OLD-AGE INSURANCE

On August 14, 1935, Franklin D. Roosevelt signed into law the Social Security Act, creating the first federal old-age insurance system in the United States. The Federal Old-Age Benefits program was one of seven new federal entitlement programs created by the Social Security Act, to be administered by a newly created Social Security Board. The oldage benefits were funded initially by a payroll tax of 1 percent levied on both employees and employers, with the first revenues collected in 1937 and the first benefits paid in 1940.

Interest in old-age insurance as a means to alleviate old-age poverty grew in the early twentieth century in response to the increasing number of individuals living into old age and the diminished employment opportunities for older workers. The numbers of Americans over the age of sixty-five increased dramatically, from 1.1 million people in 1870 (3 percent of the population) to 6.7 million (5.4 percent) in 1930. Improvements in public health and medicine increased life spans, but individuals often found it difficult to maintain themselves financially in old age. By law and custom, families became the chief form of assistance to needy older relatives. For those without kin able to support them, the dreaded county poor house remained the means of last resort.

During the Progressive era, Americans looked to the examples of Germany and England, where old-age insurance programs had been established in 1889 and 1908 respectively. Advocates of social insurance argued that certain hazards of life, such as old age, were social problems best addressed by using actuarial principles to distribute the risk and financial burden across society. Early advocates, such Columbia University professor Henry Rogers Seager, author of Social Insurance: A Program of Social Reform (1910), and social theorist Isaac Rubinow, author of Social Insurance (1913), educated a generation of economists, politicians, academics, and social reformers on the benefits of social insurance as a rational approach to addressing social ills. In the 1920s, the American Association for Labor Legislation, which included such prominent labor economists as John R. Commons, John B. Andrews, and Richard T. Ely, continued to support the concept of old-age insurance, though it focused its efforts on winning the passage of state old-age pension laws funded by general revenues on a pay-asyou-go basis. Old-age insurance advocates found a cool reception among politicians in the 1920s, but Rubinow and Abraham Epstein, former research director of the Pennsylvania Old Age Commission and executive secretary of the American Association for Old Age Insurance (founded in 1927), continued as outspoken and persistent advocates for an American system of old-age insurance.

By 1930, only 33.1 percent of men and 8.1 percent of women over sixty-five participated in the labor force while the majority of old people relied on savings, investment income, or relatives to support them. However, the failure of financial institutions, the bankruptcy of corporate pension plans, and the crash of the stock and real estate markets eliminated the savings and income of many old people, increasing the financial burden placed on family, friends, and public relief. Individual families, poor relief, and private charity strained to aid the swelling ranks of the impoverished aged. Popular organizations, such as the Townsend clubs, led by Dr. Francis E. Townsend, mobilized millions of old people in support of proposals for immediate, generous payments by the federal government to the nation's older citizens.

The federal government responded to the crisis of old-age poverty as part of a broader economic security program. On June 29, 1934, Roosevelt signed Executive Order 6757 creating the Committee on Economic Security to prepare comprehensive legislation addressing the major causes of economic insecurity. To the New Dealers designing the Economic Security Act, social insurance would be the key component of the administration's bill. Assistant Secretary of Labor Arthur Altmeyer and Dr. Edwin Witte, executive director of the Committee on Economic Security, both of whom oversaw the day-to-day development of the Act, were longtime social insurance advocates who had studied under John R. Commons at the University of Wisconsin. Franklin Roosevelt himself spent part of the spring of 1934 reading Rubinow's Quest for Security (1934), a work that convinced him of the value of social insurance. The president instructed Witte, Altmeyer, and Secretary of Labor Frances Perkins that the long-term program to assist senior citizens must be financed through contributions rather than general revenues to enhance its financial stability and ensure its political future by making its benefits appear to be an earned right. After months of research and several attempts to craft a workable bill, the Committee on Economic Security delivered its final report and the text of the Economic Security Act to the president on January 15, 1935. The final version of the bill, modified by both the House and Senate and renamed the Social Security Act, emerged from the House on August 8 and the Senate on August 9, and was signed into law five days later.

The Social Security Act created a dual system of immediate and long-term programs to provide oldage security. The old-age assistance program (Title I) allocated $49,750,000 in matching grants to states to pay benefits immediately to needy old people. The Old Age Benefits program (Title II) created a contributory old-age insurance system designed to provide payments to current workers when they reached old age. The program was to be entirely self-supporting with payroll taxes that would gradually rise to handle the growing elderly population. Initially, the program provided assistance primarily to white, male industrial employees. By excluding certain occupations from coverage, especially farmer laborers and domestic workers, the old-age insurance program initially excluded 60 percent of all African-American workers and 80 percent of all African-American women workers from coverage. Women, though only 30 percent of the workforce, accounted for 60 percent of those excluded from coverage.

Though initially limited in scope, the Social Security Act marked the culmination of a threedecade long campaign for social insurance in the United States. Building on the 1935 provisions, Congress would amend the old-age insurance program numerous times, gradually liberalizing benefits and broadening coverage to more workers and their dependents. The old-age insurance provisions of the Social Security Act continue to be an effective program for reducing the insecurity and poverty of old age in America.

See Also: ELDERLY, IMPACT OF THE GREAT DEPRESSION ON THE; ORGANIZED LABOR; SOCIAL SECURITY ACT; TOWNSEND PLAN.

BIBLIOGRAPHY

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Steven B. Burg