Baucus Floor Statement Regarding the History of Social Security
(WASHINGTON, D.C.) U.S. Senator Max Baucus delivered the following speech on the history of Social Security during today’s Senate session. The floor statement follows:
Floor Statement of U.S. Senator Max Baucus
The History of Social Security
“The ancient text teaches: ‘Honor your father and your mother . . . so that you may livelong and that it may go well with you in the land the Lord your God is giving you.’ And Paulnoted that ‘Honor your father and mother’ . . . is the first commandment with a promise — ‘thatit may go well with you and that you may enjoy long life on the earth.’
That’s what Social Security is about. It’s about honoring our fathers and our mothers.And like the commandment, Social Security also carries with it a promise. Social Securitybenefits not just our elders. It also benefits their children, and us all.
Families throughout history have faced uncertainties: old age, disability, and death of thebreadwinner. Before Social Security, the extended family provided what economic security theyhad.
President Franklin Roosevelt described those times:
‘In the early days of colonization and through the long years following, the worker, thefarmer, the merchant, the man of property, the preacher, and the idealist came here to build, eachfor himself, a stronghold for the things he loved. The stronghold was his home; the things heloved and wished to protect were his family, his material and spiritual possessions. His security,then as now, was bound to that of his friends and his neighbors.’
In the 18th and 19th centuries, most Americans lived and worked on farms. Before 1840,9 out of 10 Americans lived in rural areas. And as late as 1880, 7 in 10 did. Life was hard, andoften short. A boy born in 1850 could expect to live just 38 years. By 1900, male lifeexpectancy rose only to 46 years.
Things changed with the industrial revolution. America changed from an agricultural toan industrial economy. People moved away from the family farm and into the city. By 1920,most Americans lived in urban areas. The extended family and the family farm failed to providethe security that they once did.
At the same time, the people of a more prosperous nation began to live longer. Around1930, a baby boy could expect to live 59 years — 13 years longer than in 1900. And a 60-yearoldman could expect to live to age 75. More and more Americans had to address the challengesof living into old age.
Senator Robert Wagner of New York described how the burdens of supporting thosegrowing numbers of seniors fell heavily through a patchy safety net and onto their grownchildren. He said: ‘In truth . . . every civilized community does and must support its old anddependent people in some way. In this country, we have been doing it largely by inefficientrelief methods, by shabby pension systems, and by imposing burdens upon millions of youngermembers of families, with consequent impairment of their industrial efficiency, their morale, andtheir own opportunities for future independence.’
And President Roosevelt looked back on those times, saying: ‘Long before the economicblight of the depression descended on the Nation, millions of our people were living inwastelands of want and fear. Men and women too old and infirm to work either depended onthose who had but little to share, or spent their remaining years within the walls of a poorhouse.Fatherless children early learned the meaning of being a burden to relatives or to thecommunity.’
President Roosevelt saw America’s social changes as grounds for a change ingovernment’s role. In his June 1934 message to Congress, he said: ‘[S]ecurity was attained inthe earlier days through the interdependence of members of families upon each other and of thefamilies within a small community upon each other. The complexities of great communities andof organized industry make less real these simple means of security. Therefore, we arecompelled to employ the active interest of the Nation as a whole through government in order toencourage a greater security for each individual who composes it.’
The Great Depression triggered government’s response. As this chart shows, theAmerican economy in 1933 produced barely more than half the output that it did in 1929. Andas this next chart shows, by 1933, a quarter of the American labor force was unemployed. Lookat this next chart. From its 1929 high of 381, the Dow Jones Industrial Average fell to a troughof 41 in 1932. That’s nearly a 90 percent drop in the Dow, in just 3 years.
Lifetimes’ worth of private accounts evaporated into thin air. Senator Royal Copeland ofNew York recounted: ‘[T]here are thousands of families, I suppose millions, who thought theyhad prepared for the rainy days, but by reason of the Depression, and the circumstances involvedin it, they have come to be almost as bad off as many who were born and have lived all theirlives in poverty.’
State governments found themselves under an increasing burden. Senator DanielHastings of Delaware said, ‘[T]he individual States are laboring under a strained financialcondition; with many of them believing that they cannot take care of their own.’As with economic hardship throughout history, the Depression hit widows and orphansparticularly hard. Congressman William Sirovich of New York painted the picture, in 1935:‘Death, through the loss of the breadwinner, has broken many a home. For centuries the widows,orphans, and dependent children have cried aloud for help and assistance in their tragic periodsof economic insecurity. In the past the only recourse for orphaned children was the poorhouse,almshouse, and the orphan asylum. The twentieth century of civilization has awakened ourcitizens to the duty and obligations they owe to these unfortunate orphans.’
