A SOUND and comprehensive system of social insurance — in other words, earned security— is an intrinsic part of a positive approach to the nation’s welfare. Nobody can deny that a broad and just distribution of social insurance is necessary today as a bulwark against the unavoidable hazards of modern industrial society. Rightly used, social insurance can act as a flywheel for the nation’s economic and social stability.
The foundation of the social security system is contributory social insurance with benefits related to prior earnings and awarded upon retirement without a means test. Under existing law and contemplated amendments which have been passed by the House of Representatives, the employee contributes a specified percentage of his wages and his employer adds an equal amount. Under such a system the individual earns a rigid to benefits that are related to his contribution to production.
I nder the old-age assistance program, payments are furnished aged persons who are certified as being in need and who meet the other eligibility requirements established by the respective states. The role of the Federal government is limited to financial participation in the costs of assistance and administration, the setting of minimum standards for the operation of the programs by the states, and the furnishing of technical advice on the problems of administration.
Our goal in the United States is to prevent dependency through social insurance and thus greatly reduce the need for government assistance. Unfortunately, this goal has not been reached because the distribution of social security is not yet comprehensive, just, or economically sound. In the meantime, the race between Federal old-age assistance and old-age insurance is endangering the future of our social security program.
When the Social Security Act was set up, the Committee on Economic Security emphasized that a contributory system of old-age annuities would build up a more adequate old-age protection than could be achieved with noncont ributory pensions based on a means test. The role of old-age assistance, or relief based upon need, was to become secondary. It was predicted that insurance benefits would make supplementary assistance payments necessary only for the few beneficiaries who might have extraordinary needs.
Contrary to these predictions, however, the oldage assistance case load and expenditures continued to increase. The lack of coverage for large numbers of workers under old-age insurance and the low level of benefits made these increases in old-age assistance almost inevitable. By 1942 old-age assistance costs had risen to more than 600 million dollars a year, compared with 415 million in 1939. In the same period, the case load rose sharply — from 1.75 million to 2.25 million recipients. Except for small declines in the number of recipients during the later war years, the case load has continued to increase as the number of aged persons in the population has risen, and the states and Federal government have liberalized the program. The case load now exceeds 2.6 million persons and the costs have swollen to the extent that Federal and state expenditures in the past fiscal year totaled 1.3 billion dollars, or approximately three times the 1939 expenditures.
What has occurred in the insurance program during the same period? Although benefits have been paid to an increasing number of persons each year, still old-age and survivor insurance beneficiaries, aged 65 and over, now number only 1.8 million. The average benefit to retired workers is $26 per month, contrasted with an average old-age assistance payment of $44. Supplementation of inadequate old-age insurance benefits by old-age assistance is becoming more prevalent.
No other result is possible than to have old-age assistance be the major program when the current maximum insurance benefit payable to a retired worker is $45.20 per mont h. This amount is payable only to the select few who have just retired and who have earned wages of at least $250 per month since 1936 — wages on which payroll taxes have been paid by the worker and his employer. The maximum insurance benefit payable to the aged wife of such a worker is $22.60 per month, or a total of $67.80 for both. Compare these maximum payments, which are an earned right related to contributions paid, with the old-age assistance payments in some of our Western states, where $150 per month is the basic amount allowed a husband and wife without income or resources.
Part of the present assistance load is due to the fact that many people were too old to benefit by the insurance provisions, But when we look to the future we must ask. What incentive will there be for workers to pay insurance premiums year after year, when the resultant insurance benefits will be much less than what is paid to those on assistance.”The nation is encouraging irresponsibility by a program weighted in favor of ihe spendthrift.
Hut there is a greater danger in the expansion ol the assistance program than the stilling oi incentive to provide for security in old age. The political dangers inherent in the program are its most threatening aspect. The wide differences that exist among the states as to the proportion of the aged on the assistance rolls, as well as the variations in the amounts they receive, illustrate the unsoundness of the whole situation. In New York and New Jersey , where the laws on family responsibility and on the definition of need are stringent, less than 10 per cent of the aged are on assistance. But in Louisiana various factors have made it possible to put 81 per cent of those over 65 on the assistance rolls: and several other states have 50 percent of the aged population on this relief program. In the slates where abnormally high numbers exist, and in those where $150 is the basic amount, the “welfare state that is such a bugaboo to many people is not coming: it has arrived.
WHAT has happened to push old-age insurance into the background? The impact of the war resulted in higher living costs for the recipients of assistance as for other people. Stale revenues increased sharply, but they could not be spent (or capital improvements because of the need lor manpower and materials in the all-out war effort. Some of the excess funds were made available to raise assistance payments in an efiorl to keep puce with the rising fixing costs. Mien in 1940 and again in 1948 Ihe Federal share of old-age assistance payments was increased In the Congress, so that now the Federal government will provide $50 a month if a state pays a recipient $20 from its own funds. Although these two actions by the Congress increased the maximum Federal share of a monthly assistance payment from $20 to $50, nothing was done for the beneficiaries on the insurance rolls. The old-age and survivors insurance program has been permitted to drift for more than ten years with benefits payable under a formula designed to meet pre-war coral it ions.
