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10 April 2011

Time Magazine on Social Security in 1939: "Pie From The Sky"

Monday, 13 February 1939
Time Magazine

It is an axiom in the insurance business that insurance is not bought but sold. In 1935 Franklin Roosevelt sold Congress and Congress sold the U. S. the Social Security Act, the biggest, most comprehensive, most expensive mass insurance policy ever written. Since then its purchasers, the nation's taxpayers, have had occasion to read their policy carefully and, if they have detected no outright jokers, their reaction has been such that practically every politician in the U. S. from Franklin Roosevelt down has put revision of Social Security at the top of his must list. Last week, as the House Ways & Means Committee began hearings on proposed ways & means to make the Act work better, the revisers officially got down to business. 

Ways & Means' old Chairman Doughton, his spectacles quizzically pushed up on his forehead, presided over as rowdy a show as he has seen in his 28 years in Congress. The hearing room was jammed with Townsendites and other pension peddlers, for on the committee's schedule was no less a witness than Physician Francis E. Townsend himself. Far more unruly, however, were Congressmen anxious to outdo one another in doing for the old folks. Massachusetts' broadbeamed Republican Allen Treadway, whose State party leaders made an election alliance with the Townsendites, showed what was likely to happen when Congress receives the committee's report. Trying to shout down a group of Democrats, Republican Treadway and his party members made so much noise that Chairman Doughton almost broke his gavel pleading:

"Order! Gentlemen, Gentlemen, we will have order!" 

Old Folks: The political failure of Social Security is that after more than three years of the Act designed to eliminate the insecurity of the aged, insecure oldsters are still making and breaking politicians, still rank as a prime U. S. political problem. By & large another provision of the Act, its program of unemployment insurance, has functioned to the satisfaction of participants who have drawn out $400,000,000 in unemployment benefits since the program started operation. But for old folks, Social Security, which will not begin paying monthly old-age insurance benefits for those over 65 until 1942, is still pie in the sky. The business of the witnesses before the Doughton committee was to show how the pie could be brought down within reach without wrecking the nation's economic structure. 

Altmeyer: First witness was the Social Security Board's scholarly Chairman Arthur J. Altmeyer. Chairman Altmeyer's job was to present to the committee the revisions proposed by President Roosevelt's official Advisory Council on Social Security and additional suggestions of the board, which were received and approved by the White House last month. With little elaboration, Mr. Altmeyer passed on a recommendation that the coverage of the Act be extended to seamen, domestic servants, employes of educational and charitable institutions and other groups that would add 6,000,000 to the board's present clientele of 42,500,000; that the board increase its subsidies to the States for dependent children and the blind. Then Chairman Altmeyer outlined his, and the White House's, three-fold plan to give more to the old:

1) Begin monthly old-age insurance payments in 1940 instead of 1942. This would help already insured oldsters who now get nothing but lump-sum settlements of their claims, totaling only $12,000,000 since 1937.

2) Extend old-age insurance benefits to wives over 65, aged widows and widows with dependent children.

3) Overhaul the present stopgap old-age assistance program, which was supposed to take care of uninsured oldsters by giving them pensions up to $30 a month, financed by matching State and Federal grants. In practice the 1,783,171 pensioners under this program are getting an average of $19, and in the South pensions have ranged down to $6. The Roosevelt-Altmeyer proposal: abandon the policy of matching grants, subsidize States according to their economic need. 

Crackpots. Plans like California's $30 Every Thursday, Indiana's $30 on Monday, and the Townsend Plan, which Franklin Roosevelt dismissed as "unsound," flourished more vigorously than ever in the soil of senile insecurity. Dr. Townsend, still promising up to $200 a month to be raised by a hazy "transactions tax," sat in Washington waiting to be called by the committee. Meantime, his organization's chief rival, the General Welfare Federation of America, got its crack at the committee last week.

Founded by a dissident Townsendite named Arthur L. Johnson, General Welfare Federation now maintains the only year-round old-age-pension lobby in Washington. The General Welfare Act it proposes, promising $60 at 60, is based on a gross income tax of persons and firms, exempting only sums paid out in wages, taxes and interest. The plan is modeled after taxes now levied in Indiana and Hawaii, and the federation calculates it could raise $7,000,000,000 a year for pensions in the U.S. The General Welfare Act has 100 pledged supporters in the present Congress. Two of them, California's Jerry Voorhis and Harry Sheppard, turned up to read the skeptical Chairman Doughton prepared statements on the wonders of the General Welfare Act. The federation's nominal president, the Rev. Mr. Thomas E. Boorde, a member of the Home Mission Board of the Southern Baptist Convention, "which speaks for 4,121,000 Southern Baptists," declared: "The Church must be up and about its Father's business." Read to the committee was a long testimonial to the General Welfare Act by Minnesota Packer George A. Hormel, whose firm has net sales of $56,900,000 a year. Excerpt: 

"It is estimated that more than 50% of those applying for pensions will be taken from the Federal relief list. . . . It will make possible the balancing of the Budget. . . . 

"We must consider that if we don't meet this issue we will have foisted upon us some type of pension legislation by States that will be very harmful. . . ."

Swindle? One headache which both Franklin Roosevelt and Chairman Altmeyer sought to save old Bob Doughton was that of worrying over where the money for a revamped, certainly more expensive, Social Security program is to come from. Without passing on the board's recommendation that the 1940 hike in employer-employe taxes from 2% to 3% should be the last, pending study of the Act's finances, Mr. Altmeyer told the committee that Secretary Morgenthau was studying the subject, would report in due time.

As dear to Franklin Roosevelt as it is unpopular with most experts on social insurance is the principle of building up a "reserve" instead of financing on a pay-as-you-go basis. By 1980, ten years after the Social Security Board for the first time begins to disburse more in yearly old-age benefits than it collects in taxes, the reserve will have reached the unimaginable total of $47,000,000,000. In fact, the Treasury will have spent the $47,000,000,000 for other purposes as it is doing today and the reserve will consist of a hoard of Government bonds, the interest on which will meet Social Security's deficit. Because the bond interest will in turn have to be met by the Treasury, through other taxes, only net gains by this maneuver are: 1) Social Security taxes can now be used to finance Treasury deficits, and 2 ) the Government's tax-exempt bonds will eventually be shifted from private to public hands.

As the board hopefully pointed out, liberalizing Social Security's benefits will diminish the reserve in practice. But Franklin Roosevelt has so far shown no willingness to surrender it in principle. To the Congressional gunmen, led by Massachusetts' smart young Henry Cabot Lodge Jr., who are itching to attack the reserve when Social Security reaches the floor again, last week came a fresh round of ammunition from Liberal Economist John T. Flynn. Writing in Harper's on "The Social Security 'Reserve' Swindle," plain-talking Mr. Flynn declared:

 "Obviously the government cannot pay adequate pensions if it insists on 'borrowing' most of the old age taxes and spending them to support the government. The whole thing is a disguised tax levied upon the lowest income groups under the pretense of old age pension premiums. No government would dare support itself out of a payroll tax if it honestly proclaimed its purpose..."