What was true of the Social Security Act of 1935?

The Social Security Act was signed into law by President Franklin D. Roosevelt on August 14, 1935. It established Social Security benefits throughout the country that serve as a major source of income for elderly and disabled U.S. citizens and their dependents. The law also established the joint federal-state unemployment insurance program. Increases in population and life expectancy have caused Social Security to grow since the early years of the act, bringing about regular adjustments and several amendments since the original passage of the law.[1]

The Social Security Administration estimated that 59 million Americans would receive a total of almost $870 billion in benefits by the end of 2015.[2]

Background

The Social Security Act was one of a number of new laws and organizations established to support citizens as part of former-President Franklin Roosevelt's New Deal. Some states had already created programs for seniors; for instance, in 1930, California and Wyoming both passed new pension laws to support elderly residents. In 1933, the term "social security" was first used in a significant way when the American Association for Old-age Security became the American Association for Social Security. The organization's mission was to advocate for state and federal legislation that would ensure adequate pensions for seniors. The organization also fought for unemployment insurance and health insurance for all American citizens.[1][3][4]

The Social Security Act was the first significant federal legislation designed to support retired individuals. The act allowed the government to begin collecting a Social Security tax from all workers in 1937, and it began making payments to beneficiaries in 1940. The act did not pass without its share of opposition, however. Alf Landon, Roosevelt's challenger in the 1936 election, asserted that employing such a large payroll tax was unfair to workers. In 1935, the Communist Party of America argued that the bill would assist the rich while unfairly overtaxing the working class and supported a different bill at the time. Huey Long, a Louisiana Senator in 1935, had similar views and argued to redistribute wealth to the poor.[5][6]

Despite some protest, the Social Security Act was passed, eventually leading to calls for expansion. Unlike the opposition mentioned above, some of the opponents of expansion argued against the socialization of the American healthcare system. For instance, in 1961, Ronald Reagan (then still an actor), released a speech with the American Medical Association, speaking out against another piece of healthcare legislation, the King-Anderson bill. The King-Anderson bill ultimately failed, but it was viewed as a precursor to Medicare, as it would have covered some medical expenses for the elderly. Similar opposition against medical assistance programs (especially Medicare and Medicaid), came from a number of high-profile senators and political figures throughout recent history, including George H.W. Bush, Strom Thurmond and Bob Dole.[6][7]

Basic facts

Social Security is one of the primary governmental programs providing income for elderly or disabled individuals. The administration of this complex program involves many rules and regulations.

Funding

The Social Security program is funded through a tax known as the FICA tax. FICA, or the Federal Insurance Contributions Act, affects all employee paychecks and collects funds that are distributed into two federal programs: Social Security and Medicare. FICA establishes a maximum Social Security payment but does not have an overall limit. Once the maximum contribution to Social Security is reached, any remaining contributions go toward Medicare. Employers and employees are both required to make these payments. In 2010, the Social Security tax for employees was 6.2 percent, while the total FICA tax was 7.65 percent. Under FICA rules, employers were required to make a matching contribution.[5][8]

Full retirement age

In order for a retiree to receive full benefits under Social Security, he or she must reach what the Social Security Act defines as "retirement age." Commonly, this is believed to be age 65. However, the actual retirement age according to the law varies depending on the year a beneficiary or potential beneficiary was born. The following chart displays those years alongside the ages at which individuals would be eligible for full retirement.[9]

Beneficiaries

Social Security has grown significantly since it was established in 1935. According to the Social Security Administration, there were nearly 60 million Social Security beneficiaries as of June 2015. About 42.6 million of those beneficiaries were retired workers and their dependents, 10.9 million were disabled persons and their dependents, and about 6.1 million were survivors of beneficiaries. This is a significant increase from numbers reported in 1970, when there were about 25.7 million total beneficiaries. At that time, about 16.6 million of those were retired workers and their dependents, 2.7 million were disabled workers and their beneficiaries, and about 6.5 million were survivors of beneficiaries. As this data shows, the number of total beneficiaries has more than doubled since 1970.[10]

The graph below, published by the SSA, shows the growth in number of beneficiaries by category for the years 1970 through 2014. For exact numbers, click here.

