Legislative History

House Ways & Means Report on 1935 Legislation

Shortly after the 74th Congress convened in January 1935, President Roosevelt sent his Social Security legislation to Capitol Hill. The Administration proposal was transmitted to the Congress on January 17, 1935 and it was introduced that same day in the Senate by Senator Robert Wagner (D-NY) and in the House by Congressman Robert Doughton (D-NC) and David Lewis (D-MD). The bill was referred to the Senate Finance Committee and the House Ways & Means Committee.

During Ways & Means Committee consideration of the Administration's bill (H.R. 4120) the Committee made several changes in the draft legislation. Among other changes, the Committee deleted the Administration's proposal for a system of voluntary annuities and it proposed creating a Social Security Board as an independent agency to administer most of the programs of the legislation.

This Report is the result of the Ways & Means Committee's modification of H.R. 4120. It has been renamed H.R. 7260 and is being reported to the full House of Representatives for its consideration. The bill, H.R. 7260, passed the House, without major change, on April 19, 1935. Subsequently, the Senate Finance Committee reported out a somewhat different version of the legislation.

74TH CONGRESS
HOUSE OF REPRESENTATIVES

1st Session

Report  No. 615

THE SOCIAL SECURITY BILL

APRIL 5, 1935

Committed to the Committee of the Whole House
on the state of the Union
and ordered to be printed

Mr. DOUGHTON, from the Committee on Ways and Means, submitted the following

REPORT

[To accompany H. R. 7260]

The Committee on Ways and Means, to whom was referred the bill (H R 7260) to provide for the general welfare by establishing a system of Federal old- age benefits, and by enabling the several States to make more adequate provision for aged persons, dependent and crippled children, maternal and child welfare, public health, and the administration of their unemployment compensation laws, to establish a Social Security Board, to raise revenue, and for other purposes, having had the same under consideration, report it back to the House without amendment and recommend that the bill do pass.

PART I. GENERAL STATEMENT

CONTENTS OF BILL

This bill provides for various grants-in-aid to the States; establishes a Federal old-age benefit system and a Social Security Board; and imposes certain taxes, hereinafter described.

Title I: Grants-in-aid are to be made to the States for old-age pensions to persons who have reached the age of 65. In making these grants the Federal Government will match what the States put up, within certain limits.

Title II: A system of Federal old-age benefits, payable to people who have reached the age of 65, will begin in 1942. These benefits are to be measured by wages, and are payable wholly regardless of the need of the recipient.

Title III: Grants-in-aid are made to the States, to pay the administrative costs of State unemployment compensation systems. The amounts authorized should be sufficient to meet these costs, and no matching is required.

Title IV: Grants-in-aid are to be made to the States to assist them in giving aid to dependent children. In making these grants, the Federal Government will, within certain limits, put up one third of the total amount paid in the State for aid to dependent children.

Title V: Grants-in-aid are made to the States for aid in their services relating to maternal and child welfare, the care of crippled children, and vocational rehabilitation. Most of these grants are to be made on an equal matching basis.

Title VI: Grants-in-aid are to be made to the States for developing their public health services, and authorization is made for the Public Health Service to carry on its investigatory work.

Title VII: A Social Security Board, which is to be an independent agency in the executive branch of the Government, is established. The board is to have three members, holding office for 6 year terms.

Title VIII: An income tax, measured by a certain percentage of wages (beginning with 1 percent in 1937 and increasing to 3 percent by 1949), is levied on most wage earners, with certain large groups, such as domestic servants and agricultural laborers, exempted. An excise tax, measured at the same rates on wages paid, is levied on employers, with similar exemptions. These taxes first take effect on January 1, 1937.

Title IX: An excise tax is levied on employers of 10 or more persons (with certain exemptions), measured by 1 percent of wages payable for 1936 and increasing to 3 percent by 1938. This tax goes into effect on January 1, 1936, and is first payable a year later. Credits against the tax are allowed for contributions which the taxpayer may have made to State unemployment funds under State unemployment compensation laws.

