'You and I, yes, every individual and every family in the land are being brought close to that supreme achievement of the present Congress, the Social Security Law.' With these striking words the President referred last November to the great adventure upon which this country has embarked seeking economic security for its citizens. Although, as the President indicates, the law will affect the lives of all of us, people generally know very little about the degree of protection that it provides or the manner in which it will operate. Its implications simply have not been brought home to the average man and woman.
The old-age security provisions of the law are the most important and eventually will be of most interest to the country at large. In less than a year, more than one half of the workers in the United States are going to be compelled to pay a tax upon their wages or salaries to support a Federal pension plan.
To the average person the old-age security programme appears technical and complicated. Although this is true as to the basic calculations, it fortunately is not true as to the broad principles which underlie it. I say 'fortunately' for the reason that the programme has such far reaching consequences that it should be understood and discussed from one end of the country to the other. From the point of view of financial magnitude, of the number of people concerned, and of the administrative problems that will press for solution, the programme is unprecedented. Its various provisions must be soundly conceived and properly coordinated or the consequences may be quite different from what is anticipated.
The difficulties of caring for the dependent aged have of course been accentuated by the depression. Irrespective, however, of economic conditions, the old-age security problem will continue with us because of the changes that are taking place in the age distribution of our population.
Thirty-five years ago the number of people in the United States aged sixty-five or over was 5,100,000. Today the number is 7,500,000 and the estimate for thirty-five years hence is 15,100,000. To-day those sixty-five or older represent less than 6 per cent of the population. Thirty-five years hence the figure is estimated to be in excess of 10 per cent. Prospective changes of this magnitude in a country where the electorate is becoming increasingly interested in old-age pensions point to the conclusion that, whether or not the present law shall survive the test of the courts, some practicable way will be found to make the old age of our workers more comfortable and happy.
The old-age security programme as it now stands has two parts. The first is a contributory plan, entirely Federal in character, requiring no state legislation to make it effective. It is to be supported by payroll taxes paid equally by the employees and their employers. It is estimated that the plan will apply to some twenty-five million workers. Even though a business may have only one employee, that employee, if of eligible age, is included in the plan provided the occupation is not an excluded one. Among those not included are agricultural workers, domestic servants, casual laborers, and those working for a Federal, state, or local governmental unit, in the merchant marine, or for charitable, educational, or religious organizations not operated for profit. Some of the occupations are excluded for administrative reasons, some because of constitutional limitations, and others from considerations of policy. Proprietors and the self employed are not included. Railway employees are covered by a separate plan contained in subsequent legislation.
The second part of the programme provides for cooperation between the states and the Federal Government in furnishing free assistance in the form of monthly grants to needy aged persons not otherwise provided for. This system of free grants holds out the hope of a gratuitous, pension to the large number of workers in the excluded occupations mentioned above, if they reach old age without resources. The assistance plan can become effective only by appropriate state legislation, the incentive for which is the offer of the Federal Government to bear a large part of the financial burden. The distinction between the two plans should be kept clearly in mind. They are entirely separate and operate upon entirely different social theories.
The twenty-five million workers estimated to be covered by the contributory plan represent somewhat more than one half of the gainful workers in the country as determined by the 1980 census. In 1987 those included in the plan will begin to pay a 1 per cent tax upon their wages or salaries. Their employers will pay a similar tax, making per cent in all. The rate is to stay at this figure for three years. In 1940 it is to be increased to 8 per cent. Similar increases are scheduled to occur every three years, until in 1949, and thereafter, the rate of tax is to be 8 per cent for the worker and 3 per cent for the employer, or 6 per cent in all. The tax will apply only to earnings up to $3000 in any year. Anything over $3000 will not be taxed.
Pensions are first to be paid in 1942. The age at which the pension is to commence is sixty-five, provided the worker is not then regularly employed. The pension increases with the years of employment following the inauguration of the plan. Prior years of employment do not count. The general manner in which the pension formula operates may be illustrated by the following schedule showing the pensions available to persons of certain given ages who will earn $200 a month steadily until age sixty-five.
|Age in 1937||Year of Retirement||Monthly Pension at Age 65|
These figures show what is meant by the statement that the plan reserves the more adequate pensions for the rather distant future.
Another feature of the plan is that for a given period of service the amount of the pension relative to earnings decreases as the earnings increase. This is illustrated by the following figures relating to persons aged forty in 1937 who retire in 1962 at age sixty-five.
|Average Monthly Wage over 25 year Period||Pension at 65||Pension as Percentage of Wage|
The maximum pension that anyone can receive is $85 per month. It will be available to those few individuals who will have earned $8000 or more a year over a period of employment of at least forty-three years subsequent to 1936.
To arrive at the amount of the pension it is not necessary to compute a worker's average monthly earnings. The factors in the pension formula apply to the total earnings after 1986 and before attaining age sixty-five, excluding all earnings above $3000 in any calendar year. This avoids difficult questions arising from fluctuating earnings and periods of unemployment.
In the event of death before age sixty-five, an amount equal to 3½ per cent of the earnings which have been taxed is paid to the estate of the worker. If the pension has commenced and the worker dies before the pension payments have aggregated 3½ per cent of taxed earnings, then the balance is paid to his estate. Since the maximum amount that a worker can contribute is 3 per cent of his earnings subject to tax, the 3½ per cent death benefit ensures a return in excess of the amount he himself has paid into the plan.