‘“Well, why not?" is the rejoinder. “Isn ’t oldage assistance just as much of a right as old-age insurance?”
Let us consider the political, civic, and moral implications of these two very different rights.
Since the Federal government now pays 75 per cent of the lirsl $20 of assistance, if ihe state keeps its average at $20 the Federal government provides $15 and the state $5. Hence the temptation may become irresistible to increase the number of recipients at the basic rate regardless of need. The divided responsibility between the Federal government and the states for this relief type of program lends itself to manipulation by state politicians, who have influenced tin’ Federal government lo carry an ever increasing share of the costs. The financial burden upon the Federal government could therefore easily become so great that the proper development of old-age insurance would be impeded or even prevented. Because old people have voles and children have none, the stale legislatures have often been tempted to pass generous bills for old-age assistance and save on appropriations for dependent children. In addition to these unfortunate results, old-age pressure groups are already raising their pension demands to exorbitant amounts in some states.
There was in 1900 one person over 65 to thirteen of productive age. Today ihere are only eighl persons of productive age to support one old-age pensioner. Forecasts indicate that by 1975 ihere will be but live workers to maintain one old person. If we exclude from those of productive age the substantial number of persons who are not producing goods and services, it seems not unlikeK thal before the end of this century the worker of that day will have to support twice as many old people as the worker of today. Therefore the trend toward exorbitant old-age pensions, unless checked, will place an impossible burden on the nation’s working population.
Quite apart from the economic implications, if the stales should make a racket of old-age assistance. the resulting moral and civic conditions would be profoundly detrimental to the future of our country. The politicians who use the increase of old-age assistance as political bait debauch themselves and the electorate, while neglecting the care of children and youth.
Furthermore, a means lest program is inferior to an insurance p fog ram from the standpoint ol the recipient. As Robert M. Ball, staff director of the Advisorv Council on Social Security, has pointed out, the right to assistance which is based on ihe negative fact of being in need cannot be considered an earned right. People cannot be expected to look on assistance as a reward, as something to be proud of, no matter how completely they come to accept the idea of having a right to it.
In assistance the community is divided. Only the “poor” receive the benefits. The others pay for it. The recipient’s only right is the right to apply, and then some other fallible being passes judgment on the application. In insurance, to quote Mr. Ball, “it is not one part of the community caring for another but the community meeting a universal need. Everyone has a stake in his earned pension and insurance benefits.”
If we are to preserve the incentive system and its stimulating influence on the American character, the policies on which we organize social security are all-important. As an earned right, social insurance — unlike public assistance — is an integral part of the economic incentive system. In social insurance the incentive to earn and save throughout one’s working life is protected because any additional income, large or small, may be used to provide a higher standard of living. On the other hand, a private income from savings, since it must be deducted from the payment, makes no difference in the total income of the assistance recipient.
There is no doubt that from the standpoint of freedom, the democratic values, and economic stability, social insurance must be given preference over public assistance. It is of the utmost importance that through an extension of coverage and an increase in social insurance benefits, it be made clear that public assistance is not a rival of the insurance method, but a supplement to it, performing the residual task that will always exist for a last-resort program that takes responsibility for meeting total need.
The Committee on Ways and Means of the House of Representatives has recognized that old-age and survivors insurance is threatened not only by public assistance but also by special pension plans for special groups. I can give no better statement of my whole argument than the following paragraphs from the Committee Report on H.R. 60000, the bill extending social security benefits, which was passed by the House in October and is now under consideration in the Senate.
The Congress is faced with a vital decision which cannot long be postponed. Inadequacies in the oldage and survivors insurance program have resulted in trends which seriously threaten our economic well-being. The assistance program, instead of being reduced to a secondary position as was anticipated, still cares for a much larger number of people than the insurance program. Furthermore, the average payments under assistance have more than doubled in amount since 1939 while benefits under insurance have scarcely risen at all. There are indications that if the insurance program is not strengthened and expanded, the old-age assistance program may develop into a very costly and ill-advised system of noncontributory pensions, payable not only to the needy but to all individuals at or above retirement age who are no longer employed. Moreover, there are increasing pressures for special pensions for particular groups and particular hazards. Without an adequate and universally applicable basic social insurance system, the demands for security by segments of the population threaten to result in unbalanced, overlapping, and competing programs, d lie financing of such plans may become chaotic, their economic effects dangerous. There is a pressing need to strengthen the basic system at once before it is undermined by these forces. Once the basic system is firmly established any remaining special needs of particular groups can be assessed and met in an orderly fashion.
Unfortunately the bill does not carry out in its provisions what this statement implies. Coverage is extended; but no program is “ universal” when it still excludes 14 million workers. Federal old-age insurance benefits are increased but old-age assistance is also augmented. With the stringent provisions the bill contains for the insurance of older workers, H.R. G000 encourages rather than restricts the development of the assistance program. It carries out the philosophy of the Federal Security Agency that old-age assistance is a right on a par with old-age insurance.
