Social Security Compared to Pubic Assistance

The Concluding Section of Abe Bortz Lecture on the History of Social Security

Note: This lecture, by the first SSA Historian, Dr. Abe Bortz, was developed as part of SSA’s internal training program. Up until the early 1970s new employees were trained at SSA headquarters in Baltimore before being sent to assume their new duties in offices around the country. As part of this training, Dr. Bortz presented a curriculum on the history of Social Security. This lecture, developed in the early 1970s, was the core of that curriculum. It features an extensive overview of social policy developments dating from pre-history up to the passage of the Social Security Act in 1935.

Concluding Thoughts –A few random thoughts: Special note, too, should be taken of the difference between public assistance in Title I of the Act and Federal Old Age Benefits in Title II. The latter is social insurance (which is work-related and a contributory program, and because of the contributory feature carried a contractual right.) The principle; that an insurance benefit is a contractual right and obligatory and does not require evidence of need — which is unqualifiedly true of private insurance and was carried over into the field of social insurance. And unlike public assistance, it was also designed to prevent dependency before it happened. In contrast, public assistance involved neither contributions nor labor force participation, and was and is contingent upon need as determined by a means test. The crucial difference between the two techniques of income maintenance concerned the degree of administrative discretion which governed eligibility and benefits– minimal in social insurance, but paramount in public assistance.

Remember, that monthly maximum benefits in the original Social Security Act were set at $85.00, the minimum of $10. A lump-sum payment equal to 3 1/2% of the employee’s total wages was to be paid to those reaching 65 without qualifying for monthly benefits. A death payment of a similar amount was provided subject to deductions of any benefits the worker might have received during his lifetime.As you know, the 1939 Amendments changed the benefit formula by substituting average earnings for lifetime cumulative earnings and weighting it somewhat in favor of lower income groups and most of all provision was made for dependent and survivors allowances which materially changed the Act altogether.

NOTE: Of considerable importance was Section 702 -“The Board shall have the duty of studying and making recommendations as to the most effective methods of providing economic security through social insurance, and as to legislation and matters of administrative policy concerning old age pensions, unemployment compensation, accident compensation and related subjects.”

Historians have called the Social Security Act “a new landmark in American history, a tremendous break with the inhibitions of the past.” One historian has called it “revolutionary.” F.D.R. himself, called it “the supreme achievement of his administration.”

The Social Security Act provided coverage to replace reliance upon charity and public relief. It was thus more orderly, dignified and reliable. Here, of course, we are speaking of old age benefits through contributions by the beneficiaries.

At the same time, it may well be asked — did the Social Security Act retard, set back or kill off the development of an old age movement, one that would have moved off with considerable — and growing strength — to new and more radical nostrums?

Yet Social Security was also a weak and hesitant piece of legislation in many ways:

1. It relied on regressive taxation. Yet, perhaps, there was something more to this: As F.D.R. put it some years later: “I guess you’re right on the economics. But the taxes were never a problem of economics. They are politics all the way through. We put the payroll contributions there so as to give the contributors a legal, moral and political right to collect their pension and their unemployment benefits. With those taxes in there, no politician can ever scrap my social security program.”

2. It withdrew vast sums to build up reserves.

3. It denied coverage to numerous classes of workers, including those who perhaps needed it most – farmer laborers and domestics, most or all of whom have since been provided coverage or the chance to do so.

4. The full impact of old age benefits was not even to begin to be felt for more than 6 years; contributions were to begin in 1937, with monthly benefits not until January 1942– a long time considering the obvious needs.

5. Health insurance was ignored.

6. The unemployment insurance system was not provided with adequate national standards.

Thus the Social Security Act was really a compromise. It reconciled the philosophy of individualism with the facts of economic interdependence. It involved acceptance of the premise that a Government has a certain responsibility for the welfare of its people –one consistent with humanitarian principles and with the tradition of democratic Government. It would have been more radical had the Government assumed responsibility to assure continuity of income and a minimum level of economic well being to those citizens whose income had been interrupted or curtailed by certain risks or events. This, as you know, is under serious consideration today.

The Social Security Act only slightly modified the distribution of wealth and it did not alter at all the foundations of our capitalistic and individualistic economy. Nor does it relieve the individual of primary responsibility for his own support and that of his dependents. It does not dampen initiative nor render thrift outmoded. Eligibility and benefits both in the contributory old age and unemployment insurance titles were closely work-related, Government contributions were omitted, and fiscal conservatism prevailed in the emphasis upon reserves and the equity principle of private insurance.

The concept of differential benefits related to wages and the duration of earnings is essentially a conservative element in our social insurance philosophy. In America we still believe that a man should be rewarded for his own efforts. An established differential in one’s earnings and living standards is a precious asset, not only to the individual, but to the society in its progress toward a better world. Perhaps this attitude is changing, perhaps not.

To conclude, we have seen how social welfare responsibilities passed into the hands of Federal and State Governments. Private organizations still have a function to perform, but principally to supplement Governmental services. This was a complete change for the United States. Yet it was more democratic than the old approach; it lifted the financial burden from philanthropy and distributed it equitably among all tax paying citizens. This is an earmark of a maturing society — no longer leaving things to chance generosity — but doing them in the boldest humanitarian ways.