An Approach to Social Security

By John G. Winant

We like to feel that we are living in a world in which a progressive civilization makes us heir to the experience of the race, and progressive intelligence enables us to act upon this experience in ways to benefit mankind. Yet the most superficial glance at the headlines of this morning's paper, the shortest memory of the events of recent years, forces us to recognize that within the span of our own experience the security which civilization should ensure has been jeopardized by war and depression, and that droughts, floods, disease, and dust storms have brought destitution to many, while man's tendency towards race prejudice, class hatred, and economic selfishness continues to make countless thousands suffer.

Generations ago, the Black Death in England was treated as a visitation of the elements. Medical science has wiped out that grim superstition and to a very large extent protected life from sudden death by plague. The skill of the engineer has taught us how to control watersheds and it looks as though we were on our way to learning more about soils, about erosion, and about those things that affect plant and animal life, than ever before in history. Slowly man has learned to recognize natural law and to adapt it to his needs. These advances have contributed to our security.

There are some of us who do not believe that shrapnel and poison gas are necessary parts of modern civilization, or that in this period of invention and productive abundance men and women and children should starve or be without clothing or shelter.

It should not be necessary to emphasize the extent of economic insecurity which exists at the present time; nor need it be emphasized that the economic insecurity of the individual is a problem which is with us in good times as well as in bad. Even in the prosperity of the twenties an average of one twelfth of the employable population was continually unemployed. Before the depression one third of all persons over sixty-five years of age were dependent upon others for their support. We realize that the relative decline of self-sufficient agriculture, the steady growth of the division of labor, the interdependence of markets, and the increasing rapidity of change in all phases of our economic system make for even greater insecurity of the individual.

To meet the hazards of old age, unemployment, and unstable consumption in this modern industrial age the programme for social security has been advanced. We recognize that security is relative. We are not asking that life be stripped of its challenge; we want to lift it from the hazards of enforced idleness, and man's last years from the pit of poverty.

Clearly, security has not simply to do with the periodical payment of nominal sums of money to individuals out of employment or to destitute or aged people. I think we have come to realize that social security affects all our relationships in life. It affects our relationship with the family, with the church, with our neighbors, with the closeness of the factory and the nearby store. We are trying to avoid the type of destitution, the kind of demoralization, that comes when the workers are cut away from all the stabilizing influences of life. A man loses his job—and with it goes his earning power, and, in the lower income group, his capacity for self-support. As the forces of circumstance break down his normal relationships, he becomes isolated, without help or the ability to help those dependent on him. Some men, and their families with them, have repeated that experience many times during their lifetime. No one while under such pressure is quite normal, or can be an effective job hunter.

In our beginnings we were an agricultural democracy, but the census dropped out the frontier in 1890. When our early concepts of conduct were established, before we had entered into the intensified industrial existence that controls economic life to-day, we could say with some degree of certainty and truth that self-support and self-respect and self-government were synonymous. It is not true to-day. In a survey made only a year ago to fix individual responsibility for unemployment, it was found that among a large group of unemployed persons the majority were out of work because of economic forces over which neither they nor their employers had any effective control. And those men were on the street, regardless of character, habits of industry, and technical skill. Such a situation creates a new economic problem. It also calls for changing concepts of conduct; conditions are vastly different from those that prevailed in a simplified Jeffersonian democracy.

II

In the simpler operations of an earlier economy, individual initiative and native intelligence were measured, far more precisely than they are to-day, by a man's ability to earn. In the complexity of modern social relationships, the need of providing practical means for carrying competent people over periods of enforced idleness is obvious. Unemployment compensation is to protect the willing worker. There are other material factors that I think we must recognize in dealing with people who live on marginal incomes; for instance, the cash store and the mail order houses. Whatever benefits they have brought the consumer by reducing prices, they have not added to the credit facilities of a community. The old credit type of neighborhood store carried many people over periods of temporary unemployment.