Title X: This title contains general definitions and miscellaneous provisions applying to the whole act.

HISTORY OF LEGISLATION

Legislation on the subject of social security was promised the country in a Presidential message of June 8, 1934, in which he said:

Our task of reconstruction does not require the creation of new and strange values. It is rather the finding of the way once more to known, but to some degree forgotten, ideals and values. If the means and details are in some instances new, the objectives are as permanent as human nature.

Among our objectives I place the security of the men, women, and children of the Nation first.

This security for the individual and for the family concerns itself primarily with three factors. People want decent homes to live in; they want to locate them where they can engage in productive work; and they want some safeguard against misfortunes which cannot be wholly eliminated in this man made world of ours.

Subsequently, the President (by Executive order) created the Committee on Economic Security, composed of the Secretary of Labor (chairman), the Secretary of the Treasury, the Attorney General, the Secretary of Agriculture, and the Federal Emergency Relief Administrator, instructing the committee to study the entire problem and to make recommendations which might serve as the basis for consideration of legislation by the present Congress.

The Committee on Economic Security devoted 6 months to this study in which it was assisted by a staff of specialists and by 14 advisory groups, representative of every interest concerned with the problems of economic security, including capital, labor, and the general public. For personnel of advisory committees, see the appendix of this report. The committee made a unanimous report to the President in January of this year, which the President transmitted to both Houses of the Congress, with his endorsement of the legislation recommended therein, in a special message on January 17, 1935, the concluding paragraphs of which were as follows:

The establishment of sound means toward a greater future economic security of the American people is dictated by a prudent consideration of the hazards involved in our national life. No one can guarantee this country against the dangers of future depressions but we can reduce these dangers. We can eliminate many of the factors that cause economic depressions, and we can provide the means of mitigating their results. This plan for economic security is at once a measure of prevention and a method of alleviation.

We pay now for the dreadful consequence of economic insecurity and dearly. This plan presents a more equitable and infinitely less expensive means of meeting these costs. We cannot afford to neglect the plain duty before us. I strongly recommend action to attain the objectives sought in this report.

These recommendations were incorporated in H. R. 4120 on which this committee held extended hearings from January 21 to February 12, at which more than 1,000 pages of testimony were taken. Since the conclusion of the hearings the measure has received the constant attention of the committee until the present moment, and numerous changes in the content and form were agreed upon. These changes involved a complete revision resulting in the drafting and introduction of H. R. 7260, herewith recommended for passage.

PURPOSE AND SCOPE

The need for legislation on the subject of social security is apparent at this time. On every hand the lack of such security is evidenced by human suffering, weakened morale, and increased public expenditures.

This situation necessitates two complementary courses of action: We must relieve the existing distress and should devise measures to reduce destitution and dependency in the future.

Thus far in the depression, we have merely attempted to relieve existing distress, but the time has come for a more comprehensive and constructive attack on insecurity. The foundations of such a program are laid in the present bill.

Work for the employable on relief is contemplated in the work­relief bill; a second vital part of the program for security is presented in this bill. The bill is designed to aid the States in taking care of the dependent members of their population, and to make a beginning in the development of measures which will reduce dependency m the future. It deals with four major subjects: Old age security, unemployment compensation, security for children, and public health. These subjects are all closely related, all being concerned with major causes of dependency. Together they constitute an important step in a well rounded, unified, long range program for social security.

OLD AGE SECURITY

There are now approximately 7,500,000 men and women over 65 years of age in the United States, and for decades the number and percentage of old people in the population have been increasing. This tendency is almost certain to continue throughout the century. Statisticians, estimate that by 1970 there will be 15,000,000 people over 65 years of age and by the end of the century, about 19,000,000. In contrast with less than 6 percent of the entire population now over 65, more than 10 percent will fall in this age group in 1970, and above 12 percent by the end of the century.

These, moreover, are minimum estimates, which may be greatly exceeded if cures are discovered for the major causes of death among old people.