And Congressman Fred Crawford of Michigan spoke of children with disabilities: ‘Oneonly needs to come in contact with a home which is unable to provide any means of relief for alittle child who has been stricken with paralysis to appreciate what this will mean to those homesso darkened with the suffering that follows such a catastrophe.’
President Roosevelt sought a comprehensive solution. To that end, in June of 1934, heissued an Executive Order creating the cabinet-level Committee on Economic Security. Hecharged them to, quote, ‘study problems relating to the economic security of individuals.’Labor Secretary Frances Perkins chaired the committee, which also included the TreasurySecretary, the Attorney General, the Agriculture Secretary, and the Federal Emergency ReliefAdministrator. Secretary Perkins relied heavily on her assistant secretary, Arthur Altmeyer, whowould become the first Social Security Commissioner.
And to address the need, President Roosevelt and other leading thinkers turned to theidea of “social insurance.” President Roosevelt said of social insurance: ‘This is not an untriedexperiment. Lessons of experience are available from States, from industries and from manyNations of the civilized world. The various types of social insurance are interrelated; and I thinkit is difficult to attempt to solve them piecemeal. Hence, I am looking for a sound means which Ican recommend to provide at once security against several of the great disturbing factors in life— especially those which relate to unemployment and old age.’
Social insurance programs began in Europe in the 19th century. By the time Americaadopted Social Security as a national social insurance program in 1935, 34 European nations andseveral states in the Union already operated some form of a social insurance program.My home state of Montana played a leading role, when, in March of 1923, it enacted itsold-age pension law. Montana’s was the first state law to stand the test of constitutionality. Itssponsor, Lester Loble of Helena, was a young attorney who won election to the Montana Houseof Representatives in 1922. Here’s a picture of Lester Loble. He had been a delegate to the1921 national convention of the Fraternal Order of Eagles, which had devoted a special focus topension laws for seniors.
Mr. Loble’s old-age pension bill provided that each county’s fund would pay a modestmonthly income — up to $25 a month — to the poorest of Montana’s seniors, those earning lessthan $300 a year. In a legislative session torn by a struggle over taxes on mining property, thebill passed. Governor Joseph Dixon signed it into law, saying: ‘You Eagles have planted thisseed and you can no more stop the progress of old age pensions than you can stem the tide of thePacific Ocean.’
In November of 1934, on behalf of President Roosevelt’s Committee on EconomicSecurity, Secretary Perkins invited Mr. Loble to Washington, saying: ‘We are extending thisinvitation to you because you have the honor of having been the author of the first old agepension law in this Country.’
And the Committee set to work on the idea of social insurance. Like all insurance, socialinsurance protects against a defined risk. The insurance pays beneficiaries when they need tobear a large expense, often at times when they would otherwise not be able to provide forthemselves. Like all insurance, social insurance spreads the burden of the risk broadly across alarge pool of those who may encounter the risk. When the risk does occur to one particularbeneficiary, the sharing of the risk makes it easier to bear.
Social insurance spreads those risks over the largest possible pool of potentialbeneficiaries — the society as a whole. And social insurance is shaped by broader socialobjectives, helping to promote the nation’s overall economic security.President Roosevelt’s Committee on Economic Security made its recommendations toCongress in January of 1935. The Committee reported: ‘At least one-third of all our people,upon reaching old age, are dependent upon others for support. . . . There is insecurity in everystage of life.’
They went on: ‘Children, friends, and relatives have borne and still carry the major costof supporting the aged. . . . [T]his burden has become unbearable for many of the children . . . .’They responded to that challenge with the proposal for Social Security. And theyconcluded: ‘The measures we suggest should result in the long run in material reduction in thecost to society of destitution and dependency, and we believe, will immediately be helpful inallaying those fears which open the door to unsound proposals.’
The Finance Committee held hearings on the proposal. At one hearing, Senators watchedas several elderly gentlemen, who were totally blind, were led into the committee room by theirguide dogs and told of their life of need, before Social Security. Finance Committee ChairmanPat Harrison of Mississippi said, ‘I do not know of any committee that was ever moved more thatwas the Finance Committee.’
During the Senate’s floor debate on the bill, Senator Wagner said: ‘The social securitybill embraces objectives that have driven their appeal to the conscience and intelligence of theentire Nation. We must take the old people who have been disinherited by our economic systemand make them free men in fact as well as in name. We must not let misfortune twist the lives ofthe young. We must tear down the house of misery in which dwell the unemployed. We mustremain aware that business stability and prosperity are the foundation of all our efforts. In allthese things we are united, and in this unity we shall move forward to an era of greater securityand happiness.’
