President Franklin Roosevelt signed the Social Security Act into law on August 14, 1935 with the hope that it would, in his words, “give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.”
In addition to creating the retirement program we know today, the law also created the precursors to cash welfare and unemployment insurance. But it was the President’s desire to protect the elderly from slipping into poverty that was the driving force behind the program.
Old-age poverty was a growing concern in the years running up to the Great Depression. For most of our history up to that point, most Americans had lived in extended families, which included not only children and parents, but grandparents as well. So, elderly relatives who couldn’t care for themselves had support when they needed it.
But three things changed in the decades leading up to the Depression: more and more Americans left the farm, moved to the cities, and started living longer. As a result, more elderly Americans didn’t have the extended family they had relied on in the past, and for those middle-aged Americans who continued to support their elders, the financial strain was considerable.
During the Great Depression, many working families saw their savings wiped out, and soon various proposals for elderly assistance began gaining traction, such as Louisiana Senator Huey Long’s “Share Our Wealth” proposal or Frances Townsend’s “Old Age Revolving Pension Plan.”
To head off these more radical proposals, Roosevelt proposed the Social Security program. Under the new law, all adults would pay payroll taxes throughout their careers, and then once they retired at 65, they would be eligible to receive benefits to support them in their old age.
This arrangement led people to believe that the benefits they received were simply drawn from the taxes they had paid in all their lives. President Roosevelt understood that this “earned right” created a personal attachment to the program that would help guard against any curtailment of its benefits.
But the truth is, it is the payroll-tax revenue from current workers that pays for the benefits of current retirees, and it’s always been that way. Under the original law, workers began paying payroll taxes in 1937, and benefits were scheduled to begin being paid out to eligible retirees in 1942. But with payroll taxes coming in without any benefit payments going out, there was a rapid build-up of revenue in an enormous reserve fund. So the president decided to move the first benefit payouts to 1940 — two years ahead of schedule.
Before the 1930s, recipients of government benefits and pensions were mostly those who’d performed government service – usually by serving in the armed forces. Social Security was a major shift because government benefits were divorced from service or need. Instead, those who met program requirements would receive government checks whether they needed them or not.
In this way, President Roosevelt completely changed the nature of federal assistance and the relationship between each of us and the federal government forever.