Old-Age Security for Everybody

By M. Albert Linton

I

'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.

II

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
60 1942 $22.50
50 1952 42.50
40 1962 56.25
30 1972 66.25
20 1982 76.25

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
$50 $25.00 50
100 37.50 37.5
150 50.00 33.3
200 56.25 28.1
250 62.50 25.0

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.

In considering the application of the pension programme one is apt to think of it as applying almost entirely to those who work right up to age sixty five and then retire. This is not the case. Anyone who works on at least one day in each of five different calendar years after 1936 and before his sixty-fifth birthday is entitled at sixty five to a pension, provided the total wages equal or exceed $2000. Therefore, many who stop working at a relatively young age will be entitled to a pension when they reach age sixty-five. For example, a stenographer who after 1986 works from age twenty to age twenty-five for total wages of $6000, and then leaves business and gets married, will be entitled forty years later to a pension of $17.50 a month.

III

The old-age contributory plan is set up on a theoretically self-supporting basis. That is to say, the proposed payroll taxes are expected to provide all of the benefits under the plan without resort to general revenue funds. As we have seen, the larger pensions are reserved for the rather distant future. In the meantime, the payroll taxes are expected to exceed pension payments. The excess is to be invested in a reserve fund which shall earn interest of at least 3 per cent a year. Eventually the interest on the reserve fund, known as the Old-Age Reserve Account, is estimated to cover approximately 40 per cent of the benefit payments. The remaining 60 per cent will be covered by the then current receipts from the 6 per cent payroll tax. Since the benefit payments for pensions and death benefits are estimated eventually to reach approximately 3.5 billions a year, this means that about 1.4 billions will be provided by interest on the Reserve Account and the remaining 2.1 billions by the payroll taxes. It is important to keel) in mind that the sole function of the Reserve Account is to produce interest. It is not contemplated that the principal will ever have to be drawn upon.

The Old-Age Reserve Account is to be invested in direct obligations of the United States or in obligations fully guaranteed by the United States. It is to be no small affair. According to the estimates of the Senate Finance Committee, the Account will reach approximately forty-seven billions by 1980.

The excess of tax receipts over benefit payments and expenses as estimated by the Committee will continue until about 1967. Here are the figures for certain years:—

Year Excess Tax Receipts
1937 254,000,000
1940 640,000,000
1945 946,000,000
1950 1,278,000,000
1955 973,000,000
1960 559,000,000
1965 173,000,000

These sums do not include any interest upon the principal of the reserve fund to be built up during this period.

The tax receipts are to be paid directly into the general revenue fund of the government, and the hundreds upon hundreds of millions of dollars slated to reach the Reserve Account will do so only if Congress is so minded. To have had the taxes paid directly into the Account would, it was feared, jeopardize the plan if its constitutionality should be challenged. Therefore, in the Act, Title II provides the old age benefits and Title VIII imposes the payroll taxes. The fact that the two titles relate to each other must be implied. It is nowhere directly indicated in the Act. In setting up the independent pension plan for railroad employees it is interesting that the taxes and pensions are provided by two entirely separate acts.

IV

The anticipated large excess of income over outgo resulting from the self-sufficiency principle is the most dangerous feature of the old-age programme and may have consequences quite different from what was planned by the framers of the Social Security Act. Their plan as embodied in he law is to have actuaries calculate each year the amount theoretically needed to be added to the Reserve Account and then to have Congress appropriate that amount to the Account until finally, forty-five years hence, the enormous interest-bearing fund of forty-seven billions will have been accumulated. Suppose, however, that Congress is not impressed by actuarial theory and decides to follow some other course. What are the probable alternatives?

A quite likely alternative is an increase in the scale of pension benefits. Millions of voters are going to be mystified by the huge surpluses that will apparently result from the operation of the plan. Having no understanding of actuarial principles, they will believe that something must be wrong, that surely larger pensions could safely be paid than are being paid. A popular change in the plan would be to follow the British principle and pay larger immediate pensions without reserving them for the rather distant future. This would, of course, absorb a large amount of money and within a few years might easily eliminate the anticipated excess of income over outgo. In this event,the accumulation of the reserve fund would not take place. The danger lies in the probability that a scale of pension benefits would be adopted which in the end would prove unbearable for our children and grandchildren.

Another popular method of employing apparent surplus income would be to lower the pension age below sixty-five. A large proportion of industrial and other workers become unadapted to their work before they reach sixty-five. Lowering the pension age to sixty would be exceedingly popular. However, the increase in the pension load would be marked. Reducing the pension age from sixty-five to sixty would raise the eventual estimated benefit load from 3.5 billions a year to at least five billions a year.