The Social Security Administration also publishes a monthly report, called a "statistical snapshot," of Social Security Beneficiary information. In a report published in November 2015, the Social Security Administration reported that there were about 65 million beneficiaries in the United States. Nearly 44 million of these were 65 years of age or older, while about 14.2 million were disabled (and under 65 years of age). There were also about 6.8 million beneficiaries who fell under a category called "Other," which encompassed early retirees and those receiving survivor benefits (who were under age 65).[11]

Additionally, the report shows the number of individuals who solely receive Social Security benefits, those who receive solely Supplemental Security Income (SSI), and those who receive both simultaneously. The chart below contains the full report from November 2015.

Note: The numbers displayed should be multiplied by 1,000 (for instance, 50,000 would mean 50,000,000). Additionally, the report was for the month of October 2015, but was published in November.

MassMutual survey

Massachusetts Mutual Life Insurance, a life insurance company based in Massachusetts, conducted a survey in 2015 that showed that a large percentage of citizens may not know several basic facts about the program. This survey was delivered in the form of a "true or false" quiz, where ten basic Social Security questions were posed to 1,500 individuals. Only about 28 percent of individuals who took this quiz earned a "passing grade," although the cutoff for what equaled a "passing grade" was not specified. However, the survey analysis did reveal three specific areas where individuals were more likely to have knowledge gaps.[12]

• First, an individual does not need to be an American citizen to receive benefits. Three-quarters of those surveyed believed that only citizens could receive benefits, when in reality, any resident alien who has legally worked in the United States can potentially receive Social Security benefits as long as certain criteria are met.
• Second, 71 percent of those surveyed believed that full retirement age, or the age at which individuals can receive full benefits, is age 65. In actuality, full retirement age varies based on the year a person was born.
• Third, about 55 percent of those surveyed believed incorrectly that one could work while collecting full retirement benefits, regardless of age. In reality, if someone wants to receive benefits while working, he or she must submit to a process called the retirement earnings test, where one's Social Security earnings are combined with regular income and then examined. If those total earnings are above a certain limit, Social Security will be withheld and repaid over the rest of an individual's life once he or she enters full retirement.[12]

The MassMutual quiz can be found here.

Benefits

Payments

The amount an individual receives from Social Security varies based on two main factors: retirement age and calculations based on the individual's 35 highest-earning years prior to retirement. Higher historical earnings will equal higher Social Security payments, while lower earnings equal lower payments. An individual with fewer than 35 years of qualifying earnings will also have lower payments.[13]

The calculation used to determine final payments for beneficiaries follows a three step process:

1. The beneficiary's earning reports are adjusted based on current wages (i.e., inflation).
2. Earnings for the highest 35 years the beneficiary was paid are averaged and divided by the number of months in 35 years (420 months). The resulting number is called the Average Indexed Monthly Earnings (AIME).
3. Another formula is applied to the AIME, producing the final payable benefit for full retirement age.[13]

If an individual does not have 35 years of earnings to report for Social Security purposes, zeroes are substituted in for any missing earnings. As a result, having fewer than 35 years of qualifying earning can significantly lower one's payable benefits.[13]

Supplemental Security Income

In addition to retirement benefits, Social Security also provides a benefit called Supplemental Security Income, or SSI. SSI benefits exist to provide additional income to disabled children or adults who have little or no income because of their disability. Individuals without a disability age 65 and up may also be eligible if those individuals meet income requirements. The Social Security Administration also uses an individual's other resources (such as housing and benefits from other programs) to help determine whether or not an individual is eligible for SSI benefits.[14]

The table below displays the number of SSI recipients by age group, as well as the total amount received by that age group and the average monthly benefits received per person. The "Total payments" listed below are listed in millions of dollars, meaning that the total $4,732 listed below was actually equal to $4,732,000,000.

