Social Security Reform

Introduction

Enacted in the midst of the Great Depression of the 1930s, Social Security—the Old-Age, Survivors, and Disability Insurance program (OASDI)—protects virtually every American. The nation's central retirement income program is also its most important disability and life insurance program. After discussing the historical development of Social Security, this entry briefly describes the structure of the program, including revenue sources, benefits, and its importance to different groups of Americans. Contemporary Social Security policy issues are then identified.

History

Max (pp. 67-89) mentions in seeking to provide widespread and basic protection against what President Franklin D. Roosevelt called ''the vicissitudes of life,'' the Social Security Act of 1935 initiated two social insurance programs, three public assistance programs (i.e., welfare), and several public health and social service programs. Until 1950, Social Security, which was initially a social insurance program providing protection against loss of income in retirement, was neither the largest nor the most popular of the act's programs. It was the state-run welfare programs included in the act, which provided aid to widows with dependent children (Max, pp. 67-89), the old, and the blind, that gained swift public acceptance, mainly because they quickly sent funds to states to distribute to these needy groups. In contrast, and in keeping with social insurance principles in which the right to a benefit is based on the prior payroll tax contribution of employees and their employers, the Social Security program began collecting taxes during the late 1930s—though the program was not scheduled to pay its first benefits to retirees until the early 1940s. Where welfare programs seek to give immediate relief to those in extreme financial distress (Max, pp. 67-89), the Social Security Act's social insurance programs—Social Security, Unemployment Insurance, and later, Medicare—seek to prevent financial distress.

The ''genius'' of Social Security and related social insurance programs is that they represent, and build upon, a compromise between sometimes conflicting political values; the concern that all Americans should have adequate protection against selected contingencies (e.g., retirement) and a commitment to the work ethic. Near universal coverage assures widespread protection. Social insurance provides a social and work-related means of pooling risks. In exchange for making modest work-related contributions over many years, the social insurance approach provides individuals and their families with an earned right to protection against predictable risks (Kingson and Sculz, pp. 45-57). Social Security, for example, is structured in a manner that seeks to provide benefits that are adequate to maintain basic living standards, especially for low and modest income persons. However, in keeping with the principle of individual equity, persons who have paid more in Social Security taxes generally receive larger monthly benefits.

Incremental expansion characterized the development of Social Security from 1939 through the mid-1970s. The 1935 Act provided for benefits to workers in manufacturing and commerce who retired at age sixty-five or later. Benefits were added in 1939 for the wives of retired workers and for the surviving wives and children of deceased workers. These benefits were made available to men in 1950. Importantly, the 1950 ...