Approximately 1,000,000 men and women over 65 years of age are dependent upon the public for support, the great majority of them on relief. This number is certain to increase in the future due to (1) the rapid increase of persons over 65 years of age, (2) the fact that many of the older workers now unemployed will never be steadily employed again, (3) the disappearance during the depression of the lifetime savings of many families approaching old age, and (4) the lessened ability of children to support their parents. The social problem of old age dependency, great as it is today, is certain to become more acute in the future unless adequate measures are taken now.

Experience, both in this country and in other lands, has demonstrated that the best way to provide for old people who are dependent upon the public for support is through old age assistance grants, more commonly called "old age pensions." Twenty nine States and the Territories of Alaska and Hawaii have old age pension laws. Approximately 200,000 old people are now in receipt of old age assistance under these laws, and while the grants are often inadequate, the lot of the pensioners is distinctly less hard than that of old people on relief. But due in part to restrictive provisions in the State laws, and still more to the financial embarrassment of many State and local governments, the old age pension laws are limited in their application and do not provide adequately for all old people who are dependent upon the public for support.

To encourage States to adopt old age pension laws and to help them carry the burden of providing support for their aged dependents, this bill proposes that the Federal government shall match the expenditures of the State and local governments for old age pensions, except that the Federal share is not to exceed $15 per month per individual. A few standards are prescribed which the States must meet to entitle them to Federal aid, but these impose only reasonable conditions and leave the States free of arbitrary interference from Washington.

The provisions for Federal aid, included in title I, are designed for the support of people now old and dependent. They do not, however, furnish a completely satisfactory solution of the problem of old age support, considered from a long time point of view. If no other provisions are made, the cost of gratuitous old age pensions is bound to increase very rapidly, due to the growing number of the aged and the probable increasing rate of dependency. Unless a Federal benefit system is provided, the cost of old age pensions under title I shared equally by the Federal Government and the States, would by 1960 amount annually to more than $2,000,000,000 and by 1980 to nearly $2 600,000,000, on the basis of an average monthly pension of $25.

To keep the cost of Federal aided State pensions under title I from becoming extremely burdensome in future years, and to assure support for the aged as a right rather than as public charity, and in amounts which will insure not merely subsistence but some of the comforts of life, title II of the bill establishes a system of old age benefits, paid out of the Federal Treasury, and administered directly by the Federal Government. The benefits provided for workers who have been employed during substantially all their working life, will probably be considerably larger than any Federal aided State pensions could be. The benefits to be paid are related to the wages earned, but there are adjustments favoring the lower paid employees and those approaching old age. The minimum monthly benefit payable is $10, and the maximum is $85. An employee whose total wages, as defined in the act, prior to the age of 65 amount to less than $2,000 will not qualify for benefits, but he will receive 31/2 percent of his wages in a lump sum at the age of 65. He may be eligible also for a Federal aided State pension under title I.

The establishment of the Federal old age benefit system will materially reduce the cost of Federal and State pensions under title I in future years. It will not entirely replace that system, because not all persons will be under the Federal old age benefit plan. It will operate, however, to reduce the total cost of old age pensions under title I to the Federal and State Governments in the future by more than $1,000,000,000 annually.

UNEMPLOYMENT COMPENSATION

Unemployment is an even more prevalent cause of dependency than old age; in fact, it is the most serious of all hazards confronting industrial workers. During the years 1922 to 1929 an average of 8 percent of the industrial workers in this country were unemployed, and in the four depression years, 1930 to 1933, the unemployment rate was above 25 percent. Of all urban families now on relief, more than four fifths are destitute because of unemployment.

Unemployment is due to many causes and there is no one safeguard that is all sufficient. It can be dealt with in a reasonably adequate fashion only through a two-fold approach, similar to that recommended for dealing with the old age problem. Provisions must be made for the relief of those now unemployed, and there should also be devised a method for dealing with the unemployment problem in a less costly and more intelligent way in future years. It should be clearly understood that State unemployment compensation plans made possible by this bill cannot take care of the present problem of unemployment. They will be designed rather to afford security against the large bulk of unemployment in the future.