Survivor benefits

If a worker who is earning Social Security dies, his or her family may be entitled to receive survivor benefits. These benefits are funded as a part of regular Social Security collections, meaning all a worker has to do to earn survivor benefits is to earn enough credits. Survivor benefit credits are earned based on income. For instance, in 2015, one credit was earned for every $1,220 in wages. A maximum of four credits can be earned in one year, and the number of credits needed to be eligible for survivor benefits are based on the age of the worker when he or she dies. Benefits can be paid to the children or spouse of a deceased worker as long as he or she has earned at least six credits in the three years prior to the worker's death.[15][16]

Benefits statistics

The Social Security Administration publishes a report each month that details benefits and beneficiaries. The table below breaks down the total number of beneficiaries by benefit received. The table is separated into two main sections: Old age and survivors insurance, and disability insurance. Those sections are bolded in the table. The non-bolded categories fall under one of the larger sections. For instance, there were 49,017,000 old age and survivors insurance beneficiaries in October 2015. About 42,940,000 of those beneficiaries received retirement benefits. The percentages in each section refer to the total number of beneficiaries, and because beneficiaries may receive multiple types of benefits, these percentages will not be equal to 100 percent.[11]

Note: The numbers displayed, with the exception of average monthly benefits, should be multiplied by 1,000 (for instance, 50,000 would mean 50,000,000). Additionally, the report was for the month of October 2015, but was published in November.

Creation of unemployment insurance program

The SSA established the joint federal-state unemployment insurance program. Title III of the SSA authorizes the federal government to give states grants to administer their unemployment insurance programs. Title IX requires states to deposit unemployment insurance tax funds into the federal Unemployment Trust Fund, which the federal government then credits to state accounts to pay unemployment benefits. Title XII authorizes loans to states with insolvent unemployment insurance programs.[17]

Congress at the time aimed to develop a means to help mitigate the effects of widespread job losses that had occurred during the Great Depression. Due to concern that the U.S. Supreme Court would find a national unemployment insurance program unconstitutional, Congress designed a federal payroll tax mechanism that incentivized states to set up their own unemployment insurance programs under the direction of broad federal guidelines.[18][19]

Funding

The unemployment insurance program is funded by state and federal taxes on employers called unemployment taxes. Under the 1935 system, the federal government taxed the total annual wages of covered workers, phasing the tax in at 0.1% in 1936, 0.2% in 1937, and 0.3% in 1938 for employers who paid taxes on time in states with compliant unemployment insurance programs. Employers that failed to pay taxes on time and employers in states that did not have compliant unemployment insurance programs had to pay more federal unemployment taxes.[18][19][17]

Under the Social Security Amendments of 1939, the Federal Unemployment Tax Act (FUTA) established a taxable wage base of $3,000, meaning the first $3,000 of covered workers earnings were taxed. The FUTA maintained the 0.3% net tax rate on the taxable wage base, meaning employers who paid taxes on time in compliant states would pay a maximum federal unemployment tax of $9 annually per covered employee.[17]

As of January 2022, the FUTA tax was 6% of the federal unemployment tax wage base—the first $7,000 of an employee's wages. Employers who pay state unemployment taxes on time can receive an offset of up to 5.4% of their FUTA tax, making the net tax rate 0.6% (double the initial 0.3% 1939 FUTA tax rate). An employer that receives the full 5.4% FUTA credit, therefore, pays 0.6% of the first $7,000 of an employee's wages, or $42, in FUTA tax per qualifying employee.[20][21]

States are responsible for establishing their own own tax rate ranges, wage bases (the amount of pay an employer needs to pay taxes on for each employee), and experience rating systems on top of the FUTA tax. Those state unemployment tax revenues are transferred to the appropriate State Unemployment Trust Fund account in the federal Unemployment Trust Fund. Each state uses the money in its fund to pay regular unemployment benefits and its share of extended benefits.[22]

