Committee on Economic Security (CES)

Volume II. Old Age Security
Papers in Support of Old-Age Provisions of Bill


Statement of Probable Costs of Gratuitous Old-Age Pensions With and Without the Establishment of a System of Federal Old-Age Benefits


By Joseph P. Harris



One of the principal reasons for the establishment of a system of Federal old-age benefits is to reduce the heavy drain for the support of free old-age pensions which will be made in the future upon all governments, Federal, State and local, to be paid out of general taxes. There is indication that without a companion system of federal old-age benefits, this cost will become extremely large.

England operated a system of free old-age pensions from 1908 until 1927, when it was forced to set up a supplemental system of old-age insurance to reduce the cost. By 1927 more than 72% of the persons in the eligible age group were receiving free old-age pensions. This is certainly a strong indication of what will take place in this country if we establish a Federally aided system of free old-age pensions without also providing for a system of Federal old-age benefits.

The actuaries of the Committee on Economic Security have estimated that without a system of Federal old-age benefits, the cost of free old-age pensions will amount to approximately $2,600,000,000 by 1980. This assumes that by that time 50% of persons over 65 years in age, or 8,500,000 will be receiving free old-age pensions averaging $25 per month. These estimates are probably conservative in the view of the increasing pressure for old-age pensions for everyone, without regard to need, and for larger pensions. The total cost to the Federal Government and to the states may very well greatly exceed these estimates. It may be anticipated that there will be constant pressure to increase the amount, to reduce the requirements or proof of need, and to increase constantly the part which the Federal Government contributes.

With a companion system of Federal old-age benefits, the cost of free old-age pensions will be very much less. More than half of the gainful workers of the country will be taken care of by the system of Federal old-age benefits. The workers who are not covered by the federal old-age benefits (self-employed persons, farmers, agricultural laborers, the professions, public employees, institutional employees and casual labor) will still have to be taken care of in old-age if they are needy, but the dependency ratio of this group should be materially less than that of the entire population, and as the time goes along, it may be possible to extend the system of Federal old-age benefits to part of this group. Many of this group are already covered by retirement systems.

1. According to the estimates of the actuaries, the cost of free old-age pensions by 1980, if Federal old-age benefits are set up, will be approximately $1,000,000,000 annually, instead of a cost of $2,600,000,000 without Federal old-age benefits. It is extremely doubtful whether the state and local governments would be able to bear one half of this large amount, with the financial burdens which they already have, and consequently there will be a strong demand for the Federal Government to pay the entire cost.


2. When some 25,000,000 gainful workers are covered under a system of Federal old-age benefits and are required by law to pay Federal taxes upon their wages, this large group will oppose the payment of lavish free old-age pensions to other members of the population who have not been taxed to build up their own old-age benefit rights.


3. While a system of Federal old-age benefits will greatly reduce the tax burden of free old-age assistance in the future, the other merits of old-age benefits over free old-age pensions should never be lost sight of.

They are as follows:
(a) Payments are made as a right, not as a public charity.
(b) Much more substantial provisions may be made, providing not merely a bare existence but some of the comforts of life in old age.
(c) Old-age benefits are a form of social insurance, in accordance with our best traditions of thrift.


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