Of all of President Franklin Roosevelt’s many domestic achievements, none exceeds the one that became law this week (Aug. 14) in 1935. The Social Security Act was the centerpiece of FDR’s vision to provide financial security to millions of Americans devastated by the Great Depression.
To some extent the Social Security program contributed to Roosevelt’s reputation as a “big government liberal” who wanted to soak the rich to provide bounteous social programs for the less fortunate — turning America into a “nanny state,” with the federal government as nanny. Regarding his overall presidency, there is much truth to that belief, but with respect to Social Security, FDR insisted that any plan to provide “security” to the public must be funded by individual contributions, not general taxation. He wanted to model Social Security after private insurance plans — pay in now, take out later.
But there were obstacles. First were the legal roadblocks, including the dubious constitutionality of putting the federal government in the insurance business (Congress becoming a federal “Mutual of Omaha” was not in the Framers’ original plan). Second, taxing portions of a worker’s paycheck to pay into the Social Security fund would temporarily “freeze” that income, which otherwise would have been spent on consumer goods — a deflationary step that was the last thing the depressed U.S. economy needed.
Third, there was the income redistribution conundrum. Older workers with only a few years to pay into the system would inevitably receive more in benefits than they contributed, leaving younger workers to support them by paying into the system for longer periods. Fourth, the tax was regressive, taking a larger bite out of the paychecks of poorer workers. Fifth, whether the federal plan would supplant state plans or coexist with them was an issue that put the Supreme Court (which frequently derailed FDR’s New Deal) at odds with several states.
Yet somehow FDR managed to overcome all obstacles, resulting in what was one of the most important pieces of social legislation in American history.
And, today, one of the most controversial, for the fact is — regardless of what government officials may claim — Social Security, as currently constructed, is going broke (many believe it is already broke) and for two simple reasons. First, Americans are living longer, and therefore collecting Social Security benefits longer. Second (see obstacle three, above), Social Security is a Ponzi scheme. The Social Security funds that seniors currently collect come from the FICA taxes that younger workers pay into Social Security. Alas, because of stagnant birthrates in America (and, for now, a stagnant economy), fewer workers are paying into Social Security while more retirees are collecting it.
More money going out, less money coming in, eventually equals insolvency.