We are proceeding on the assumption that a society in which reserves are built up against destitute old age, and against loss of work and the loss of living that goes with it, is a better society than one in which such foreseeable hardships are borne by the individual alone. Part of our task is to meet, with precision and exactitude, payments due at a window in some office a thousand miles away. This involves a detailed administrative procedure of vast dimensions. The fellow that goes to the window and wants to get what is due him does not want to receive instead a screed on the rightness of the programme we are laying down. What he wants and what he has a right to expect is the exact amount of benefit due him at precisely the time it is due. It will not serve our purpose to be good philosophers if we are not good administrators as well.

On August 14, 1935, the President of the United States approved an Act of Congress entitled the Social Security Act. Prior to the introduction of this measure many months had been spent in exploring the problems relating to economic security. A committee of the Cabinet, assisted by a staff of experts working with an advisory group representing business, labor, and citizens at large, made specific recommendations which were transmitted to Congress. The measure was supported by very large majorities in both the House of Representatives and the Senate of the United States. It is now law. The funds necessary to carry the Act into effect were appropriated in February 1936.

An administrative Board of three members was appointed to carry out the major Federal provisions of the Act, and the responsibility for collecting taxes was assigned by the Act to the United States Treasury Department. It was the evident intention of Congress to make this a nonpartisan measure. Under the law only two of the Board members can be of the same party, and with the exception of lawyers and experts all appointments to positions under the Board come under Civil Service. Appointments of personnel by the Board have been on a merit basis.

The Committee on Economic Security, created by the President as I have described, took into account in its studies the widest variety of factors bearing upon the needs of the nation in meeting problems of economic insecurity. Prior to the organization of this study, a number of states had considered the enactment of unemployment compensation laws, but only in Wisconsin had the proposal passed both houses of the legislature. The fear of imposing a tax burden upon employers, which would drive industry to those states having no unemployment compensation, was a natural deterrent. This could be eliminated by the imposition of a uniform Federal tax which would remove the competitive disadvantage. Prior to passage of the Social Security Act, the 400,000 workers in Wisconsin were the only American wage earners afforded the protection of governmental unemployment insurance. Yet, approximately half of the gainfully employed of this country could be covered by a system of unemployment compensation if all states were willing to enact similar laws.

The necessity for public assistance for the needy aged, the needy blind, and dependent children left without a parent's support, has long been recognized by many states, but, except for laws to provide aid to dependent children, such public assistance was not widespread, and large numbers of the needy aged and blind were without protection. The inequality of provisions for these dependent persons has meant that thousands in need of public assistance were compelled to live upon intermittent charity. It is roughly estimated that 15 per cent of the persons aged sixty-five and over in our population need public assistance for survival, yet in 1934 only about 3 per cent of that age group received it.

Even in 1928 and 1929 the problem of dependency was increasing. During the depression it became more pressing. Only about half of the states had any legislation on the subject at all, and in some of them lack of funds prevented the administering of such benefits as their laws provided. In others the provisions were far from adequate. It was evident that the need for a more comprehensive system was very real, and that the only feasible way to provide temporary assistance was by the use of grants-in-aid, by which Federal funds could be made available to the states. Prior to the passage of the Social Security Act, the trend was toward less rather than more adequate state programmes of assistance. Many counties made no provision for their needy residents, and persons who were eligible for public assistance under the laws of their states were often left to relief agencies for support.

The reason for this neglect was not failure to recognize the need. The paramount difficulty was lack of funds.

States, counties, and municipalities were faced with decrease in assessed valuations of property, tax delinquency, and mounting costs of relief expenditures; the property tax, the large source of revenue for local governments, was no longer sufficient to meet their requirements. Adequate public-health and public-welfare activities could no longer be supported by many states and counties. But disease and economic distress recognize no state boundaries, and destitution in any one area may depress economic conditions in the whole country. It seemed, therefore, a situation in which Federal action was essential.

