Social Security (United States)

Social Security in the United States is a social insurance program funded through a dedicated payroll tax. It is also known as the Old Age, Survivors and Disability Insurance program (OASDI), in reference to its three components. In the calendar year 2004, it paid out almost $500 billion in benefits. http://www.ssa.gov/OACT/STATS/t4a3Outgo.html

History

Creation

A limited form of the Social Security program began as a measure to implement "social insurance" during the Great Depression of the 1930s, when poverty rates among senior citizens exceeded 50% http://college.hmco.com/history/readerscomp/rcah/html/ah_070900_poverty.htm.

Related Topics:
Great Depression - Poverty - Senior citizens

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The law was drafted by President Franklin Delano Roosevelt's committee on economic

Related Topics:
President - Franklin Delano Roosevelt

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security under Edwin E. Witte, and passed by Congress in 1935 as part of the New Deal. The law included benefits for the retired and the unemployed. Social Security was not designed as a savings program. This allowed elderly Americans, hard hit by the depression, to begin receiving benefits within two years after the law was enacted. Payments to current retirees were (and continue to be) financed by a payroll tax on current workers' wages, half directly as a payroll tax and half paid by the employer.

Related Topics:
Edwin E. Witte - Congress - 1935 - New Deal - Savings program

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The first collection of taxes (deductions) began in 1937, as did the first payments. In 1937, there were 53,236 beneficiaries for the first payment. In the first few years, until 1940, benefits were paid as a single, lump-sum amount.

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Two Supreme Court rulings affirmed the constitutionality of the Social Security Act.

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• Steward Machine Company vs. Davis, 301 U.S, 548 (1937) held in a 5–4 decision that given the exigencies of the Great Depression: "t is too late today for the argument to be heard with tolerance that in a crisis so extreme the use of the moneys of the nation to relieve the unemployed and their dependents is a use for any purpose narrower than the promotion of the general welfare..." The arguments opposed to the social security act (articulated by justices Butler, McReynolds, and Sutherland in their opinions) were that the social security act went beyond the powers that were granted to the federal government in the constitution. They argued that by imposing a tax on employers that could be avoided only by contributing to a state unemployment compensation fund, that the federal government was essentially forcing each state to establish an unemployment compensation fund that would meet its criteria, and that the federal government had no power to enact such a program.
• Helvering vs. Davis, 301 U.S. 619., decided on the same day, upheld the program because "The proceeds of both taxes are to be paid into the Treasury like internal-revenue taxes generally, and are not earmarked in any way." That is, the Social Security Tax is constitutional as a mere exercise of Congress's general taxation powers.

Expansion

The original 1935 law only paid retirement benefits to the primary worker. It also contained the first national unemployment compensation program, aid to the states for various health and welfare programs, and the Aid to Dependent Children program. The initial tax rate was 2.0 percent of the first $3,000 of the employee's earnings, shared equally between the employee and the employer. The tax rate has been raised in several steps over the years, beginning in 1950, when it was raised to 3.0 percent. http://www.ssa.gov/history/pdf/t2a3.pdf

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In 1939, the Federal Insurance Contributions Act, which had been enacted in 1937, changed the law by adding survivors' benefits and benefits for the retiree's spouse and children. Originally, many types of people were excluded, primarily farm workers, the self-employed, and anyone employed by an employer of less than ten people. These exclusions, intended to exclude those from whom it would be difficult to monitor compliance, covered approximately half of the civilian labor force in the United States.

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In 1956 the tax rate was raised to 4.0 percent (2.0 percent for the employer, 2.0 percent for the employee) and disability benefits were added. Also in 1956, women were allowed to retire at age 62 with reduced benefits (70%). In 1961, the same provision for early retirement was added for men, and the tax was increased to 6.0 percent.

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Medicare was added in 1965 by the Social Security Act of 1965, part of President Lyndon B. Johnson's "Great Society" program. See List of Social Security legislation (United States).

Related Topics:
Medicare - 1965 - Social Security Act of 1965 - Lyndon B. Johnson - Great Society - List of Social Security legislation (United States)

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In 1972, regular (annual) cost of living adjustments, not requiring a specicific vote by Congress, began.

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In 1940, cash benefits distributed totaled $35 million. That increased to $961 million in 1950, $11.2 billion in 1960, $31.9 billion in 1970, $120.5 billion in 1980, and $247.8 billion in 1990 (all figures in current dollars, not adjusted for inflation). In 2004, cash benefits distributed were $492 billion. In 2004 there were 47.5 million beneficiaries.

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Changes in 1983 for fiscal stability

In the early 1980s, there was concern about the long-term prospects for Social Security because of demographic considerations, particularly what would happen when people born during the post-World War II baby boom retired. A commission chaired by Alan Greenspan made several recommendations for addressing the issue. http://www.ssa.gov/history/reports/gspan5.html Under the 1983 Amendments to Social Security, signed into law by President Ronald Reagan, the Social Security payroll tax rate was increased, additional employees were added to the system, the full benefit retirement age was slowly increased, and up to one-half of the value of the Social Security benefit was made potentially taxable income. http://www.ssa.gov/history/taxationofbenefits.html

Related Topics:
1980s - Post-World War II baby boom - Alan Greenspan - Ronald Reagan

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As a result of these changes, the Social Security system began to generate a large surplus of funds, intended to cover the added retirement costs of the "boomers." Congress invested these surpluses into special series, non-marketable U.S. Government bonds which are held by the Social Security trust fund. Under the law, the Government bonds held by Social Security are backed by the full faith and credit of the U.S. government.

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The special series, non-marketable bonds currently held in Social Security trust fund are off-balance sheet and are excluded from the U.S. National Debt calculation. They also cannot be sold on the open market unlike traditional bonds. Due to these unique features, some have raised the specter that the bonds held in the trust fund are only "IOUs" that the government has written to itself. However, it is true that, as the Social Security and Medicare Trustees note,

Related Topics:
Social Security trust fund - Off-balance sheet - U.S. National Debt

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Since neither the interest paid on the Treasury bonds held in the HI and OASDI Trust Funds, nor their redemption, provides any net new income to the Treasury, the full amount of the required Treasury payments to these trust funds must be financed by some combination of increased taxation, increased Federal borrowing and debt, or a reduction in other government expenditures. (Status of Social Security and Medicare Programs: A summary of the 2005 annual reports) http://www.ssa.gov/OACT/TRSUM/trsummary.html

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In 1983, the U.S. Congress also closed a loophole in the original Social Security Act that allowed municipal governments to opt out of the Social Security system, and also brought all civilian federal employees whose employment began in 1984 or later part of the system.

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"Your Social Security Statement"

In 1999 the Social Security Administration began mailing to all workers aged 25 and over a document entitled "Your Social Security Statement." This document provides a table of the worker's lifetime earnings record, reporting for each year the earnings amount that has been subject to Social Security and Medicare taxes. A career summary of estimated taxes paid by the worker and his or her employer for Social Security and Medicare is also provided. This statement is mailed automatically each year about three months before the worker's birthday. The statement is also available on request from the Social Security Administration. The SSA's homepage for information about the Social Security statement is http://www.ssa.gov/mystatement/.

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Commission to Strengthen Social Security (2001)

On May 21, 2001, President George W. Bush established a 16-member, ostensibly bipartisan Commission to Strengthen Social Security to consider how to incorporate "individually controlled, voluntary personal retirement accounts." http://www.csss.gov/ On December 21, 2001, the Commission released its report, which analyzed three different models for privatization.

Related Topics:
May 21 - 2001 - George W. Bush - Bipartisan - Commission to Strengthen Social Security - December 21

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