The story begins more than a century ago in Imperial Germany. In 1889 Chancellor Otto von Bismarck got a law passed setting up an old-age insurance program that required German workers to contribute a portion of their wages to a fund that would pay them in their retirement. Why? In a time of frightening worker unrest and socialist ferment, Bismarck bluntly admitted that he wanted “to bribe the working classes … to regard the State as a social institution … interested in their welfare.” In other words, he feared he had to start doing more for the workers or they might rise up against him.

Before long other European nations followed. The U.S., with its powerful spirit of self-reliance and independence, did not. Yet old age was getting harder for Americans. By the end of the 19th century the nation had gone from mainly agricultural to industrial, from rural to urban, and from extended families in which generations stayed together to what we now call the nuclear family, of parents and children alone. Americans who worked in factories or offices could easily find themselves out of a job in economic hard times, and when they retired they couldn’t fall back on their families as their parents had. Also, people were living longer. That all added up to more and more people facing long old ages without any resources.

A timeline of Social Security

Click on the arrows or dates to scroll through key moments in this interactive timeline.

There were modest pensions for veterans and a few company pension plans, especially among railroads. After the Stock Market Crash of 1929 a few states tried to set up old-age pension systems, but didn’t have the power to effectively implement them. Most older Americans had nothing to fall back on. By 1934, it is estimated, more than half of the elderly in the U.S. were unable to support themselves.

Popular movements arose to challenge this dire situation and agitate for impossible solutions. Huey P. Long, then governor of Louisiana, started the Share Our Wealth Society, which called on the government to guarantee every family in the nation an income of at least $2,000 a year (about $33,000 today), plus a pension for everyone over 60 and confiscation of every personal fortune above $8 million. By 1935 Share Our Wealth had 7.7 million members. Francis E. Townsend, a broke 66-year-old retired doctor, launched a proposal in 1933 to pay every American over 60 $200 a month ($2,400 today) on the condition they spend the money within a month. The payments would be funded by a two percent national sales tax. He soon had millions of followers who organized Townsend Clubs across the country to promote his plan.

President Franklin D. Roosevelt said at one point, “The Congress can’t stand the pressure of the Townsend Plan unless we have a real old-age insurance system, nor can I face the country.” So, on June 8, 1934, he sent Congress a message urging it to enact “social insurance … to provide security against several of the great disturbing factors in life—especially those which relate to unemployment and old age.” He added that “lessons of experience are available from states, from industries, and from many nations of the civilized world.” He set up a committee of five cabinet-level officials headed by Labor Secretary Frances Perkins to come up with a plan.

The committee soon had a large staff and an array of subcommittees. The five officials divided their job into three parts, with one big group tackling unemployment insurance, one big group working on health insurance, and a much smaller group focusing on old-age security. The unemployment team bogged down in disputes, and the health care reformers were kept from doing much by opposition from the American Medical Association, which didn’t want doctors restrained by national regulation. The old-age group, however, came together on a plan where workers and their employers would each contribute, paycheck by paycheck, to a fund that would provide the workers a pension after they retired. It was a relatively moderate, conservative answer to the radical ideas of people like Long and Townsend.

At first the proposed Social Security law was attacked by liberals as doing too little and by conservatives as approaching socialism; but opposition faded, and President Roosevelt signed the Social Security Act of 1935 on August 14 of that year. The law included unemployment insurance, aid to dependent children, and other elements, but its biggest feature was the old-age part we now think of as Social Security. Taxes for it were first collected in 1937, and for three years the trust fund was built up before the first monthly Social Security check was written in 1940, giving Ida May Fuller, a retired legal secretary in Ludlow, Vermont, $22.54.

The idea was not to provide a pension where people would always get back the amount they put in; rather it was to collect a pool of insurance money from people and return it to them if and when they needed it. Thus what you receive depends on when you stop working, and a disabled worker can start collecting early and end up getting more than that worker paid in. Originally the law required you not to work at all after 65 to get Social Security no matter how much you had paid in. This requirement was intended to remove older people from the labor pool, creating more jobs for the young. The law also excluded farm and transient workers, domestic servants, and anyone working for someone with fewer than 10 employees. Those people may have needed Social Security the most, but legislators believed the tax would be too hard to collect from them.

