Setting the Clocks Back: Bracing for the Darkness
Social Security has long been the foundation of economic security for millions of Americans.
Statistics show 60 million people—or more than one in every six United States residents—collected Social Security benefits in June 2015.
Below, we look back at the history of Social Security and look ahead to future changes expected to the Social Security program.
What is Social Security?
The term “social security” originally described any program intended to help people with limited financial resources. These individuals can include:
- Poor
- Physically disabled
- Mentally ill
- Elderly
A Look Back at the History of Social Security
Civil War Pensions: The First Significant Social Security Program
The first widespread social security program in the United States was civil war veteran pensions.
Initially, payments were given to Union veterans who had been disabled in battle or to the widows of Union soldiers. However, confederate veterans and their families were not given pensions.
The program was then expanded to include any disabled Union veterans, regardless of whether or not they had been injured in war.
This was a significant program with more than a third of the money going to military pensions in 1894.
The Great Depression Led To Today’s Social Security System
The Great Depression of the 1930s brought attention to the need for a comprehensive system to provide enough money to the poor and elderly so that they could live independently.
Millions of Americans had no jobs or couldn’t earn enough money to support their families.
President Franklin Roosevelt proposed the idea of social insurance which eventually developed into the social security system of today.
In 1934, Roosevelt formed the Committee on Economic Security (CES). The committee, based on Roosevelt’s social-insurance idea, developed a plan that would allow workers to place a small percentage of their pay into an aggregate account. Later, when they retired, they could withdraw money from that account to pay for their monthly expenses.
The Social Security Act (SSA) became a law in 1935
On August 14,1935, the Social Security Act established a system of:
- Old-age benefits for workers
- Benefits for victims of industrial accidents
- Unemployment insurance
- Aid for dependent mothers and children, the blind, and the physically handicapped
Changes to Social Security Program After 1935
The history of Social Security in the following decades, focused on expansion in the program:
Coverage of workers became nearly universal, with the only exception being employees of state and local government who have not chosen to join the system and federal workers who were hired before 1984.
In 1956, congress established the Disability Insurance (DI) program.
The Medicare program was established in 1965 for aged and disabled Social Security recipients.
In 1972, legislation provided that, beginning in 1975, benefits would rise by the same percentage as the cost-of-living.
In the late 1970s, legislative action around Social Security concentrated on solving persistent financing problems. In 1977 enacted legislation raised taxes and cut back future benefit growth to stop the exhaustion of the old age, survivor and disability insurance (OASDI) trust funds in the early 1980s.
In 1983, Congress passed additional major legislation that restored solvency to the OASDI program.
A Look Ahead To Future Changes in the Social Security Program
Worsening projections of financial shortfalls have refocused attention on the solvency of the program.
The intermediate projections of the 2009 Trustees Report indicate if the government waits to take action until the combined OASDI trust fund becomes exhausted in 2037, benefit reductions of around 25 percent or payroll tax increases of around one-third, a 4 percent increase in addition to the current 12.4 percent rate, will be required.
This issue is not specific to Social Security, but also affects Medicare as well as many other private and public retirement income systems.
There is no one clear solution to the problem of increased cost for retirees because of fewer workers available to support the retirees, which in turn is caused by lower birth rates.
Several possible changes to the provisions of the Social Security Act have been considered by policymakers and have been scored by the Office of the Chief Actuary. You can read through these options here and here.
Image from Pixabay
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