For those now unemployed the best measure of protection is to give them employment, as is contemplated in the work relief bill. To provide something better than relief on a needs basis for the unemployed of the future, the establishment by the States of unemployment compensation systems is urgently to be desired. Titles III and IX seek to encourage States to set up such systems and to keep them from being handicapped if they do so.

The essential idea in unemployment compensation, more commonly but less accurately called "unemployment insurance" is the accumulation of reserves in times of employment from which partial compensation may be paid to workers who become unemployed and are unable to find other work. Unemployment insurance cannot give complete and unlimited compensation to all who are unemployed. Any attempt to make it do so confuses unemployment insurance with relief, which it is designed to replace in large part. It can give compensation only for a limited period and for a percentage of the wage loss.

Unemployment compensation, nevertheless, is of real value to the industrial workers who are brought under its protection. In normal times it will enable most workers who lose their jobs to tide themselves over, until they get back to their old work or find other employment, without having to resort to relief. Even in depressions it will cover a considerable part of all unemployment and will be all that many workers will need. Unemployed workmen who cannot find other employment within reasonable periods will have to be cared for through work relief or other forms of assistance, but unemployment compensation will greatly reduce the necessity for such assistance. Unemployment compensation is greatly preferable to relief because it is given without any means test. It is in many respects comparable to workmen's compensation, except that it is designed to meet a different and greater hazard.

Unemployment compensation is valuable to the public as well as to the industrial workers themselves. It is a measure tending to maintain purchasing power, upon which business and industry are dependent. Had there been a system of unemployment compensation throughout the country in the years from 1922 on, with a 3 percent contribution rate, not only would practically all unemployment of the prosperity period have been compensated, but it is estimated that $2,500,000,000 would have been available for payment of benefits with the beginning of the depression in 1929. Such an amount paid to unemployed workmen at that time would unquestionably have had a most wholesome, stabilizing effect upon business.

Unemployment compensation has behind it an extensive European experience. No country which has experimented with unemployment insurance has ever abandoned it. In this country it has been endorsed by numerous Federal and State commissions and committees, but prior to this year only one State enacted such a law, and this came into operation less than a year ago.

The failure of the States to enact unemployment insurance laws is due largely to the fact that to do so would handicap their industries in competition with the industries of other States. The States have been unwilling to place this extra financial burden upon their industries. A uniform, Nation-wide tax upon industry, thus removing this principal obstacle in the way of unemployment insurance, is necessary before the States can go ahead. Such a tax should make it possible for the States to enact this socially desirable legislation.

This is one of the purposes of title IX of this bill. In this title a tax is imposed upon employers throughout the country against which a credit is allowed of up to 90 percent of the tax for contributions made by employers to unemployment compensation funds established pursuant to State law.

That this tax is imposed on employers is indicative of the conviction that employers should bear at least a part of the cost of unemployment compensation, just as they bear the cost of workmen's compensation. Each State is, of course, free to assess not only employers but employees; and in this connection it may be noted that in European countries, and under the law recently passed by the State of Washington, employees are required to contribute.

The amount of benefits payable for unemployment from contributions amounting to 3 percent of pay roll would vary from State to State. The maximum period for which benefits may be paid depends not only upon the rate of unemployment, but also upon the percentage of wages paid as benefits, the length of the required waiting period, the ratio of weeks of employment to weeks of benefits, and other provisions. The scale of benefits which States will be able to pay from a 3 percent rate of contributions on pay rolls will carry the great majority of unemployed workers through normal years until they are able to secure employment again. While the Federal tax is limited to 3 percent (1 percent in 1936 and 2 percent in 1937), some States will probably increase the benefits payable by requiring also contributions from the employees or the State government. Under a reasonable scale of benefits, reserves would accumulate in normal years to carry the fund through minor depressions or the first years of a major depression.