The system has been modified and expanded many times since its creation. In 1940 benefits were added for a survivor of a retiree who died. In 1950 cost of living raises were introduced. Disability coverage was added in 1954. Also, Medicare and Medicaid, begun in the 1960s, are both officially part of the Social Security System. In the 1970s fixes started being made to keep the system from losing money; in 1977 the tax rate was slightly increased and benefits were slightly reduced, and in 1983 the retirement age was raised (to eventually reach 67 for full benefits) while the payout for early retirees and people still working was reduced.

Because the nation is going through an enormous demographic change with aging baby boomers, none of those adjustments has made the system permanently sound. There are now more Americans over 65 than ever before to take money out of the system and not enough younger workers paying in to keep up. Social Security’s financing is in need of repair. Nonetheless, the system is hardly on the brink of collapse, as some claim.

Around 56 million Americans, a sixth of the population, received Social Security benefits in 2011. The system is paying them a total of $727 billion. After years of taking in more than it paid out and building up a surplus, the system has just begun to dip into that surplus—the “trust fund” of government bonds, now at a peak of $2.6 trillion. No one can say exactly how fast the trust fund will diminish, but the Social Security Administration and the non-partisan Congressional Budget Office (CBO) both estimate that if nothing is done it will last until around 2036. But even in that extreme case, Social Security will be able to pay out as much as it takes in. It just won’t be able to pay recipients 100 percent of what they get now; instead, they’ll get something like 76 percent.

How can the loss of money be stopped? There are four possible ways: raise the retirement age; reduce benefits or cost of living increases; raise the top income level for paying Social Security taxes; or raise the Social Security tax rate. If the tax rate were raised from its present 12.4 percent, half paid by employees and half by employers, to 14 percent, that would do it, according to the CBO. More likely is a mix of a smaller tax rise, a modest increase in the retirement age, and a rise in the cap on taxed salary.

In other words, Social Security has very real long-term funding problems, but it is not in a crisis that can’t be fixed. And as for those who say that its trust fund doesn’t really even exist because the government has spent all the money in it, in a sense that’s true—but it’s not a very meaningful sense. The trust fund’s money is all in government bonds, which pay an average of 2.76 percent. Any bond is, in effect, a loan of money to the bond’s issuer and only has value if the bond issuer can repay the loan. The bonds that compose the Social Security trust fund are backed by the full faith and credit of the U.S., and it is almost universally agreed that the U.S. government is more dependable than any other issuer of bonds—or any other investment—on Earth. So the Social Security trust fund may not be 100 percent safe, but any other conceivable investment is probably less safe. That’s one reason why attempts to “privatize” Social Security—replacing the trust fund with individuals’ investments in stocks and other securities, such as President George W. Bush proposed in 2005—haven’t gone very far. After the recent stock market crash, privatization appeals to fewer people than ever.

And here’s a glimmer of good news in that long, uncertain future: Eventually, the flood of baby boomers will end, and older people won’t so greatly outbalance younger ones as they do in this unique period of history. So even if the next generation can’t retire quite as comfortably as Americans could in the unprecedentedly prosperous years since World War II, maybe the generation after that will be more comfortable again—as long as we don’t give up on a Social Security system that has worked wonders for millions of Americans for most of a century. There’s a reason it has been “the third rail of American politics” ever since House speaker Tip O’Neill first called it that in the 1980s: Everyone worries about it, but virtually no one wants to lose it.

Social Security The Saturday Evening Post

Technically, it wasn’t a “wealth tax” but a “alternative minimal” income tax, which would ensure millionaires paid the same effective tax rate as middle income taxpayers.

Nevertheless, critics promptly named it the “Soak the Rich” tax.

Curiously, this is the same name used to describe a similar plan in 1935. In that year, Franklin D. Roosevelt proposed raising the annual tax rate for individuals earning over $50,000 (roughly equivalent to $800,000 today.)

The Post—ever opposed to Roosevelt and the New Deal—believed that raising taxes on the wealthy was the beginning of a program to redistribute wealth. The rich, according to the editors, couldn’t provide the revenues needed; they simply didn’t have enough money.

The colossal debts which the Government has incurred can never be paid from “wealth taxes,” no matter how nearly confiscatory. The rich are too depleted, in both income and fortune, to yield the sums which are required. Strictly speaking, what the situation calls for is not so much more taxes as more individuals and corporations capable of paying taxes.

