Turning Points in Social Security: From ‘Cruel Hoax’ to ‘Sacred Entitlement’ 9780804763950

Citation preview

TURNING POINTS IN SOCIAL SECURITY

Turning Points in Social Security From "Cruel Hoax" to "Sacred Entitlement"

SHERYL R. TYNES

STANFORD UNIVERSITY PRESS Stanford, California 1996

Stanford University Press Stanford, California © 1996 by the Board of Trustees of the Leland Stanford Junior University Printed in the United States of America CIP

data appear at the end of the book

Stanford University Press publications are distributed exclusively by Stanford University Press within the United States, Canada, Mexico, and Central America; they are distributed exclusively by Cambridge University Press throughout the rest of the world.

To my Grandmother, Verne F. Milette and her grandchildren's children

Acknowledgments

Writing a book is a journey in many senses. It is an adventure with its share of disappointment and ecstasy; like most journeys, it is preferable to share the burdens and joys. Various colleagues, friends, and family members provided me with intellectual and emotional sustenance and camaraderie along the way. I would especially like to thank the following individuals. The journey began with writing a dissertation, and therefore my dissertation committee requires thanks, if not first-born children. I thank Doug McAdam and Neil Fligstein for their high standards and expert lead on much of the journey. They spent countless hours with me-many of our deliberations were the most inspirational and intellectually invigorating exchanges I experienced as a student. They are my heroes and friends. My sincerest appreciation and respect also go to Courtney Cleland, Travis Hirschi, and Jim Shockey for their support and encouragement. This group allowed my work to move forward, offering just the right combination of support and constructive criticism. Beverly Armstrong was there for the duration, and her worth to all who know her is incalculable. In doing the research, countless archivists and librarians deserve special credit. They provided the road maps in collecting the data and tracing the legislation, and without their assistance, it is likely that I would still be trying to figure out a systematic way to do my work. Mary E. Rephlo, Archivist, Legislative Archives Division of the National Archives, shared her expertise above and beyond the call of duty, as did Thomas Connors of the George Meany Memorial Archives of the AFL-CIO. Helen Laney, the Librarian of

viii

Acknowledgments

the National Association of Manufacturers, was generous and helpful with the material held in the NAM library. Anne Harvey and Angela R. Taylor of the American Association of Retired Persons provided helpful information regarding AARP. At the Social Security Administration, Jan Olson, Orlo R. Nichols, and Barbara A. Lingg provided useful data, requiring much of their time and energy. Several other individuals deserve special mention. Meredith McGuire provided research money when it was much needed, as well as countless hours of encouragement and advice, and John Donahue has strengthened my persistence by being a stable and energetic role model. Joane Nagel, Theda Skocpol, and Joey Sprague provided votes of confidence and tremendously insightful comments on this work. Finally, friends and family continue to sustain me, enabling me to excel while retaining a sense of humor that comes from healthy priorities. I give my love and thanks to my parents, Bob and LaVerne; to my husband, Gary; to my brother Gene; and to my friends Hank, Kelly, and Teri. For my son Grayam, daughter Tess, and nieces Sadie and Heidi, I hope this work serves in some small way to make the world a more secure, just, and safe place as they grow up. The book is dedicated to these children and to my grandmother, for their wisdom and joie de vivre. S.R.T.

Contents

1.

Introduction: From Socialist Menace to Sacred Entitlement and Beyond

1

2. Ground Zero: The Early Years

40

3· The Push for Acceptance, 1935-1949

64

4· Bureaucratic Expansion, 1950-1969

99

5· The Tipping Point, 1970-1976

133

6. Retrenchment of Social Security, 1977-1990

155

7· Conclusions

193

Bibliography

221

Index

237

Figures and Tables

Figures Percent of earnings replaced by old-age insurance, 1940-1985 2. Civilian unemployment rate, 1929-1950 3· Dependency ratios for old-age insurance, 1940-1985 4· The baby boom generation, annual births, 1929-1979 1.

3 44 152 203

Tables 1.

2.

3· 4· 5.

6. 7.

8. g. 10. 11.

12. 13.