The major cause of much of the dependency and destitution among the aged arises from the fact that in the past wage earners have been unable to accumulate savings. The principal countries of Europe have long since recognized this reality and to meet it have developed national systems of old-age insurance. The migration of labor and the unequal distribution of the aged would preclude the adoption of forty-eight separate systems of annuities or old-age insurance in the United States, and here again it seemed evident that social security for the American people required the assumption of Federal responsibility in sharing with states the costs of a concerted attack against insecurity.

The depression has shown a marked increase in the number of aged dependents. We find that, although older men are not often discriminated against when work slacks off in industrial plants, it is much more difficult for them to be reëmployed when once off the payroll. The problem of old-age security is intensified because, while physical life is reaching further into the sixties and seventies, the economic life of the industrial worker is dropping back toward the fifties. This situation is not a product of the depression.

III

The benefits contemplated by the Social Security Act may be classified into two groups, those which are based upon the need of the recipient and those which are available to an eligible individual as a matter of right, irrespective of his need, but based upon his previous employment or wage-earning history.

The first group might be described as welfare, educational, and health enactments set up on a grants-in-aid basis, the grants being made by the Federal Government from general funds to the states on a matching basis. This group includes (1) grants for aged needy persons; (2) grants for aid to dependent children; (3) grants for aid to the blind.

The Social Security Board is charged with the administration of these three projects. Other grants to states for maternal and child health, treatment of crippled children, and child welfare will be administered by the Children's Bureau. An appropriation was also authorized under the Act to assist states and other political subdivisions of the state in establishing and maintaining adequate public-health services, to be administered by the Surgeon General of the Public Health Service. An additional sum was granted for the vocational rehabilitation of those physically disabled in industry, to be administered by the Office of Education, Department of the Interior.

I believe these provisions are in the interest of human conservation. They call for orderly expenditure, they will require accounting, and in a large measure they will replace other funds which are already an existing tax burden. The grant to states for aged needy persons provides for Federal matching of state funds up to a limit of $15 per month per individual, or a total of $30 unless the state chooses to make an additional allotment. No minimum was established and the amount paid to an individual falls within the discretion of the state authority. The Federal Government will provide an additional sum equal to 5 per cent of its grant for state administration.

While a state law setting seventy as the age limit of those receiving assistance is now acceptable in connection with a Federal grant-in-aid, the limit must be lowered to sixty-five years by 1940. The state must not require more than five years' residence within its borders out of the nine previous years, nor more than one year of residence immediately before application for old-age assistance.

In the second grouping under the Social Security Act we have a Federal system of old-age benefits, and what has been described as a 'coöperative Federal-state system' for unemployment compensation. The old-age benefits are administered directly and solely by the Federal Government, and are to be paid monthly to qualified individuals in proportion to the wages earned by them in the course of their employment subsequent to 1936. This is the largest undertaking assigned to the Social Security Board. It means, among other things, the keeping of Wage records for more than 5,000,000 men and women engaged in industry.

In regard to unemployment compensation, the Social Security Act is essentially an enabling statute, designed to aid the states in the enactment and administration of their own unemployment compensation legislation. Such compensation is a state responsibility; if a state enacts an unemployment compensation law which the Board approves, that responsibility is discharged in coöperation with the Federal Government in respect to certain fundamental standards set up in the Social Security Act.

The Act levies an excise tax upon the payrolls of all employers of eight or more persons, exempting, however, wages for certain types of noncommercial or non industrial employment, such as agricultural labor and domestic service. Employers operating under approved state unemployment compensation laws may credit against the Federal tax as an offset the amount of their contributions to their state unemployment funds so long as such credit does not exceed 90 per cent of the amount of the Federal tax. This tax will be collected by the Bureau of Internal Revenue. The rate for this year is one per cent of payroll; it will be two per cent in 1987, and three per cent thereafter. The proceeds go into the general funds of the Federal Treasury.