Length and amount of benefits

The standard term of unemployment benefits is 26 weeks, but specific terms vary by state. For example, Missouri and Arkansas paid 16 weeks of benefits as of 2020. Massachusetts, on the other hand, paid 30 weeks of benefits and Montana paid 28 weeks of benefits.[20][23]

The following table identifies the maximum length and the range of unemployment insurance benefits by state as of 2020, according to the U.S. Department of Labor:[24]

Extended benefits

During periods of high unemployment, extended benefits up to 13 weeks, depending on the state, are available to workers who have otherwise exhausted their unemployment insurance benefits. Extended benefits up to 20 weeks may also be available in some states during periods of extremely high unemployment.[25]

Eligibility

Eligibility criteria for unemployment insurance recipients vary by state. In general, recipients must have lost employment through no fault of their own. The unemployment insurance program does not cover individuals who voluntarily leave their positions, who are fired for just cause, or who are seeking to reenter the workforce after a voluntary exit. Nor do unemployment insurance programs generally cover first-time job seekers, students, self-employed individuals, gig workers, or undocumented workers.[18][20]

States also require that recipients meet certain work and wage thresholds. Unemployed workers in most states must have worked for a minimum amount of time or must have received a minimum amount of earnings from their employer (between $1,000 to $5,000 in 2019) in order to be eligible to receive benefits.[20]

States generally require individuals to perform the following tasks in order to maintain weekly eligibility, according to the U.S. Department of Labor:

Recipients must report their unemployment insurance benefits as part of their gross income on their tax returns.[28]

Refusal of work

State unemployment insurance programs require individuals to accept offers of suitable work unless, depending on the state, the individual can show good cause for refusal. Definitions of what constitutes suitable work and good cause vary by state. Individuals risk losing unemployment insurance benefits if they refuse suitable work.[29][30]

Amendments

The Social Security Act has been amended numerous times since its passage in 1935. Some of the major amendments are listed and described below, but for a fully comprehensive list and descriptions of these amendments, check the Social Security Administration's website here.

Social Security Amendments of 1965

Lyndon Johnson signing the Medicare bill, with Harry Truman, July 30, 1965

President Lyndon Johnson signed Titles XVIII and XIX of the Social Security Act into law on July 30, 1965.[31]

Title XVIII established Medicare, which provided public health coverage to seniors over the age of 65. The Medicare law consisted of Part A and Part B.

• Part A, which was universal for anyone receiving Social Security benefits, covered hospitalization. The recipient paid a deductible about equal to the first day of hospitalization, and Medicare then paid for the next 60 days. After 60 days, Medicare then paid part of the costs for up to 150 days of the hospitalization; after 150 days, Medicare did not pay any costs. Medicare also paid the costs of 20 days in a skilled nursing facility after a hospital stay, and then part of the costs for up to 100 days. Medicare did not cover long-term care in a nursing home. Part A was funded by payroll taxes on current workers and their employers.

• Part B covered physicians' and outpatient services—such as doctor visits, X-rays, and laboratory tests—after the beneficiary met a small yearly deductible. About 25% of the funds for Part B came from premiums paid by beneficiaries, initially with all beneficiaries paying the same premium. The rest of Part B was funded out of the federal government's general revenues. Enrollment in Part B was voluntary, but most seniors elected coverage.

The Medicare insurance program followed a fee-for-service model in which the government reimbursed hospitals and doctors for the "usual, customary, and reasonable" fees they charged for each service and did not manage any hospitals or provider networks. The reimbursement process generally functioned through "fiscal intermediaries," private companies that wrote checks on behalf of the government.

When the Medicare program began in 1966, 19 million people enrolled.[32] By 2015, 55 million people were enrolled in Part A and 51 million people in Part B.[33]

Title XIX established Medicaid, which provided public health coverage to poor families receiving Aid to Families with Dependent Children (AFDC). The program was administered through matching grants in which federal and state governments both provided funds. The states were left some discretion in administering and determining eligibility for the program.

