Social Security 2.0

In Budget Politics, Economics, History and Politics, New Deal, Political Ideology, Politics of Policy, Public Policy, Social Democracy, Social Security, Taxes on July 14, 2009 at 12:41 am

Previously, I talked about the need to progressivize the payroll tax, as part of a larger goal of realizing the right to economic and social security for all. Today, I’m going to talk about about that most complicated and fraught of public policies: Social Security reform. Lest this cause a sudden shiver of apprehension, let me first issue a declaimer. By “reform,” I do not mean the false “reform” (meaning cuts in benefits and increasing the age of eligibility) proffered by Paul Samuelson, Fred Hiatt, and the rest of the affluent High Broderite sect. They have enough political clout, enough dominance of the newspapers and airwaves.

Rather, I mean Social Security reform as envisioned by the creators of Social Security themselves.


Contrary to what some might think given the way we talk about Social Security, the men and women of the Committee on Economic Security (who drafted the initial Social Security plan) and the initial Social Security Board did not think that the Social Security Act of 1935 was perfect. They had wanted to cover more than the 40-odd percent who were initially covered (they had initially wanted to include workers in smaller businesses and, regardless of the desires of the Dixiecrats, to cover the agricultural and domestic workers who made up the majority of the African-American workforce), they had wanted more generous benefits and earlier retirement (to stimulate purchasing power and lure the elderly into retirement, opening up their jobs to new workers), they had wanted a pay-go system (to prevent deflation), and some of them had wanted a system to be partially funded by the General Fund of the Federal government. But being the good pragmatists and political operatives that they were, they accepted what they had gotten, and ran with it.

The two instruments of their ambitions for improvement were the Social Security surplus and the regular process of amendment. In the early years of Social Security’s existence, the low number of retirees and the pre-funded nature of the system (established because of FDR’s need for reassurance about “fiscal soundness,” and his dislike of the “dole) created a rather large surplus. Social Security bureaucrats hoped to use this source of financial means to fund the expansion of services and the increase of benefits without having to go through an increasingly anti-New Deal Congress. (for more on this, see Arthur Schlesinger’s Coming of the New Deal and Politics of Upheaval). The semi-regular process of amending the Social Security Act would hopefully allow these bureaucrats, by leveraging the political support for the idea of “social security,” to remove the imperfections and omissions of the original bill.

The results were something of a mixed bag. The first generation of Social Security bureaucrats were successful in expanding the program (1939 added survivor’s insurance, expanded AFDC, and accelerated old-age payments to 1940; 1950 expanded eligibility, included domestic workers, and added the first COLA;  1954 included agricultural workers), and regular improvements to benefit levels became a standard part of Democratic politics. However, they were blocked from truly radical expansions of the system by more conservative Democrats and Republicans, who reluctantly voted for expansions of coverage while blocking increases in the payroll tax until 1956, which quickly depleted the surplus, and returned the program from a pre-funded to a pay-go system. Moreover, Congressional conservatives were also successful in keeping beneift increases low enough to keep Social Security from being sufficient for retirement on its own, thus protecting the private pension system.

However, the vision of the Social Security Act as a a “living document” was carried on to the next generation of reformers, who gave us Medicare and Medicaid, Supplementary Security Income (SSI), and a permanent COLA. And there, in the 1970s, the Social Security system hit its peak, having succeeded in virtually abolishing poverty among the elderly, and spreading its benefits to an ever-wider population of Americans.


Although I abjure and abhor any language of “crisis” in Social Security, I do believe that we face a major breakdown in our retirement system – in the private sector. The employer-based private pensions (by which I refer to traditional, defined benefit programs) that were supposed to bulk out individual retirements (and hence, the reason why Social Security benefits could be kept low) have either collapsed along with the employer, been discontinued by their employers, or turned into market-based 401ks and similar programs. The dramatic transformation of the Big Three’s private pension system – throwing it onto the laps of the UAW and replacing promises of cash contributions with potentially-worthless majority stock – serve as the most dramatic symbol of what scholars like Jacob Hacker have called the Great Risk Shift.

At the same time, people are living longer, thus requiring more years of retirement support (I know the High Broderite assumption that the only solution is to increase the age of retirement, but I ask whether it is just to require someone to work for seventh tenths of their life before enjoying respite), and increased medical costs.

I do not know if the current system is up to the task before it, but I believe that we can always do better than the status quo.