An employer is eligible for this credit only if the state unemployment compensation law under which he operates has been approved by the Social Security Board, which is required to approve all state laws. These must meet only a few simple standards, but each must be a genuine unemployment compensation measure. It must provide for the payment of benefits and must authorize the expenditure of all funds collected as contributions solely for the purpose of paying benefits. Contributions when collected by a state are to be deposited in the Unemployment Trust Fund, of which the Secretary of the Treasury is Trustee, for the account of the particular state.

The employer in a state having an approved unemployment compensation law, after crediting against his tax, up to 90 per cent thereof, the amount of his payments under the state law, pays the remaining 10 per cent to the Federal Treasury. The Federal Government makes grants to the states for the cost of administering the state unemployment compensation laws.

From a social point of view the taxes levied by the Social Security Act on wages and payrolls cannot be looked upon as an added burden because they only provide funds to cover unavoidable costs. Instead of supporting the unemployed and the aged needy out of funds raised by general taxes, in the future we shall do so out of reserves made possible by taxes upon workers themselves and on their employers. States have pursued an analogous policy for many years in the case of industrial accidents, and no one would now suggest that they pay the victims of industrial accidents out of general funds rather than out of insurance funds built up by premiums based upon payroll. We have long recognized that workmen's compensation is a part of the legitimate cost of production; it is quite as essential that we recognize that unemployment compensation is also a part of the legitimate cost.

There is a vast difference between this principle of keying these costs to the payroll, thus making them a part of the cost of production, and the principle underlying certain popular movements to-day of paying gratuities to the unemployed and the aged out of general governmental funds in return for what has been vaguely termed 'service to society.' Under the plan incorporated in the Social Security Act there is a mathematical, a functional relationship between a man's earnings and the benefits he receives. Thus there are definite limits which can be determined. But in the case of gratuities out of the general treasury there is no such definite relationship, and, therefore, no limit to the amount of benefits that can be obtained. It should likewise be noted that a system of benefits keyed to payroll rewards continued employment, because under such a system a steady worker obtains more benefits than the intermittent and casual worker.

The Social Security Act, in respect to both public assistance and unemployment compensation, excludes the Social Security Board from any function in relation to the selection, term of office, or compensation of state personnel.

IV

So much for an outline of the major provisions of the Social Security Act. With the exception of the Federal old-age benefits provisions, which do not go into effect until 1937, what has been accomplished so far (May 14, 1936) under this programme?

In spite of the failure of an appropriation of funds by Congress until February of this year, the Social Security Board, in cooperation with state governments, has succeeded in providing for unemployment compensation which will protect more than 40 per cent of the compensable workers of the whole country; assistance to the needy aged affecting approximately 630,000 individuals; aid to dependent children affecting approximately 147,000 individuals; and aid to the blind affecting approximately 19,000 individuals.

The Social Security Board has thus far approved the unemployment compensation laws of nine states and the District of Columbia. In Wisconsin, New York, California, New Hampshire, Massachusetts, Oregon, Alabama, Washington, Indiana, and the District of Columbia, employees will be protected against destitution or dependence on charity during periods of unemployment by receipt of regular cash payments which in practically all states will amount to 50 per cent of their full-time weekly wages. Each worker will be eligible to receive these payments for from eight to sixteen weeks in a year, or even more under certain conditions depending on the individual state laws. The Federal Government has expended approximately three quarters of a million dollars to cover the cost of administration of state unemployment compensation systems.

The Social Security Board has approved plans for old-age assistance in thirty-two states and has under consideration four additional state plans recently submitted. Under the state plans already approved, the Federal Government is contributing toward the payments for old-age assistance to more than 630,000 persons. Expenditures made by the Federal Government for this purpose during February and March 1936 amounted to over five million dollars, and it is estimated that sixteen million dollars of Federal funds will be expended in April, May, and June.

The Social Security Board has approved eighteen state plans for aid to dependent children, and has under consideration the plans of eight other states recently submitted. The Federal Government has contributed over $700,000 to assist states with approved plans in providing maintenance in their own homes for children who have been deprived of parental support. Approximately 147,000 children have thus been given the advantage of home life.