People could be dual-eligible for both programs; by 2010, one in five Medicare beneficiaries were also receiving Medicaid.[34]

In 2012, 91 percent of doctors accepted new Medicare patients, while 71 percent accepted new Medicaid patients.[35]

Social Security Amendments of 1972

President Richard Nixon signed Public Law 92-603 on October 30, 1972, which amended Title XVIII of the Social Security Act.[36] The law expanded Medicare coverage to disabled people who had been receiving Social Security benefits for at least two years, as well as people with serious kidney disease, which the law legally classified as a disability.

Upon signing the legislation, President Nixon stated that it "reaffirms and reinforces America's traditional efforts to assist those of our citizens who, through no fault of their own, are unable to help themselves. America has always cared for its aged poor, the blind, and the disabled—and this bill will move that concern to higher ground."[37]

The eligibility expansion in 1972 contributed to Medicare's increasing costs. In 1967, Medicare's yearly expenses were $4.2 billion; by 1973, they had risen to $9.3 billion. In 2002, the average yearly cost to cover an elderly beneficiary was $6,002, but the average yearly cost to cover a person with serious kidney disease was $41,696.[38]

Social Security Amendments of 1983

The 1983 amendments, signed into law by President Ronald Reagan, made substantial changes in coverage, financing and benefits structures. Prior to these changes, some of the newly covered groups received pensions or benefits from other agencies or legislation. These changes would help phase out older programs and expand Social Security.

Under the 1983 amendments, the following groups became covered by Social Security:

The amendment went on to prohibit the termination of Social Security coverage for state and local employees. Also included was an advance on scheduled tax increases: the Social Security tax was scheduled to rise to 7.0 percent in 1984, with gradual increases to 7.65 percent in 1990. Other tax adjustments were made as well, including increases on self-employment income.[39]

A provision was made in the amendment that would require the chairmen of the House Ways and Means Committee, along with the Senate Finance Committee, to appoint a panel that would investigate the effects of establishing the Social Security Administration as an independent agency, as opposed to being part of the Department for Health, Education and Welfare (which would later become the Department of Health and Human Services). The Social Security Administration would not become independent until 1994.[39][40]

All amendments, 1939-2000

As mentioned above, there were many other amendments made to the Social Security Act. The following list displays those amendments. To learn more about them, consult the Social Security Administration's website.

Note: The amendments mentioned above are also included in this list.

• 1939 Amendments
• 1950 Amendments
• 1952 Amendments
• 1954 Amendments
• 1956 Amendments
• 1958 Amendments
• 1960 Amendments
• 1961 Amendments
• 1965 Amendments
• 1966 Amendments
• 1967 Amendments
• 1969 Amendments
• 1971 Amendments
• 1972 Amendments
• 1973 Amendments
• 1977 Amendments
• 1980 Amendments
• 1981 Amendments
• 1983 Amendments
• 1984 Amendments
• 1985 Amendments
• 1986 Amendments
• 1987 Amendments
• 1989 Amendments
• 1990 Amendments
• 1993 Amendments
• 1994 Amendments
• 1996 Amendments
• 1999 Amendments
• 2000 Amendments