The bill permits the States wide discretion with respect to the unemployment compensation laws they may wish to enact. The standards prescribed in this bill, which are described in part II of this report, are designed merely to insure that employers will receive credit against the Federal pay roll tax only for payments made under genuine unemployment compensation laws.

Yet the Federal Government, under this bill, has important functions to perform in order to make it possible for the States to have unemployment insurance laws and to facilitate their operation. It equalizes competitive conditions through the imposition of the employment excise tax provided for in title IX. The bill further provides that the Social Security Board, which is created in title VII to administer all parts of the social security program other than aids coming within the scope of operation of existing bureaus, shall have the duty of studying and making recommendations with respect to the broad problems of economic security. This Board will be able to render important actuarial and scientific services to the States in connection with their unemployment insurance systems. In title III financial aid is given the States by the Federal Government to defray their costs in administering unemployment insurance. Finally, the Federal Government is to handle all unemployment reserve funds, in a trust account in the United States Treasury for the benefit of the States to which they belong.

This last provision will not only afford maximum safety for these funds but is very essential to insure that they will operate to promote the stability of business rather than the reverse. Unemployment reserve funds have the peculiarity that the demands upon them fluctuate considerably, being heaviest when business slackens. If, in such times, the securities in which these funds are invested are thrown upon the market for liquidation, the net effect is likely to be increased deflation. Such a result is avoided in this bill through the provision that all reserve funds are to be held by the United States Treasury, to be invested and liquidated by the Secretary of the Treasury in a manner calculated to promote business stability. When business conditions are such that investment in securities purchased on the open market is unwise, the Secretary of the Treasury may issue special nonnegotiable obligations exclusively to the unemployment trust fund. When a reverse situation exists and heavy drains are made upon the fund for payment of unemployment benefits, the Treasury does not have to dispose of the securities belonging to the fund in open market but may assume them itself. With such a method of handling the reserve funds, it is believed that this bill will solve the problem often raised in discussions of unemployment compensation, regarding the possibility of transferring purchasing power from boom periods to depression periods. It will in fact operate to sustain purchasing power at the onset of a depression without having any counteracting deflationary tendencies.

SECURITY FOR CHILDREN

Titles IV and V of the bill deal with another important aspect of economic security, that of security for children. Children are, perhaps, the most tragic victims of the depression. More than 40 percent of all persons on relief--approximately 9,000,000 individuals­-are children under 16, in contrast to 28 percent of the entire population falling in this age group. In less than a generation these children will constitute a large part of the adults who must carry the burdens of our social system and the responsibilities of our Government. As was well stated by the Committee on Economic Security, "the core of any social plan must be the child." And with so many children now growing up under the abnormal conditions involved in relief and the many hardships created through the depression, it is imperative that everything possible be done to offset the demoralizing and deteriorating effects of the great disaster that has befallen this country.

DEPENDENT CHILDREN

One clearly distinguishable group of children, now cared for through emergency relief, for whom better provision should be made, are those in families lacking a father's support. Nearly 10 percent of all families on relief are without a potential breadwinner other than a mother whose time might best be devoted to the care of her young children. Last fall it was estimated that there were above 350,000 families on relief the head of which was a widowed, separated, or divorced mother and whose other members were children under 16. Above 700,000 children under 16 belong to such families, and, with the increase in relief lists since then, this number has probably increased proportionately.

It has long been recognized in this country that the best provision that can be made for families of this description is public aid with respect to dependent children in their own homes. Forty five States now have laws providing such aid, but in many of these States the laws are only partially operative or not at all so. With the financial exhaustion of State and local governments a situation has developed in which there are more than three times as many families eligible for such aid as are actually in receipt of it, and they are now being supported by emergency relief.

For the welfare of the many young children involved, it is highly desirable that these families should be taken care of through public aid. This will not be possible, however, unless the Federal Goverment aids the States in carrying this burden. Such aid is proposed in title IV of this bill, under which the Federal Government will assume one third of the cost of aid to dependent children paid under State laws. This does not involve any larger expenditures than the Federal government has been making for the support of these families on relief, but will very ma