In reflecting upon the possibilities, the popularity of old-age pensions among the voters should be kept constantly in mind. Everyone fears an old age of poverty. Any plan to have the Federal Treasury provide an old age of comfort, free from want, will have a powerful political appeal. When upwards of twenty-five million voters directly concerned with the operation of the contributory plan become acquainted with its provisions and begin to pay taxes to support it, they are bound to take a lively interest in what is going to come back to them. If perchance their interest should lend to lag, candidates for political office will take care that it is revived.

The two liberalizations of the plan above referred to might be adopted in combination. It will probably appear feasible not only to increase the schedule of benefit payments, but also at the same time to lower the pension age. Powerful political forces are almost sure to rally to the support of attractive and for the moment apparently sound liberalizations of the plan which eventually would either cause the system to fall of its own weight or induce an inflationary rise in the price level to offset the unbearable pension load. Either would undermine the very security that is being sought.

A third alternative is that future Congresses, instead of following actuarial theory and appropriating excess pension income to build a huge reserve fund, will spend the money for current projects. A spending programme to benefit the voters of the present would be much more attractive than saving money to benefit the voters of the generations to come.

It is interesting in this connection to note that it would be possible not only to spend the money currently, but also in so doing to go through the motion of building up the Old-Age Reserve Account. This could be accomplished by appropriating the money to the Account, having, it borrowed by the Treasury and then spent for the purpose authorized by Congress. This procedure is made possible by the provision of the law which empowers the Treasury to issue its own obligations, bearing 3 per cent interest, directly and exclusively to the Reserve Account. The sole function of the reserve, it will be recalled, is to provide interest to enable future generations more easily to. bear the pension load we are placing upon them. Therefore it would be most unfortunate if the operation of the plan in its earlier years should stimulate an increase in the Federal debt.

In passing we may well question whether it is sound public policy to give the Treasury the power to borrow at 3 per cent irrespective of market conditions and without the necessity of having to submit the credit of the government to the appraisal of the financial community by selling securities to the public in the normal way.

A fourth alternative is that the anticipated increases in the tax rate, which is to rise from per cent to 6 per cent in twelve years, will not be put into effect. The first increase in the rate is to be made in 1940, two years before pension payments are scheduled to commence. When 1940 arrives, is it likely that Congress will attach much weight to actuarial theory and increase the tax rate when there is no apparent necessity of so doing?

As a matter of fact, the estimates underlying the report of the Senate Finance Committee reveal a very interesting situation. If the 2 per cent tax rate should be continued without change it would not be until 1051 that current benefit payments would exceed current tax receipts after paying the estimated expenses of operating the system. Furthermore, if the excess tax receipts prior to 1951 should be invested in a reserve fund earning 3 per cent interest, the fund would reach six billions before the mounting benefit payments would necessitate drawing upon it. If the principal of the reserve fund should then be used to supplement the per cent tax receipts, all benefits provided by the law could be paid until 1968 before it would be necessary to seek more revenue.

During the twenty-seven-year period from 1987 to 1963 inclusive, the estimate of the total taxes at the 2 per cent rate is seventeen billions. At the rates of tax specified in the law it is forty-one billions. The additional twenty-four billions are to be collected solely for the purpose of building a reserve fund, the interest upon which is to help pay pension benefits after 1968. Not a dollar of the additional billions would be needed for benefits prior to that time.

In contemplating a situation such as this we shall be quite safe in assuming that there will be no tripling of the tax rate by 1949, provided the present benefits remain unchanged. Now that the law is on the statute books this fourth alternative provides what is probably the most practicable way out of the morass that would be created by the self-supporting reserve basis of operation. Simply allow the per cent rate of tax to stand until it appears necessary to make an increase. This would reduce the dangerous excess of income over outgo that would result from the operation of the present law, and facilitate the transfer of the system to a practicable current-cost basis.

In considering the various .alternatives we may be confident of one. thing. The programme for the Congresses of the next thirty years to practise self denial by investing hundreds of millions each year in a reserve fund mounting into the tens of billions belongs in the realm of dreams. The fund possibly may be allowed to reach a total of a few billions. After that the country will call a halt. The danger inherent, therefore, in the self-sufficiency plan is not that the huge reserve actually will be created, but that the excess of income over outgo will lead either to a dangerous liberalization of the benefits or to a programme of unsound governmental spending.