• Social Security Administration

1. ↑ 1.0 1.1 Social Security Administration, "Chronology," accessed October 20, 2015
2. ↑ Social Security Administration, "Social Security Basic Facts", accessed October 22, 2015
3. ↑ Cornell University Library, "Guide to the American Association for Social Security Records, 1909-1944," accessed October 20, 2015
4. ↑ AllGov.com, "Social Security Administration", accessed October 28, 2015
5. ↑ 5.0 5.1 Investopedia, "Social Security Act," accessed October 21, 2015
6. ↑ 6.0 6.1 BillMoyers.com, "Deja vu: A look back at some of the tirades against Social Security and Medicare," accessed November 18, 2015
7. ↑ New York Times, "Op-ed: The wrong side of history," accessed November 18, 2015
8. ↑ Investopedia, "FICA," accessed October 21, 2015
9. ↑ Social Security Administration, "Social Security Fact Sheet," accessed October 30, 2015
10. ↑ Social Security Administration, "Social Security Beneficiary Statistics," accessed December 7, 2015
11. ↑ 11.0 11.1 Social Security Administration, "Monthly Statistical Snapshot, October 2015," accessed December 7, 2015
12. ↑ 12.0 12.1 MassMutual, "MassMutual Research: Survey shows concerning knowledge deficiency about Social Security benefits," accessed October 30, 2015
13. ↑ 13.0 13.1 13.2 My retirement paycheck, "How are Social Security benefits calculated?" accessed November 2, 2015
14. ↑ Social Security Administration, "Supplemental Security Income (SSI)," accessed December 8, 2015
15. ↑ Social Security Administration, "Survivors benefits," accessed November 18, 2015
16. ↑ Social Security Administration, "Survivors planner: Planning for your survivors," accessed November 18, 2015
17. ↑ 17.0 17.1 17.2 Congressional Research Service, "Unemployment Compensation: The Fundamentals of the Federal Unemployment Tax (FUTA)," accessed January 4, 2022
18. ↑ 18.0 18.1 18.2 The Wall Street Journal, "How Does Unemployment Work?" February 22, 2021
19. ↑ 19.0 19.1 Social Security Administration, "Unemployment Insurance, Then and Now 1935-1985," accessed May 19, 2021
20. ↑ 20.0 20.1 20.2 20.3 Brookings, "How does unemployment insurance work? And how is it changing during the coronavirus pandemic?" July 20, 2020
21. ↑ Employment Law Firms, "How Unemployment Works," accessed May 18, 2021
22. ↑ Washington State Legislature, "Washington State's Experience Rating System," accessed July 6, 2021
23. ↑ Forbes, "The States With The Best And Worst Unemployment Benefits—And Why They’re So Different," March 17, 2021
24. ↑ U.S. Department of Labor, "Comparison of State Unemployment Laws 2020 - Monetary Entitlement," accessed May 29, 2021
25. ↑ United States Department of Labor, "Unemployment Insurance Extended Benefits," accessed May 19, 2021
26. ↑ United States Department of Labor, "Unemployment Insurance Fact Sheet," accessed May 18, 2021
27. ↑ 27.0 27.1 Note: This text is quoted verbatim from the original source. Any inconsistencies are attributable to the original source.
28. ↑ Internal Revenue Service, "Topic No. 418 Unemployment Compensation," accessed May 18, 2021
29. ↑ Michigan Department of Labor and Economic Opportunity, "Suitable work and refusal to work," accessed May 27, 2021
30. ↑ Michigan Department of Labor and Economic Opportunity," "Returning to work and refusal to work—information for employers," accessed May 27, 2021
31. ↑ Jansson, B. (2001). The Reluctant Welfare State: American Social Welfare Policies. Wadsworth: Belmont, CA. (pages 249-250)
32. ↑ Center for Medicare Services, "Brief Summaries of Medicare and Medicaid," November 2009
33. ↑ Kaiser Family Foundation, "A Primer on Medicare," March 20, 2015
34. ↑ Kaiser Family Foundation, "A Primer on Medicare," March 20, 2015
35. ↑ Kaiser Family Foundation, "A Primer on Medicare," March 20, 2015
36. ↑ Nixon, Richard. "Statement on Signing the Social Security Amendments of 1972," October 30, 1972
37. ↑ Nixon, R. "Statement on Signing the Social Security Amendments of 1972," October 30, 1972
38. ↑ Barr, D. (2010) Introduction to U.S. Health Policy. Baltimore, MD: Johns Hopkins University Press. (pp. 139-140)
39. ↑ 39.0 39.1 39.2 Social Security Administration, "Summary of P.L. 98, (H.R. 1900), Social Security Amendments of 1983," accessed October 22, 2015
40. ↑ Social Security Administration, "Brief Graphic Organizational History," accessed October 22, 2015