In signing the Social Security Act in August 1935, President Roosevelt said: ‘Today ahope of many years’ standing is in large part fulfilled. The civilization of the past hundred years,with its startling industrial changes, has tended more and more to make life insecure. Youngpeople have come to wonder what would be their lot when they came to old age. The man with ajob has wondered how long the job would last.
‘This social security measure gives at least some protection to . . . millions of our citizenswho will reap direct benefits through unemployment compensation, through old-age pensionsand through increased services for the protection of children and the prevention of ill health.President Roosevelt continued: ‘We can never insure one hundred percent of thepopulation against one hundred percent of the hazards and vicissitudes of life, but we have triedto frame a law which will give some measure of protection to the average citizen and to hisfamily against the loss of a job and against poverty-ridden old age.’
The law established two social insurance programs on a national scale to help meet therisks of old-age and unemployment: a federal system of old-age benefits for retired workers anda Federal-State system of unemployment insurance.
President Roosevelt saw the 1935 Social Security law as an economic foundation. Hesaid: ‘This law . . . represents a cornerstone in a structure which is being built but is by no meanscomplete. It is a structure intended to lessen the force of possible future depressions. It will actas a protection to future Administrations against the necessity of going deeply into debt to
furnish relief to the needy. The law will flatten out the peaks and valleys of deflation and ofinflation. It is, in short, a law that will take care of human needs and at the same time providethe United States an economic structure of vastly greater soundness.’President Roosevelt justly concluded: ‘If the Senate and the House of Representatives inthis long and arduous session had done nothing more than pass this Bill, the session would beregarded as historic for all time.’
President Roosevelt’s prophecy that Congress would build on Social Security was soonproved true. The Old-Age Insurance Program had not yet come fully into operation whenCongress enacted significant changes. In 1939, Congress added benefits for dependents ofretired workers and surviving dependents of deceased workers. And Congress made the firstbenefits payable in 1940, instead of 1942, as originally planned.
In the 1950s, Congress broadened Social Security to cover many jobs that previously hadbeen excluded. In 1956, Congress added disability insurance. Benefits were provided forseverely disabled workers aged 50 or older and for adult disabled children of deceased or retiredworkers. In 1958, Congress provided benefits for dependents of disabled workers similar tothose already provided for dependents of retired workers. In 1960, Congress removed the age 50requirement for disabled worker benefits. In 1967, Congress provided disability benefits forwidows and widowers aged 50 or older.
There used to be a nearly annual ritual in Congress to provide cost-of-living increases toSocial Security beneficiaries. This sometimes happened right before an election. In 1972,Congress did away with this uncertainty and provided for automatic cost-of-living increases inbenefits tied to increases in the Consumer Price Index. The 1972 amendments also increasedbenefits for workers who retire after the full retirement age.
In 1977, Congress changed the method of benefit computation to ensure stablereplacement rates over time. Earnings included in the computation were to be indexed toaccount for changes in the economy from the time they were earned.
In 1983, as a consequence of the Greenspan Commission to strengthen and extend thelife of Social Security, the Congress made coverage compulsory for employees of the federalgovernment and nonprofit organizations. State and local governments were prohibited fromopting out of the system once they had joined. The amendments also gradually increased the ageof eligibility for full retirement benefits from 65 to 67, beginning with persons who reach age 62in 2000. For certain higher income beneficiaries, benefits became subject to income tax.In 1996, Congress relaxed earnings limits for seniors who have reached the fullretirement age. In 1999, Congress reformed certain provisions under the disability program tocreate stronger incentives and better supports for individuals to work. And in 2000, Congresseliminated the earnings limit for seniors who have reached the full retirement age.What we now know as Social Security touches almost every American. Social Securitycovers 96 percent of all American workers and their families. In 2003, Social Security provided$471 billion in benefits to 47 million people. One in six Americans collects Social Securitybenefits.
In my home state of Montana, 164,000 of our 927,000 residents — or 18 percent of allMontanans — receive Social Security benefits. Nearly 7 percent of all Montana personal incomecomes from Social Security payments. Montana ranks fifth among the 50 states in terms of theshare of our state’s income that comes from Social Security.
Social Security is in effect three programs: an earned retirement benefit, a disabilityinsurance policy, and a life insurance policy. Most people think of Social Security as aretirement program, but 3 in 10 beneficiaries collect survivors’ or disability insurance benefits.Of today’s 20 year olds, 28 percent will become disabled. 17 percent will die beforereaching retirement age. Look around the room in any college classroom. 3 in 10 students willbecome disabled. 2 in 10 will die before retirement.
But if a young worker should experience a period of disability, Social Security willprovide for the worker and the worker’s family. Similarly, Social Security will provide for theworker’s family if the worker experiences an untimely death. For a young married worker withtwo children, Social Security provides the equivalent of a $400,000 life insurance policy and a$350,000 disability policy. Only about 3 in 10 workers have access to long-term disabilitybenefits, aside from Social Security.