The plans of nineteen states for aid to the blind have been approved by the Social Security Board and four other state plans recently submitted are under consideration. In February and March, the Federal Government expended $421,000 to assist the states with approved plans for aid to the blind, and it is estimated that $700,000 will be expended for this purpose in April, May, and June.

For the fiscal year ending June 30, 1937, an appropriation just passed by the House of Representatives calls for $450,000,000 for the Social Security programme. This amount will include funds for general administration; grants-in-aid for old-age assistance, dependent children, and the needy blind; unemployment compensation; wage records for old-age benefits; and $265,000,000 for the old-age reserve account set up in the Treasury Department.

The approximate number of persons to be covered by the provisions of the Social Security Act when all states have enacted cooperating legislation will be:—

Under unemployment compensation—18,000,000
Under public assistance—1,678,000

It is estimated that the federally administered old-age benefits will affect 26,000,000 persons.

In executing the will of Congress through the present Social Security Act we shall, of course, be attempting to build with tools that are not yet perfect. The passage of the Act marks a first step toward social security. The obligation to study and recommend improved means of accomplishing the objectives is expressed in the Act as follows:—

The Board shall perform the duties imposed upon it by this Act and shall also have the duty of studying and making recommendations as to the most effective methods of providing economic security through social insurance, and as to legislation and matters of administrative policy concerning old-age pensions, unemployment compensation, accident compensation, and related subjects.

A major task will be the working out of the most efficient method of keeping the necessary minimum of records. In addition, the Board will have much to learn about the techniques of at least three types of administrative relationships.

One of these is the important relationship between the Federal and the state governments. The need for cooperative action between the two agencies is clear. The geographic location of the state governments, close to the industries within their borders, enables state officials to see at first hand important facts which would be telescoped into insignificance if viewed from a distant Washington. On the other hand, there are certain features of the local terrain whose importance is clear only when they are seen in relationship to other areas, and these can be brought out only by the type of reconnaissance work that can be done from a central point.

A second vital relationship whose technique must engage our attention is that between the agencies collecting taxes and indispensable records and the hundreds of thousands of employees who come within the coverage of the Act. It is from these employers, undoubtedly, that many valuable suggestions for revisions of procedure will come. On the general question of the desirability of social-security measures, the employing group in the country seems to have, quite clearly, an affirmative attitude. There is much more division as to desirable techniques for implementing that attitude. Patient experimentation is definitely needed, with the equally definite understanding that out of mutual contributions to that experiment improved techniques will come.

The third important relationship which we must establish and maintain is our relationship with the general public, and particularly with that large part of the general public who are the beneficiaries of the various security programmes now enacted into law. This relationship is probably the most crucial of all. Only as our work has a basis in a broad popular understanding of what we are trying to do, and the limits within which we must of necessity do it, can the programme achieve any measure of success. Without this understanding, we should run our course between two dangers.

One of these would be the danger of a popular feeling that we were doing too little. Unless the insured worker understands the operation of the fund which is accumulating to his future benefit, he will be inclined to look askance at the exactions from his wages, viewing them as nothing but a deduction from this week's pay envelope. The other danger would be a popular feeling that we could do too much. The difference between the everyday world and utopia is an important difference, and the resources of the former, when applied to the requirements of the latter, are likely to prove inadequate.

Should this latter danger materialize in a desire for unlimited extension of pensions, moreover, it would be a threat to the whole philosophy on which the social-security effort is based. The present Act envisages payments of compensation to those involuntarily out of work and payment of assistance or benefits to those whose earnings during their working life have left no margin of provision for oncoming age. But the ultimate objective of the movement for social security is not the outpayment of unemployment insurance and old-age assistance. It is the establishment and maintenance of a system of social relationships in which the individual's earning power during his working life shall be enough, and continuous enough, to ensure him an old age for which a competence shall have been gradually accumulated as the reward of his own effort.

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