V

In the light of these considerations it is interesting to contrast some of the features of our programme with the corresponding ones of the British contributory old-age security programme adopted in 1925.

In Great Britain the plan was so arranged that the maximum rates of pension went into effect at the outset. The middle-aged and older workers who had spent their lives in the insured trades were not to be penalized because the country had not previously established a system to which they could have made contributions. Great Britain believes it sounder policy to allow the present generation to enjoy the maximum practicable benefits of the pension system instead of postponing them for many years to come. The contributions paid jointly by the employer and employee axe not sufficient to accomplish this objective, and therefore substantial grants are being made from general revenue funds.

A plan of this kind tends to keep the benefits within manageable limits, since they become a relatively large charge upon current taxes. It keeps the taxpayers of the present acutely aware of the cost of a pension system. For that very reason the promised pensions may prove to be more reliable than ours, since there is less likelihood that the plan will eventually break down through promising more than can be delivered.

On the other hand, the British programme is less ambitious than the one we have adopted. Broadly speaking, it applies only to the low-income-earning groups, so that it is not necessary for the contributions and the pensions to be graded according to earnings. One uniform rate of contribution applies to men, another to women, and the pensions in general, are paid at a uniform weekly rate.

The British plan does not involve the accumulation of huge reserves. In the years immediately following its establishment, receipts exceeded benefit payments, so that in 1981 a fund equivalent to about 230 million dollars had been accumulated. However, the accumulation is being drawn upon, and the actuary's report issued a year ago indicates that the fund will have been completely exhausted in 1946. Great Britain evidently is under no delusion as to the undesirability of a reserve system in a nation-wide public pension plan.

The hazards connected with the large excess income inherent in the kind of self-sustaining reserve plan embodied in our legislation were emphasized by the actuaries associated with the work of the Committee on Economic Security. They recommended the formulation of a current-cost plan which would practically balance current taxes and current pension outgo and provide for no more than a reasonable contingency reserve to be used in years when adverse business conditions might cause current tax receipts to fall off and be insufficient to meet pension payments.

The Committee on Economic Security, in order, to use their own words, 'to keep the reserves within manageable limits,' recommended a programme which involved tax rates starting at 1 per cent and rising to 5 per cent in twenty years and which would have produced a reserve fund estimated to reach a maximum of fifteen billions. Later there was to be a government subsidy from general revenue to compensate for the fact that interest would be received upon a fund of fifteen billions instead of upon a fund of more than three times that amount.

The adoption of the final plan with its higher schedule of taxes starting at 2 percent and rising to six percent in twelve years, and its estimate eventual reserve fund of forty-seven billions, resulted from the insistence of the Secretary of the Treasury before the Ways and Means Committee of the House that the plan be made theoretically self-sustaining. It is an interesting example of an attempt to apply an actuarial theory to a set of conditions where, because of non-actuarial considerations, it is not safe to do so.

VI

Although we may be convinced that the projected huge reserve fund will never be created, it is interesting to consider some of the questions that would arise if the theory embodied in the Act should actually be carried out.

For example, the outstanding direct and guaranteed obligations of the United States in which the reserve fund may be invested now aggregate less than thirty-six billions. Despite the fact that the state of the nation's finances points to an increase in this figure before the peak will have been reached, the proposal to accumulate a reserve fund of forty-seven billions would seem to contemplate the eventual transfer to the Old-Age Reserve Account of the entire Federal debt with perhaps a margin left over for investment in other securities, as yet undesignated. When we consider the beneficial reduction in the national debt which occurred during the 192O's, would it not be advisable to plan for a comparable reduction in our present unprecedented debt as revenues increase with improving business conditions? Yet how can this be accomplished if a reserve fund of forty-seven billions is to be invested in United States securities, the present supply of which is less than thirty-six billions?

The conflicting conceptions here indicated deserve our careful consideration. Evidently a reduction of the debt is anticipated by the Administration. Last September the President released a statement regarding the 1986 and 1937 budgets in which he said that it was clear to him that existing tax schedules would supply sufficient revenue to meet the expense of the necessary operations of the government and to retire its public debt. In the summer, the Secretary of the Treasury appeared before the Senate Finance Committee to advocate the 1985 tax bill. He said that he hoped the proceeds of the new taxation would be 'preserved scrupulously for the purpose, first, of reducing the deficit, and later, of reducing the public debt.'