And Social Security provides retirement benefits for retirees who have worked at least 10years. President Roosevelt said: ‘There are other matters with which we must deal before weshall give adequate protection to the individual against the many economic hazards. Old age isat once the most certain, and for many people, the most tragic of all hazards. There is no tragedyin growing old, but there is tragedy in growing old without means of support.’Social Security provides the primary source of income for two-thirds of seniors. And forone-fifth of seniors, it provides the only source of income. The average retiree benefit is $882per month, or $10,584 a year, in Montana, and about $930 per month, or $11,160 a year,nationally.
That’s hardly a king’s ransom. But as President Roosevelt said on the third anniversaryof the law’s enactment: ‘The Act does not offer anyone, either individually or collectively, aneasy life — nor was it ever intended so to do. None of the sums of money paid out to individualsin . . . insurance will spell anything approaching abundance. But they will furnish that minimumnecessity to keep a foothold; and that is the kind of protection Americans want.’Before Social Security, poverty and dependency threatened all who could no longerwork. But with its guarantee of benefits to seniors for life, progressive benefit structure, spousaland survivors benefits, and annual cost of living adjustments, Social Security provides a solidfoundation of economic security for all workers and retirees.
Look at the effects on this chart. Because of Social Security, poverty among Americanseniors has fallen from roughly half of seniors in 1935, to roughly a third of seniors in 1959, to 1in 10 seniors now. But without Social Security, nearly half of seniors nationwide — and morethan half of Montana’s seniors — would be living in poverty now.
Social Security provides a guarantee of economic security for America’s workers, currentand retired. Social Security protects all Americans, whether they are fortunate in living a longand healthy life, or unfortunate in facing early disability or death. Social Security benefits areadjusted for inflation, so that the buying power of beneficiaries does not erode over time.Social Security benefits increase with family and are progressive to insure that evenlow-wage earners have sufficient income. Beneficiaries cannot outlive their benefits. SocialSecurity uses a common system to administer all three programs — retirement, survivors, anddisability — resulting in administrative costs of less than 1 percent. These unequaled benefitsmake Social Security invaluable for individual workers, for retirees, and all Americans.
In future statements, I hope to go further into other aspects of the Social Security issue. Ihope to address how the President’s plan would cut benefits, and what benefit cuts would meanto Americans. I hope to address the concerns caused by mounting debt, and how the President’splan would make them worse. And I hope to address why we should be concerned about savings,and what changes we should be considering to increase saving.
Yes, Social Security faces long-term challenges. We should work together to strengthenSocial Security for the long term. But we need to do it right. We should not endanger thevaluable legacy that we have built over so many years.
Privatization plans would cut Social Security’s funding, weaken the program, and makeits problems worse, not better. Plans like option 2 of the President’s Social Security commissionwould cut benefits by one-third or more for future retirees, even for those who choose not tohave a private account. Those investing in privatized accounts would be hit twice, as theirbenefits would be subject to a substantial privatization tax. Cuts of this magnitude would leavemany seniors in poverty, requiring more taxpayer assistance.
And the President’s privatization plan would cause the government to borrow $5 trillionin additional debt in its first 20 years. That is not the legacy that we should want to leave tofuture generations.
We should address Social Security. We should stop using Social Security surpluses forother government purposes. We should save more as a nation. We should address thegovernment’s record budget deficits by restoring fiscal discipline and avoiding massive newdebt. We should reinstate enforceable budget restrictions, like the pay-as-you-go rules. And weshould work to develop new and innovative ways to help Americans save, separate and apartfrom Social Security.
But we should honor the words of Congressman Joseph Monaghan of Montana, who saidin April of 1935: ‘When the sun of life begins to set upon the aged of our country, the . . .Government should extend to them a relief from the weary toils of the day and to bring relief,comfort, and security to them when the burdens of life are hardest to bear and when thedarkening shadows of approaching night begin to fall across his path to make further tollimpossible, to make further travel insecure, a just reward which their toll has merited; anadequate old-age pension, and not a pauper’s dole.’
We should honor the words of President Roosevelt, who said to Congress in 1934: ‘Wemust dedicate ourselves anew to a recovery of the old and sacred possessive rights for whichmankind has constantly struggled: homes, livelihood, and individual security. The road to thesevalues is the way of progress. Neither you nor I will rest content until we have done our utmostto move further on that road.’
And we should honor our fathers and our mothers. We should honor this important socialinsurance protection that keeps our fathers and mothers from those darkening shadows ofapproaching night. We should do so not just for them. We should do so also because it will helptheir children. It will help the economy to go well for us. And it will help us to live better lives,all the days that we are on this good land that the Lord has given us.”
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