They believed the government could only get the revenues it needed by raising taxes on middle-income Americans.

Under any system of private enterprise, the necessary revenues cannot

As part of his re-election campaign, Roosevelt became increasingly critical of big business.

be had except by making people of moderate means pay far more than they now are paying. But an official announcement of such intention would be most unpopular in a political sense at the present time. On the other hand, an appeal to “soak the rich” is one of the oldest and most popular in the whole political game. Naturally, nothing is said at the start about making other people pay. That will come later.

He is an innocent and guileless soul indeed who does not realize that this program of soaking the rich is merely a preliminary to a grinding of the face of the middle class and the poor.

The Post consistently argued against any scheme to make the wealthy pay higher taxes. But this was 1935. Back in 1913, when Congress first approved a peacetime income tax, it held a different opinion. In that year, the editors regarded income tax as an enlightened, fair-minded approach to raising government revenue. And it published an article by Congressman Benton McMillin, who explained why wealthy should contribute more to the country.

Way down in the hearts of the masses of mankind there lurks a strong sense…

that vast accumulations of wealth in the hands of individuals or corporations should help to support the Government under which they are acquired, by which they are protected and without which they would vanish.

Why tax the widow’s mite and the orphan’s bread and not tax these accumulations? Why lay tribute on what we eat and wear, and leave untaxed millions in the hands of those who can never personally consume it, and with whom it is surplus?

If there ever was a time when the concentrated wealth of the land should bear its share of our enormous expense of government, it is now.

There were only two sources of revenue, McMillin said, that could be fairly and practically taxed:

whiskey, wines, beer and tobacco, because, being subject of voluntary consumption, they are more properly taxable than the necessaries of life; and incomes, because thereby each taxed citizen pays in proportion to his ability.

An income tax was more equitable than sales taxes, he wrote, because they put a heavier burden on lower-income taxpayers.

it takes as many yards of cloth to clothe comfortably and as many pounds of sugar, meat, and vegetables to feed bountifully a poor man as a rich one.

Hence, when taxation is based on consumption… the burden is borne unequally—the poor paying more and the rich less than their fair share.

Heretofore we have taxed Want instead of Wealth.

When President Roosevelt put his “wealth tax” proposal into the Revenue Act of 1935, he knew it wouldn’t get far. But it was an election year during the Depression. A growing number of middle- and lower-income voters were feeling impatient for recovery and resentful toward the wealthy, who they believed were responsible for the ailing economy. Demagogues like Senator Huey Long were gaining broad support for programs for redistributing wealth. Roosevelt hoped to win back these voters with a proposal that would be whittled down in Congress to a modest increase.

The Revenue Act that was finally approved raised the top tax bracket from 63% to 79% for any American making over $5 million a year. Which was just one person: John D. Rockefeller.

Taxing the Wealthy: The Continuing Controversy The Saturday Evening Post

The discussion was quoted in the editorial The Spenders from the August 8, 1936 issue of The Saturday Evening Post.

Americans wanted to know the facts about the government’s expenditures but where could they obtain such information? Many believed since ¼ of every dollar they made was being turned into the government they had earned the right to know about the government’s spending.

In comparison, Americans today still want to know the answers to those same questions. Although the wave of the New Deal happened over 70 years ago, President Barack Obama is strongly being compared to the New Deal creator, FDR.

“Obama’s plea for a massive government spending program is based on his belief that Roosevelt’s New Deal helped lift the country out of the 1930s depression,” states the article “Amid echoes of FDR, debate rekindles over New Deal” in the January 15, 2009 edition of The Boston Globe.

Regardless of your opinion of the new deal, Obama is clearly eager to tread foot on the foundation built by presidents before him. “Obama is a serious student of the period and is trying to apply its lessons, both in terms of economic theory and inspirational message. The President [Elect], however, cautioned in a recent television interview that he wouldn’t simply copy the New Deal because ‘no period is exactly the same,’” states the Boston Globe article.

POST script, May 24, 2012:

The Spenders The Saturday Evening Post

Rockwell spent six months painting The Four Freedoms, which were published in a series of Saturday Evening Post issues in 1943, accompanied by short essays from four distinguished writers. The U.S. Government subsequently issued posters of Rockwell’s paintings in a highly successful war bond campaign that raised more than $132 million for the war effort. Rockwell’s homey depictions of Roosevelt’s abstract concepts were widely popular across America, yet not everyone was completely in tune with the ideas elaborated in Roosevelt’s speech.