For convenience in considering this subject we may divide the revenues of the government into two broad classifications, general revenue and pension revenue, including in the latter both the receipts from the old-age payroll taxes and the interest on the investments in the Reserve Account. Normally, a reduction in the outstanding Federal debt would occur when current governmental expenses had been covered by general revenue, leaving a margin with which to retire outstanding obligations, which would then be canceled. Under the old-age security programme, when outstanding United States securities are acquired by means of excess pension revenue, they are to be kept alive as assets of the Old-Age Reserve Account and are not to be canceled. On the contrary, interest at not less than 3 per cent a year is to be paid upon them indefinitely in the future. Under a plan of this kind could it be said that the obligations thus acquired had been retired?

However, there is this to be said. Since the principal of the Reserve Account, according to theory, will never have to be drawn upon, its sole function being to furnish interest to help carry the future pension load, it would not be necessary for the securities owned by the Reserve Account to have a maturity date for the payment of principal. These securities could be considered as perpetuities or actually be reissued in that form. In this sense a type of debt reduction might be said to have taken place when the securities had been purchased by the Old Age Reserve Account. Perhaps this is what the President and the Secretary of the Treasury have in mind when they speak of retiring or reducing the debt. Be that as it may, the fact remains that theory requires that interest be paid until the end of time upon a fund that will eventually aggregate forty-seven billions, all of which must be invested in obligations of the United States.

If all outstanding United States obligations are to be purchased out of pension revenue for the benefit of the Old-Age Reserve Account, then there is no need that general revenue should include any sums to be applied to debt reduction. General taxation, therefore, could be on a lower level than would otherwise have been the case. In passing, it is interesting to reflect upon the fact that in a situation of this kind a large proportion of the money applied to the purchase of United States securities would arise from taxes imposed upon the lower-paid workers of the country, and would be money that normally would have been used to buy food, clothing, and other necessities.

In considering the interesting financial arrangements embodied in the pension programme, one wonders whether future generations are likely to understand the bookkeeping arrangement between the Treasury Department and its subsidiary, the Old-Age Reserve Account. When the Reserve Account reaches the contemplated forty-seven billions, the interest at 3 per cent which will have to be raised each year will amount to about 1.4 billions. This sum presumably will have to be included in the budget of that future day and be raised by general taxation. When the money is received by the Treasury, it will be paid over to the Old-Age Reserve Account and promptly turned back into circulation in the form of pension payments. About 40 per cent of these payments, it will be recalled, will then be covered by the interest on the Reserve Account.

In seeking a more satisfactory method of operation, would it not be better policy to abandon the plan of keeping the Federal debt alive as an asset of the Reserve Account? Instead the debt would be retired to the lowest practicable level, and then in the years to come the country would raise directly by taxation for the benefit of the pension system that amount of money which under the plan as it now stands would have to be raised as interest on a debt owed by the Treasury to one of its own departments. The menace of a huge fund which could be raided would be removed, and there would be much less likelihood of political manipulation and stimulated extravagance. The whole transaction would be much more understandable to the voters of the country.

VII

The second part of the old-age security programme involves a system of free assistance for the benefit of those who are now aged and in need and for those not included in the contributory plan who in the future will become old and be found in need, provided they are not in a public institution. It is a form of poor relief, subject to a 'means test' and not granted as a matter of right, independent of means, as is the pension in the case of a person covered by the contributory plan.

This free assistance depends upon cooperation between the states and the Federal Government. Aged needy individuals will be cared for on a fifty-fifty basis up to $30 per month per individual. A state may pay as much as it desires, but the Federal contribution to an individual is limited to $15 per month. Undoubtedly in the course of time many states will permit an aged man and his wife without resources each to apply for assistance, so that together they will be entitled to receive up to $60 per month with the Federal Government paying one half the bill.

The intention is to establish age sixty-five as the uniform pension age, but, owing to the existence of a number of state plans which have a higher limit, age seventy will be approved until 1940. No residence requirement may exclude any resident of a state who has resided there for five of the nine years immediately preceding application and has also resided there continuously for one year immediately preceding application.

In broad outline, the old-age assistance plan follows the precedent of Canada, where for about six and one half years, on the average, eight provinces and the Dominion have been supporting a cooperative plan providing up to $20 a month to needy individuals aged seventy or more. The latest date for which figures are available is March 31, 1935. On that date approximately 37½ per cent of the total population aged seventy or over in the eight provinces were on the pension rolls. The average monthly grant per individual pensioner was running at the rate of $17.23, or 86 per cent of the maximum.

