
In his inaugural address, George W. Bush announced plans to reform Social Security and Medicare. Then, in his first speech joint-session speech in February 2001, he told Congress he was going to appoint a Presidential Commission to recommend needed changes. The Commission began in May 2001 and turned in its final report in December.
Not surprisingly, there were no changes.
On the contrary, there were three resolutions dealing with Social Security signed by Barack Obama. H.R. 1, the “American Recovery and Reinvestment Act of 2009,” appropriated an additional $1 billion to the Social Security Administration’s administrative budget. The operative word there being “administrative.”
The only benefit to recipients from the legislation was a one-time payment to adults of $250.
On September 9, 2009, Obama signed H.R. 3325. That law authorized funding for the Work Incentives Planning and Assistance program and the Protection and Advocacy for Beneficiaries of Social Security program. However, the funding ended in 2010. H.R. 4218, signed in December 2009, ended benefits for state and federal prisoners.
Even more significant than the arbitrary pieces of legislation are the lack of increases in benefit payments under Obama. While his promise of “hope and change” delivered a 5.8% increase in 2008, that soon fizzled. A rise in unemployment, along with an economic recession, resulted in zero changes for beneficiaries in 2009, 2010 and 2015.
Fortunately, things changed for the better in November of 2016.
Just over a year ago, millions of Americans voted for a well-known businessman named Donald Trump. In office only 11 months, the president has created changes that directly benefit those receiving Social Security. In fact, the biggest benefit increase in six years was just announced last month.
While recipients saw a minor increase of 0.3 percent in 2017, that jumped in October to 2.0%. And, there are several improvements the Trump administration is trying to make to the program. From creating a strong job market to halting the flow of illegal immigrants, threats to the solvency of social security are declining.
Economic Strength and Social Security
Social security and economic stabilization are irrevocably linked. And that is precisely why President Trump will work hard to preserve and strengthen the system. “If we are able to sustain growth rates… we will be able to secure Social Security for the future” he said. “Our goal is to keep the promises made to Americans through our Social Security program.”
Like the economy, illegal immigration also impacts Social Security. There is one particular program, a darling of the Democrats, that threatens the sustainability of the program. It also poses dangers to the financial security of the who count on the system. The program, created by Obama, Deferred Action for Childhood Arrivals.
According to a report from the Federation for American Immigration Reform, DACA represents “A very significant additional liability for the Social Security Trust Fund and will further hasten the insolvency of the system.” The estimated financial burden to social security from illegal immigration and other abuse is a staggering $500 billion.
Sadly, fraud is also a major problem for the Social Security Administration.
Fraud and Abuse
The Social Security Administration ranks third among all government agencies when it comes fraud and abuse. Improper payments of retirement, survivor, and disability benefits totaled almost $10 billion in 2015. They wasted another $4.8 billion on wrongful SSI payments. This fraud is, at least partially, responsible for lower overall benefit payments.
Of course, President Trump is working to address this problem as well. One of the proposed solutions is to end the use of social security numbers. White House cyber-security Czar, Rob Joyce, is heading up the new initiative. Joyce hopes to one day replace antiquated SSN’s with more modern and safer technologies.
If nothing else, these changes are a step in the right direction. Forward progress is always welcome when it comes to improving social security. Nevertheless, the debate on how to do that is likely to carry on. After all, it is not a popular topic among politicians. Perhaps that is why they call it the “third rail of politics.” “Step on it and die,” they say.
The good news is, President Trump is willing to take his chances.
Unlike most Democrats, he doesn’t see Social Security as a form of welfare or entitlement. “Social Security and Medicare are not wasteful entitlement programs, ” Trump says. “It’s not unreasonable for people who paid into a system for decades to expect to get their money’s worth–that’s not an “entitlement,” that’s honoring a deal.
“We as a society must make an ironclad commitment to providing a safety net for those who can’t make one for themselves.”
Reinforcing his statements, President Trump made it clear that he has no plans to cut Social Security and Medicare. Treasury Secretary, Steve Mnuchin, made that announcement back in February. “We are not touching [Social Security and Medicare] now, says Mnuchin. “So, don’t expect to see that as part of this budget.”
There are some great changes coming to both programs in 2018, so be sure to read about them if you haven’t already. You can also read about this important piece of legislation pending in Congress. 82 years and counting, who would have ever thought it was possible? Let’s hope it continues to age as well as a fine bottle of wine.
Do you have questions or concerns about your Social Security? Tell us in the comments.