80 years ago today, back in 1935, US Congress passed the Social Security Act and President Franklin D. Roosevelt immediately signed it into law.
Provides for federal contributions of up to $15 a month a person, starting soon, to help states pension their most needy aged residents.
Establishes a great national annuity system by which an estimated 25,000,000 workers and their employers will be taxed billions of dollars through the years, and workers will be paid $10 to $85 a month by the government when they are 65 and jobless.
Creates joint State-Federal unemployment insurance systems to provide limited benefits in times of future unemployment.
Assists the states immediately in caring for dependent mothers and children, the blind and the ill.
About $100,000,000 of federal funds are called for to finance the federal share of immediate assistance to the aged and to mothers, children and the blind. Congress is expected to appropriate the actual funds before adjourning this session.
The administration's Committee on Economic Security estimates at least 2,400,000 persons are over 65 and in need. How many of them will be helped immediately depends largely on the states. Federal funds will be granted only to the extent that states or their subdivisions pay pensions to the aged.
But in 1937 an estimated 25,000,000 persons will begin paying special taxes which eventually will take 3 per cent of their wages each. Their employers will be required to pay the same levy. From the proceeds of these taxes, beginning in 1942, persons who have been paying the taxes for five years and who are over 65 and out of work will receive pensions direct from the federal Treasury.
The unemployment insurance program will not help those now jobless, but it virtually will force the states to set up insurance plans guaranteeing limited benefits to those who lose their jobs in 1939 and thereafter.
The entire program will be administered by a Federal Social Security Board of three members.
Major points in the complex program are:
--Old Age Pensions:
The federal government allocates $49,750,000 for the fiscal year ending June 30, 1937, and as much as may be needed thereafter to match state pensions to the aged needy. This system also will be used in the future to care for those not covered by the permanent annuity program.
The federal contribution is limited to $15 a person a month. If a state put up $10 the government would add $10, providing a pension of $20 a month. There is nothing to prevent a state from granting more than $15. Thus if a state gave $25 the government would add $15 to make a pension of $40 a month.
Administration of the pensions is left to the states, but they must meet certain requirements.
A pension applicant, otherwise eligible, cannot be denied aid if he has lived in a state for the year immediately preceding his application and for any five of the nine preceding years. Aid may be denied to those who are not United States citizens. Until 1940 states may refuse to pension those under 70, but after that 65 is the eligibility age.
Thirty-three states now have pension systems. Others are expected to adopt them soon. Where constitutional requirements prevent states from matching the federal funds cities, counties or other subdivisions may do so for the time being, but each dollar of federal pension money must be matched by some agency.
A compulsory annuity system will apply to all wage earners throughout the country except agricultural labor, domestic servants, casual labor, federal, State, city, county and other governmental employees and employees of educational, charitable, scientific, literary and religious organizations. On the basis of the 1930 census it is estimated the plan will cover 25,804,000 persons.
Beginning in 1937 each employee will be taxed 1/2 per cent of his wages. That part of wages received from one employer in excess of $3,000 in one year would not be taxed. The tax will be deducted from wages and paid by the employer. At the same time the employer himself must pay an equal tax.
Every three years each tax will be increased 1/2 of 1 percent until each amounts to 3 per cent, or a total of 5 per cent, in 1949 and thereafter.
Thus a man making $2,000 a year by then would be paying $60 a year into the annuity fund and his employer a like amount.
In 1942 the federal government will start paying annuities. To obtain an annuity a person must:
--Be at least 65 and not regularly employed;
--Have paid annuity taxes in each of five years after December 31, 1936, and on total wages of at least $2,000.
Pensions will be smaller during the earlier years of the plan. A person whose wages average $100 a month would receive $17.50 a month if he retired in 1942 at 65 after paying taxes five years. But men now younger will pay taxes longer and receive greater benefits.
A man who reached 65 in 1967 after paying the taxes thirty years would receive $42.50 a month if his average wage had been $100 a month and up to $68.75 if he had made $250 a month. For longer period and higher wages the maximum pension would be $85.
If a man had been paying taxes but was not qualified for a pension at 65 he would receive a lump sum equal to 3 1/2 per cent of the total wages on which he had been taxed. His estate would receive a similar amount if he died before reaching 65 years.
Actuaries estimated the taxes to be paid by employees and employers under this plan would total $278,000,000 in 1937 and reach an annual total of $1,877,200,000 by 1950.
The funds are to be held in reserve on an insurance basis, calling for a reserve of $14,000,000,000 by 1950 and $46,000,000,000 by 1980. This reserve is to be invested by the Treasury in government obligations.
There was a bitter fight over a proposal by Senator Clark (D., Mo.) to exempt from the permanent annuity system all persons covered by private industry's old-age pension plans. This finally was eliminated, but a Congressional committee was appointed to study possibility of retaining the private plans under conditions which would prevent abuses.
The new law levies a second payroll tax on employers to finance unemployment insurance. Workers are not taxed for this. Farm hands, domestic help and governmental employees are exempt, and also employers who have not given work to at least eight persons in twenty weeks of the year.
The tax, first payable in 1937, will equal 1 per cent of the employer's 1936 payroll. It will be 2 per cent the next year and 3 per cent thereafter.
The unemployment insurance will be largely a state matter, the federal tax being designed to induce, and virtually compel, states to establish their own systems. Up to 90 per cent of the federal tax will be credit to an employer for contributions to state insurance funds.
Thus most of the money actually will go to the state. They in turn will transmit it to the United States Treasury, which will invest the funds and pay them out to the states as needed. If the states fail to adopt insurance systems, the full amount of the tax from those states will go to the federal Treasury and be used for general governmental purposes.
The federal government proposes to appropriate $4,000,000 this year and $49,000,000 annually thereafter to help pay costs of administering the state systems. The states are given latitude in administering their systems, subject to federal restrictions.
No employment benefits are to be paid until funds have been in operation two years, or probably some time in 1939. Payments are not to be denied a person who is out of work because of a strike, lockout or other labor dispute or if he refuses to accept a job at less than the prevailing wages in his locality.
In practice, it is expected states will grant no benefits until a man has been out of work two or three weeks or possibly longer. Compensation after that, under the New York State law, for example, would range from $5 to $15 a week and would be paid for not more than sixteen weeks.
The insurance thus would not carry a jobless man through a long depression. It is designed primarily to help him through the shorter periods of unemployment that occur in normal times and to give him a living while he looks for another job. Federal statistics show that even in the prosperity year 1929 2,817,000 persons were jobless in February and 480,000 in October.
States may pool their entire insurance fund, or they may keep separate accounts for individual employers. They may require smaller contributions and taxes from companies that have demonstrated the stability of their employment.
The government plans to distribute to the states in the fiscal year $24,750,000 to aid dependent children; $2,850,000 to aid crippled children; $1,500,000 for child welfare; $3,800,000 for material and child health; $841,000 for vocational rehabilitation; $8,000,000 for public health, and $3,000,000 for aid to the blind.
Part of these funds will be distributed among the states on the basis of their need, and some must be matched by equal state funds.