Legislative turning points in Social Security, 1935-1985 Financing and average monthly benefit of old-age, survivors, disability, and hospital insurance Republican representation in Congress, 1935-1950 Social Security benefit increases, 1950-1977 Defense and Social Security outlays of the federal government, 1940-1970, and percent of GNP of expenditures Percent of civilian labor force unemployed and percentage increase in Consumer Price Index, 1965-1985 Membership of American Association of Retired Persons, 1959-1985 Percent of persons aged 65+ living under the poverty level Percent of all workers with total annual earnings below annual maximum taxable, 1937-1984 Wage base under prior law and amendments in 1977 Members and affiliations of the National Commission on Social Security Reform Reimbursements from general revenues for OASI Poverty rates among children, the elderly, and the general population, 1990

35 37 8g 100

104 134 136 151 165 166 170 175 209

TURNING POINTS IN SOCIAL SECURITY

CHAPTER ONE

Introduction: From Socialist Menace to Sacred Entitlement and Beyond

D u R 1 N G THE DEPTHs oF the Great Depression, with the official unemployment rate at 25 percent, imagine the boldness of proposing a new tax on both employers and employees to fund a compulsory federal old-age insurance program. Yet this was what the Roosevelt administration did in the 1930s in proposing a tax on payroll (one-half to be paid by the employer and one-half to be paid by the employee). Representative Charles Eaton, a Republican from New Jersey, warned of the precedent such a tax would set-a model for "sovietizing" the distinctive American values of self-reliance and personal initiative. In his opinion, these were embodied best in American industry ( CR 1935: 5583). There were Democrats who agreed. Representative john]. O'Connor (D-New York), envisioned a future including old-age insurance as one where we would have the "spectacle of sons and daughters giving up supporting their parents and wanting the Federal Government to support them. We of the great State ofNewYork take care of our deserving aged people, but we do not deceive and delude them" (CR1935: 5461). Despite the early controversy, today this tax is one of those least questioned by the American public. Its widespread acceptance is remarkable, especially considering the magnitude of the tax for the average worker. Similarly, there was concern initially over the "Big Brother" potential of Social Security numbers, yet these numbers are widely used today as identification numbers without the least public notice. It is clear that attitudes have come a long way. Although Social

2

Introduction

Security now seems relatively sacrosanct, it was not born that way in 1935, nor did it even represent the same things to Americans then as it came to later. Most early proponents of the program did not intend for it to become the cornerstone of an individual's retirement income, but as old-age insurance benefits grew in relation to other retirement income over the decades, Americans have had to be constantly reminded of the supplemental nature of old-age insurance. These reminders were necessitated not only because of a lapse of collective memory but also because of people's increased expectations based on changes in the program over the years. Figure 1 shows how the amount of preretirement income replaced by oldage insurance benefits of an average worker (i.e., the "replacement rate") has changed dramatically over time. When old-age insurance benefits were first paid in 1940, typical beneficiaries received 27 percent of their preretirement income in old-age insurance benefits. This replacement rate fell to a historic low of 16 percent in 1949, and climbed to a high of 54 percent in 1981. Between 1981 and 1985, the replacement rate fell to 41 percent. These changes are important because they represent a "change in the deal," or a change in the nature of this social contract between.generations. These changes represent altered thinking regarding the minimum level of provision for our retirement years that should be covered by society-wide old-age insurance benefits. None of this is to imply that there was universal opposition to Social Security in the 1930s, or universal acceptance at the close of the twentieth century. Edward D. Berkowitz addresses the "development of the welfare state from conflict to consensus and back again" (1991: xvii). Indeed, during the 198os it was nearly impossible to listen to a newscast or read a newspaper or magazine that did not address the "crisis" in Social Security and the variety of proposals to deal with this crisis. But there was considerable diversity of opinion: some commentators declared that Social Security was a total failure, others said it was a partial success, and still others argued that it represented an overwhelming victory (Oriol1987). Some described Social Security as an unsound intergenerational chain letter; at the other extreme, some analysts considered it the best U.S. example of community and mutual support. When study-

Introduction (>(I

-:::;

'-' '-'

3

~

)()-

c._ '""

:::::'-'

-W

cr

~lJ

30

'-

'""

...L:

211