Arthur J. Altmeyer

Works of Arthur J. Altmeyer

1935 Speech

The New Social Security Act

By A.J. ALTMEYER,Member of the Social Security Board
Radio Address, September 3, 1935

I APPRECIATE this opportunity to discuss briefly the Social Security Act which has just gone into effect because I believe that it is the most important act of the many important acts passed by the Congress that has just adjourned. Even though it will vitally affect the daily lives of the industrial workers of this country its specific provisions are as yet little known, nor are its full implications thoroughly understood. This is chiefly due to the fact that the Social Security Program is one that goes into effect only gradually and, therefore, is not of so much importance as the Work-Relief Act, for example, which undertakes to furnish jobs before the year is out to employable persons on relief

Perhaps the term Social Security is too general. Certainly it might be argued that all of the government's programs to save the homes, farms, businesses and banks of this country is intended to promote greater social security. A more exact term would be workers' security because the new and distinctive features of the Social Security Act are aimed at eliminating two of the most dreaded threats to the wage-earners' security -- unemployment and old age.

The Social Security Act contains a number of sections (or what are technically called Titles). These sections can be grouped into two categories. One category includes various grants-in-aid by the Federal Government to the states to help them finance not only old age, blind and mothers' pensions, but also certain types of public health and welfare activities. The other category provides for a system of insurance against the two hazards already mentioned -- unemployment and old age.

It is important to keep in mind the distinction between these two categories, which is best illustrated by the state old age pensions which the Federal government will help finance and the straight federal system of old age insurance. State old age pensions are paid only to persons who can establish they had no adequate means of support, but the benefits that will be paid under the Federal old age insurance system will be paid as a matter of right to qualified individuals who have been paying their contributions into the Federal Treasury.

I should like to discuss first the various grants-in-aid that the Federal Government will make to the states. In so doing, I shall refer to the amounts contained in the third deficiency bill which failed of passage because of a filibuster during the closing hours of Congress. The effect of the failure to pass this third deficiency bill will be discussed after I have described the various features of the Social Security Act itself. There was provision for an appropriation of $2,850,000 to aid the states in carrying on maternal and child health activities. This aid to the states will permit them to increase the amount of pre-natal and post-natal care for those who are unable to provide it themselves, and undoubtedly will have a most favorable effect not only on the maternal mortality rate, but on the infant mortality rate as well.

There is also an appropriation of $2,137,500 for aid to the states in furnishing treatment to crippled children, as well as an appropriation of $1,125,000 for assisting the states in strengthening child welfare services for the protection and care of homeless, neglected, and dependent children in danger of becoming delinquent.

Besides the grants-in-aid for the foregoing activities having to do with maternal and child welfare services, there is an $8,000,000 appropriation to be distributed among the states to assist them in establishing and maintaining adequate public health services. There is also an additional appropriation of $630,750 for grants-in-aid to the states to enable them to finance the vocational rehabilitation of the physically handicapped.

The grants for the maternal and child welfare work are made under the supervision of the Children's Bureau. The grants for public health work are made under the supervision of the United States Public Health Service, and additional grants for vocational rehabilitation are made under the supervision of the Office of Education.

Let us now turn to a consideration of the grants-in-aid for state old age pensions, blind pensions and mothers' pensions which are under the supervision of the Social Security Board just established. Probably foremost in the public mind is the Federal aid to the states in financing old age pensions. The Social Security Act provides that for every dollar, up to $15.00 per month per individual, that a state expends for paying such pensions, the Federal government will contribute an additional dollar. Thus, if a state pays an individual any amount up to $30.00 the Federal government will meet one-half of the cost. However, the state is not prohibited from paying a smaller or larger pension as the need of the individual requires. Thus, if a state paid a given individual a pension of $20.00 the Federal government would contribute $ 10.00 and if the state paid a given individual a pension of $50.00 the Federal government would contribute $15.00. In order that a state may obtain this financial assistance from the Federal government its old age pension law must conform with certain minimum standards.

The third deficiency bill included an appropriation of $37,312,500 to cover the grants-in-aid to the states for financing old age pensions. Unquestionably, this amount would have enabled the states to pay more liberal pensions as well as pay pensions to the many qualified individuals who are now not receiving such pensions.

Besides making an appropriation for this purpose, the third deficiency bill also made an appropriation of $3,000,000 for grants-in-aid to the states to assist them in financing blind pensions. These grants-in-aid would be made under substantially the same conditions as in the case of old age pensions.

In addition to financial aid for financing old age pensions and blind pensions the third deficiency bill also included an appropriation of $18,562,500 for making grants to the states to help them in financing aid to dependent children, sometimes called mothers' pensions. The Federal assistance to the states to finance aid to dependent children is on the basis of the Federal government paying $ 1.00 for every $2.00 expended by the state itself. However, in many states it has been necessary to suspend orto curtail expenditures for aid to dependent children because of lack of finances. Therefore, in this field as well, Federal aid is necessary to make the state efforts really effective and accomplish their beneficient purposes.