Social Security 2.0:

  • Fix the Finances – as discussed here, this is necessary for any improvements to be done.
  • Improve the Basic Benefit – the current basic benefit of $763.20 a month is too low, and SSI is really not enough to truly ensure a decent and dignified retirement for all. the very least, it should be increased to the poverty line for a single individual ($902 a month), but I would recommend the Urban Institute’s plan for a minimum social security benefit before my own initial thoughts on the matter.
  • Half-Retirement – as people become more active longer, our patterns of life will change. One idea that presents itself is to allow and promote people to take half-pensions between the ages of 50-65 with no loss of full benefit after retirement age, to allow people to reduce their working hours when they are still relatively young and healthy, and use the time to go back to school or spend more time with their kids or grandkids or see the world, or whatever they will.
  • Retirement Annuities – one of the elements of the Committee on Economic Security’s (and FDR’s) vision that was never accomplished, either in the original bill or in amendments, was the establishment of a parallel system of individual old-age annuities that people could buy from the Federal government to supplement their Social Security checks. If you watched the Republicans trying to twist the words of FDR to promote privatization of Social Security in 2004-5, this is what they were lying about.* I would propose using the CES’ original plan for annuities – have the government sell people simple, cheap annuities that would provide a guaranteed benefit at age 65. In this manner, the government would give people an alternative to the uncertainty and risk of stock market-based plans like the 401k, and because the system would be non-profit, could offer people decent terms for reasonable prices, and a totally secure way to save for their retirement.

The Future:

I want to end on a hopeful note. Often, we tend to fixate on the near-term future of Social Security – the newspapers love to print erroneous stories about the date at which Social Security will “go bankrupt,” and whether that date is going up or down, the larger discussion revolves around the fortunes of the Baby Boom Generation that’s about to retire. And given the size and scope of the Baby Boom generation, it is something important to keep in mind.

However, in all of this, we are forgetting an important fact -generations come and go. The Baby Boom Generation’s retirement will be a burden, but members of the Baby Boomlet (the boomer’s kids) is even bigger as a generation than their parents, and we are just beginning to come onto the job market. This economic fact, along with the retirement and eventual passing of the Baby Boom Generation (may it be many years off yet), will eventually flip the dynamics of “worker-to-retiree ratios” that the newspapers love to cover. And if we really want to get Social Security right, we need to start thinking, not just about the next ten years, or the next thirty years, but across the generations, so that we can plan a counter-cyclical strategy across the largest human cycle of them all.

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The original New Deal idea for “voluntary annuities” was very different from what Republicans claimed it was. Here is the text of the CES report:

There also is need for a voluntary system of annuities to supplement the compulsory system we advocate, intended primarily for persons of low and moderate income who are not included in the compulsory system. While the latter is not as important as the noncontributory pensions and the compulsory system of contributory annuities, we recommend the establishment of a related, but distinct, voluntary system of Government old-age annuities, for restricted groups in the population who do not customarily purchase annuities from commercial insurance companies…

The voluntary system of old-age annuities we suggest as a supplement to the compulsory plan contemplates that the Government shall sell to individuals on a cost basis deferred life annuities similar to those issued by commercial insurance companies; that is, in consideration of premiums paid at specified ages, the Government would guarantee the purchasers a definite amount of income starting at 65 for example, and continuing throughout the lifetime of the annuitant. The primary purpose of the plan is to offer persons not included within the compulsory system a systematic and safe method of providing for their old age. It could also be used by insured persons as a means of supplementing the old-age income provided under the compulsory plan.

In other words, annuities were supposed to A. cover people not covered under Social Security (i.e, half the American workforce, including the majority of African Americans), and B. allow people to individually build up a supplemental pension which wouldn’t rely either on your employer or private insurance companies. It was also explicitly to be separate and complementary to the “compulsory old age annuities” system we call Social Security.

  1. Social security would have been deemed unconstitutional if Justice Owen Roberts had not changed his views in a two week period in 1937. Social Security is socialism defined and is one of the worst decisions in the history of our country. The fix is to abolish it.

    • Actually, several members of the Supreme Court advised the Committee on Economic Security on how to design the system to pass constitutional muster. Unless you have a better argument than the Supreme Court as to why the Federal government’s power to tax isn’t a power to tax, or why preventing the elderly from mass poverty is not in the general interest, go ahead.

      And as far as socialism goes, thanks for proving the point of the article. Socialism has many different definitions, but it more often revolves around ownership of the means of production. Social insurance on the other hand goes far beyond socialism. Historically, social insurance has been established in Bismarckian Germany, Liberal Britain, Republican France, or Social Democratic Sweden – only the last of which could even been called social democratic.

  2. […] subsidy of retirement accounts to matching contributions, we can offer a progressive Federal old-age annuity to workers who cannot afford the minimum contribution requirements of the retirement funds of the […]

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