In an editorial published later in 1943 (reprinted below), Post editors addressed a controversy over the meaning of the freedoms, in a debate that still has relevance today. Perhaps not since FDR has a president faced challenges as daunting as those that await our new Commander in Chief, who like FDR promised significant “change” in a time of tremendous economic and global turmoil.

“It took a lot of blood, sweat and tears to get to where we are today, but we have just begun,” Barack Obama said during the campaign. “Today we begin in earnest the work of making sure that the world we leave our children is just a little bit better than the one we inhabit today.”

Is the dream still alive? As then, we are certainly permitted to hope and aspire to the same ideal.
The Four Freedoms Are an Ideal

For millions of people throughout the world the Four Freedoms have come to represent something which gives meaning and importance to the sacrifices which the human race is now making, but these freedoms are by no means universally accepted as worthy aims for nations at war. Indeed, a not inconsiderable number of people regard the Four Freedoms as actually evil, an effort to deceive people into imagining that they will never again have to take thought for the morrow, since government will provide everything for them.

Few people object to the first two freedoms mentioned by President Roosevelt in his message of January 6, 1941. Freedoms of Speech and Religion are familiar to Americans and are already guaranteed to them. Some people wondered whether the President’s phrase “everywhere in the world” meant that the United States would be called on to fight until such liberties as we enjoy became the right of millions in Asia, Russia, and Eastern Europe. But what the President said was that we “look forward to a world” in which these freedoms are taken for granted. In as much as we Americans have prided ourselves on looking forward to such a free world ever since we became free ourselves, it is difficult to see that Mr. Roosevelt said anything very alarming when he led the world to hope that Freedoms of Speech and Religion might someday be the possession of men everywhere.

The real controversy, of course, rages about the other two freedoms: Freedom from Want and Freedom from Fear. The assumption by those who are alarmed at their inclusion in a body of doctrine is that they imply that men are to be guaranteed not merely against “want” in the literal sense, but against lacking anything they happen to desire at any given moment. Freedom from Fear, these critics affect to believe, implies that the Government is fraudulently promising to remove all the hazards of life which men have feared in the past.

If we believed that either Freedom from Want or Freedom from Fear meant that the New Deal was promising to pass a miracle which would end the necessity of individual work or foresight, reward the lazy and incompetent as richly as the able and conscientious, and set up a “welfare state,” we should be as dubious about the Four Freedoms as are some of our correspondents. Some New Dealers may misconstrue these freedoms, but there is little ground for such an interpretation. After all, “economic understandings which will secure to every nation a healthy peacetime life for its inhabitants” are as nearly realizable as “the full dinner pail” or “a chicken in every pot”— phrases seldom associated with radical welfare schemes. In fact, such understandings have been the professed goal of American statesmen for many years.

As to Freedom from Fear, it seems to us to contain no meaning more revolutionary than that suggested by Norman Rockwell’s touching artistic interpretation, in the picture of the parents regarding the untroubled sleep of their children. Mr. Roosevelt expressed Freedom from Fear as translatable into “a world-wide reduction of armaments to such a point…that no nation will be in a position to commit an act of physical aggression against any neighbor.” Nothing about guarantees against fear of measles, graying hair or the consequences of laziness or incompetence.

If there is genuine confusion about the meaning of the Four Freedoms, some of it is doubtless explained by failure to note that Mr. Roosevelt, in listing these objectives, used the expression, “we look forward to a world.” Well, so do the rest of us look forward to a world in which men shall respect the right of others to their own opinions; a world in which better use shall be made of the machinery of production, so that lack of necessities which are so easily produced shall be the lot of nobody who can and will contribute his labor; a world organized politically, so that men need not fear the horrors of destruction by weapons of war.

Few of us expect such a world to be attained all at once, by fiat of the executive or by mere use of phrases. But all of us are permitted to hope, in the midst of an unprecedently cruel and destructive war, that the peoples of the world will eventually understand their problems sufficiently to solve some of them. Thus interpreted, the Four Freedoms represent pretty well what men have always hoped for—political liberty, a better standard of living and an end to war. We should think all Americans could get together on such an expression of human aspiration.

Norman Rockwell’s Four Freedoms The Saturday Evening Post