I should now like to turn to a discussion of the old age and unemployment insurance systems provided in the Social Security Act which, as I have already stated, fall into an entirely different category than the foregoing activities. First of all, is the Federal system of old age insurance which will provide benefits to qualified individuals in direct proportion to the total wages earned by such individuals subsequent to January 1, 1937, when they must commence making contributions to a Federal fund. The minimum monthly benefit will be $ 10.00 and the maximum will be $85.00. These payments will commence January 1, 1942, and will be paid to qualified individuals who become 65 years of age after that date and retire from regular employment. It is most important to again emphasize that these payments will be made as a matter of right and not on the basis of a showing of need. That is to say, qualified individuals will receive these benefits regardless of the amount of property or income they possess, just as they would receive benefits from a private insurance company to which they had paid premiums. Because of administrative difficulties, certain classes of employment are excluded from coverage at this time. However, all normally employed industrial workers are covered. The rate of contribution, which must be shared equally by employers and employees, is 2% of wages not in excess of $3,000 per year for the three years beginning January 1, 1937. This rate of contribution is increased by 1% at three year intervals until it reaches a maximum of 6% on January 1, 1949. Several concrete examples will best illustrate how much the monthly benefit will amount to. Let us first take the case of a young man, 35 years of age, who enters the system on January 1, 1937, and remains in the system for 30 years. If he earned an average of $100 per month during that period he would receive a monthly pension of $42.50 for the remainder of his life. Now let us take the case of an older person who was 60 years of age when he entered the system on January 1, 1937, and earns an average monthly wage of $100. When he retires 5 years later he will receive a monthly pension of $17.50. The young man, during the course of his life, would have contributed $900, and his employer would have contributed $900, but if he lives out a normal life expectancy, he would receive in benefits, $5,610. The older men would have contributed only $72 and his employer in equal sum, but he would receive in benefits, if he lives out his normal life expectancy, a total of $2,310. This Federal system of old age insurance supplements perfectly the state old age pension laws and is an illustration of why it was necessary toinclude in the Social Security Act all of these various provisions. The state old age pension laws will take care of the present aged population who are in need. The Federal old age insurance system provides an orderly method whereby people not yet old may contribute to a common fund out of which they will receive regular benefits when they have reached the end of their working life.

So much for the Federal old age insurance system. Now let me describe briefly the unemployment insurance system that is provided in the Social Security Act. The unemployment insurance system is based upon the plan of cooperative Federal-State action by which a state is induced to enact an unemployment insurance law best suited to its individual needs but conforming to minimum Federal standards. The Federal government creates the inducement on the part of the states to enact such laws by levying a uniform Federal payroll tax on employers employing 8 or more persons. This Federal payroll tax must be paid by employers regardless of whether or not they operate in a state that has an unemployment compensation law. However, if they operate in a state that does have a satisfactory unemployment compensation law they will receive credit for their contributions made under such a state law up to 90% of the Federal tax. Until the Social Security Act appeared likely of passage there was only one state in the Union that had an unemployment compensation act. However, due largely to the Social Security Act, 6 others have now enacted unemployment compensation acts, and it is probable that all of the important industrial states will have such acts within the next six months. The reason a Federal-state system of unemployment insurance is provided is that it was considered highly desirable not only to permit variations in benefit provisions in order to meet the particular needs of a given state, but also in order to keep administrative responsibility as close as possible to the persons directly affected by the system. Because of actuarial difficulties it is impossible to have an old age insurance system operate successfully as a state basis, or to permit variation in benefits as between states.

From the foregoing description it will be observed that the Social Security Program goes into effect by easy stages. Thus, the grants-in-aid to the States for pensions and welfare activities would have gone into effect immediately if it had not been for the failure of the third deficiency bill. The first tax levied in connection with unemployment compensation goes into effect on January 1, 1936. The old age insurance tax does not go into effect until January 1, 1937. Even when all of these taxes for unemployment compensation and old age insurance go into full force and effect more than 13 years hence, they will amount altogether to 9%; 6% to be paid by the employer and 3% to be paid by the employee.

When we realize the numerous wage adjustments that are always made in periods of prosperity, which seldom amount to less than 5 or 10%, we can better appreciate the relative burden that these taxes will impose. Moreover, and this should never be lost sight of, these taxes merely meet costs that are already present. Regardless of whether or not we levy these taxes, it will still be necessary to maintain persons who become dependent in their old age and it will still be necessary to feed the unemployed. These taxes merely undertake to make a more equitable and a more systematic distribution of existing costs.

Because of the failure of the third deficiency bill carrying appropriations to finance grants-in-aid to the States, due to the last minute filibuster, it appears impossible to provide these grants-in-aid until Congress reconvenes in January. This is most unfortunate because it means not only financial embarrassment to the States that have enacted laws with the prospect of receiving immediate Federal aid, but it also means hardship to the old people and children who would have otherwise received the benefit of this financial aid. Undoubtedly Congress when it reconvenes in January will take immediate steps to provide funds, since the need is so imperative. In the meantime states that desire to qualify for grants-in-aid under the Social Security Act should make certain that their laws and the administration thereof conform to the Federal standards. Many states will need to enact new legislation and other states will need to amend their present laws. It is the intention of the Social Security Board to give all states requesting it such technical assistance as they desire in drafting and amending their legislation. The Social Security Board will also be glad to answer inquiries of those desiring further information whether or not they are officials or private citizens.