THE primary goal of a social security program that is really secure and protects the dignity of the American worker must be to reduce the need for assistance to a minimum. What are the requisites for such a goal?
1. Universal coverage of all workers whether employed or self-employed.
2. Average benefits to provide a floor high enough to keep the aged from becoming objects of charity.
3. Reading into the Federal insurance system many of the people now over 65 as a transitional measure so that the insurance system will function effectively at once.
4. Return of public old-age assistance to the states as quickly as possible.
Only universal coverage of all workers under the social security program can be considered just. A strong case can be made for this on (he theory that everybody should pay for social security and therefore everybody should enjoy the benefits.
The average old-age pension must be liberal enough so that public opinion will put an end to exorbitant union demands as unfair to the preponderant number of unorganized workers. This figure, moreover, should be subject to review from time to time, to determine whether it is keeping pace with the cost of living. If our indust rial leaders think that sounds costly, let them remember that a sound, adequate, and comprehensive Federal social security system would stimulate production, cut down labor disputes and strikes, and give every American a stake in the maintenance of a sound economy.
The organized pressure of the aged is already becoming ominous in California and Colorado. If the same old people’s lobbies spring up in our Eastern and Middle Western states, providing for the old folks will become a ghoulish nighlmare that saps the vitality of the younger population.
There is but one way to prevent this tragic development: take most of the burden off the states by reading as many as possible of those over Go years of age into the Federal insurance system, and then return old-age assistance to the states.
I realize that both processes must go hand in hand. The matter of timing is important. The states should be allowed to adjust their programs and financing so that there would he no great damage to the basic concept of a flexible supplementary assistance program as a result of sudden federal withdrawal. Only after an agreed period would Federal funds for assistance be reduced or eliminated. But the mere knowledge that old-age assistance was to be returned to the slates would put a curb on the present trend toward its abuse. Moreover, any provisions for reading the present population over 65 into the insurance plan would have to be made in such a way as not to break down ihe principles on which the present system is based. A certain leeway, however, would be permissible because such provisions would be transitional measures that, would not be perpetuated.
The government now realizes that the insurance of older people will be inadequate. It already gives recognition to their previous service to some extent by granting them relatively more in benefits lhan those entering the insurance system at younger ages. The same principle can be applied to those now over 65. Many private employers who have set up iheir own systems have established this as the only practical course to pursue.
In social insurance there are alternative methods of applying this principle. Perhaps the simplest wav of doing it would be to sav that everybody, both husband and wife, over 70 will get the minimum amount of $25 provided in H.R. 6000. While $50 for an aged couple may not be a subsistence level, in many cases old parents with this amount at their disposal would become an asset to a family.
Why do I select 70 years and leave the entire burden of those now between 65 and 70 to the stales? About $0 percent of the 11 million people now over 65 are self-supporting, and presumably most of them are in the 65 to 70 age group. Thus ihe responsibility toward this group will not bo as heavy as might first appear. As for the cost, the Federal government will save 800 million dollars a year which it now contributes toward old-age assist ance.
By suggesting that those people now over 70 be read into the Federal insurance system, I am throwing out only one of many possible suggestions for counteracting the expansion of old-age assistance. I have also avoided the issue of how much the average old-age Federal insurance benefit should be, in order to counteract the union drives for private pensions and yet remain within practical economic limitations. Both problems demand painstaking research by actuarial and other experts in this field.
The only thing I maintain is this: If my principle is right, that old-age assistance must ho returned to ihe states to preserve the solvency of old-age insurance, then the experts should be put to work at once to determine the best means of doing it.
For the ultimate solution of the problem, the extension of insurance coverage to all workers must be complete, so that the future load of old people will be entitled to insurance when they reach the age of retirement. That the age of retirement shall continue to be 65 is debatable. The great increase in life expectancy denotes increased vitality in the whole population.
Old-age insurance benefits should be planned on the assumption that general taxation will eventually share with employer and employee contributions the future financing of benefits. Therefore, if the national economy is to remain sound, the people must he told that Federal old-age insurance can never provide a luxurious level of income. They must be educated to realize that any threat to the solvency of the government will impair the currency, raise prices, and create the most acute and immediate suffering among the aged as well as among the unemployed, the needy, and the disabled.
Instead of indulging in hopes of an affluent old age — a delusion now only too prevalent —our people must learn that they should save for their old age more than their mere insurance contributions, and that they should remain productive as long as possible. It is already obvious that we cannot permanently afford to put every citizen over 65 on the shelf. Instead of penalizing ihe people over 65 who remain productiv e by excluding them from Federal insurance benefits or limiting the amount they can earn, it is in ihe interests of the national economy to provide extra insurance benefits for those who prolong their working years.
The proper use of social insurance is akin to that of drugs. In carefully measured doses it will keep the economy healthy. Used recklessly il will surely destroy the body politic. What we can afford in the future for the welfare of our people will depend upon an expanding productivity. All the more reason, therefore, to ensure that productivity not only for the protection of old age but also to give all of our children an equal opportunity for selfdevelopment. and for the creation of an emotional poise and security which economic security alone cannot provide.