The Canadian plan has one provision that this country would do well to consider carefully. When a pensioner moves from one province to another, that part of the pension not paid by the Dominion Government is shared equally by the two provinces, provided the new province is in the pension plan. If it is not, then the original province continues to pay what it would have paid if the pensioner had stayed at home. In this country no provision for transfer has been made. In a substantial number of cases aged persons will want to follow a son or daughter who has moved to another state. In other cases the rigorous climate of some of our states will make it advisable for pensioners to move to a more favorable part of the country. Requiring aged people to remain in a state, on penalty of losing their pension, for five years would in many cases cause much hardship and distress. The Social Security Board would do well to seek a reasonable solution of this intensely human problem.

The working out side by side of the contributory old-age pension plan and the assistance plan, with its free pensions to those found to be in need, will lead for many years to considerable overlapping. It has already been pointed out that under the assistance plans that will probably be adopted by many states a needy aged couple will be entitled to receive up to $60 a month. Under the contributory plan, no $60 pension will be paid to anyone before 1960. No one whose forty-first birthday occurred before 1936 can receive as much as $60 a month in any event. No one whose total wages average less than $1534 a year, over a forty-five-year period subsequent to 1936, will receive as much as $60 a month. Pensions of $60 under the. contributory plan are going to be deferred for many years and then will not be available to large numbers of Pensioners.

It is interesting to reflect upon the consequences of a situation of this kind. A retired worker; Jones, who is over sixty-five, will be receiving a contributory pension of $40 a month. Neither he nor his wife has any other resources. In this neighborhood are aged couples who have had no connection whatever with the contributory plan who are receiving free assistance pensions of $60 a month. What is more likely than that Mrs. Jones will apply for an assistance pension of $20 a month, so that she and her husband may be at least as well off as those who have made no contribution toward their pensions? According to any reasonable rules of fair play, the $20 supplementary pension should be granted.

Upwards of twenty million gainful workers of the country are estimated to be in the class subject to the operation of the free assistance plan. A still larger group will be compelled to pay taxes to obtain, as a matter of right, pensions which in a very large proportion of the cases will provide less than $60 a month per aged couple. It will be most interesting to watch the interplay of attitudes between these two groups.

The Social Security Act appropriates 49¾ millions for the benefit payments under the old-age assistance plan for the fiscal year ending June 30, 1936. This relatively small sum gives no inkling of the probable ultimate cost of the plan. The actuaries associated with the work of the Committee on Economic Security, after reviewing the experience in Canada and elsewhere, reached the conclusion that within a decade these free pensions would probably be costing about one billion dollars a year - five hundred millions for the states and five hundred millions for the Federal Government. The staff of the Committee on Economic Security felt that this estimate was too high and produced an estimate of cost less than one half of the actuaries' total. Time only can determine which estimate is the more reliable.

VIII

Of one thing we may be certain: the Social Security Act mount up to huge figures. Including the payroll taxes for the contributory old-age plan, the taxes to be raised by the states and the Federal Government for the old-age assistance plan, and the payroll taxes for the unemployment benefits provided by the Act, the yearly total, if the law remains unchanged, may reach three billions within ten years and four billions within twenty years.

On the other side of the ledger are to be set the enormous costs of old-age dependency and unemployment, which are very real and are now being borne in countless ways. If the billions of new taxes will replace these costs in an orderly manner and at the same time support a system that will confer worth-while social benefits, the country can well afford to pay them. If they will not accomplish these ends, then the economic and political consequences will be serious indeed.

The staff of the Committee on Economic Security faced an almost superhuman task when they were called upon in a few months' time to formulate from the ground up a well-rounded social insurance programme for a nation of 128 million people with marked sectional differences. We cannot criticize their work. The programme finally adopted involved a number of changes from what they had recommended. Some of the changes were helpful, others were not. The change placing the contributory old-age benefit plan upon a theoretically self supporting basis was unsound, and it is doubtful if its consequences were appreciated.

Despite extensive hearings by House and Senate Committees, Congress, busily engaged in putting through other far-reaching and difficult pieces of legislation, did not have the time to inform itself adequately regarding the intricate subject of social insurance. Therefore it is essential that the programme be subjected to further painstaking study in order that its faults may be remedied. Otherwise the law may promote general insecurity and not the security for which the country is seeking.

Finally we must postulate the placing of the financial policies of the government upon a sound basis. There is no other way of-avoiding a type of inflation that is a cruel destroyer of the best-laid plans for social security.

This article available online at:

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