Reports & Studies

The Committee on Economic Security (CES)

"Social Security In America"

Part VI

THE NEED FOR FEDERAL SUPPORT OF SOCIAL SECURITY PROGRAMS

Part VI was prepared by Joseph P. Harris

Chapter XIX

THE NEED FOR FEDERAL SUPPORT OF SOCIAL SECURITY PROGRAMS

THE MAGNITUDE and diversity of need for economic security and the meagerness of protection offered in the United States against the hazards of dependency and destitution clearly point to the need for Federal participation in a program to promote the general welfare of the people of the country. With the change from an agricultural to an industrial economy proceeding at different rates in the several States and even in various counties of the same State, public-welfare provisions have developed unevenly throughout the country. This results not so much from backwardness or lack of social consciousness in some sections as compared with others, but from the unevenness of distribution of the national wealth and income. An examination of Federal emergency relief expenditures by States gives conclusive evidence of the differences in the ability of States and sections of the country to provide, for their destitute residents. It is also evident from a study of revenues and expenditures that the costs of public welfare, even without the catastrophe of the depression, have rapidly grown beyond the financial capacity of State and local governments with their limited taxing powers. It is therefore of interest to analyze the trend of expenditures for public welfare and to examine the financial conditions of local and State government units from the standpoint of their tax revenues, their expenditures, and their indebtedness.

EXPENDITURES FOR PUBLIC WELFARE

Until a few years ago, public expenditures for ordinary welfare activities{1} in the United States were very small. Definite figures for the entire country are not available, but from estimates which

{1} By "ordinary public-welfare expenditures" is meant expenditures for charitable institutions, outdoor relief, welfare departments, and part of the health, hospital, and correctional expenditures which may be regarded as public welfare. It does not include expenditures for military veterans.

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have been made by Prof. Clarence E. Heer, expenditures for ordinary welfare activities for all units of government were as follows: {2}

(IMAGE OF TABLE ON PG. 346)

It is particularly significant that the ratio of the expenditures for ordinary welfare purposes to the national income remained fairly constant during the first quarter of the century, amounting to approximately one-half of 1 percent. In comparison with the total cost of government, however, welfare expenditures showed a considerable decline, dropping from slightly under 7 percent in 1903 to about 4 percent in 1928.

Since 1928 there has been a very great increase in public expenditures for welfare work. Most of this increase has come since the depression and in large measure is a result of the depression. As would be expected, such statistics as are available for recent years show an extraordinary increase. Many of our large cities met the problem of destitution in the early years of the depression by increasing the expenditures for charities enormously. Municipal expenditures for charities in cities of 300,000 population and over in the United States increased from $22,000,000 in 1924 to $114,000,000 in 1932.{3} Some of these cities, however, have curtailed their expenditures for welfare purposes very sharply since the Federal Government entered the field of unemployment relief. As a specific illustration, Cincinnati spent $52,000 for charities in 1928, $900,000 in 1931, $600,000 in 1932, but only $55,000 in 1933.

As a further illustration of the trend of increased local expenditures for social work, the city of Boston spent $4,768,000 for charities and hospitals in 1929, and spent approximately $16,000,000 in 1933 and in 1934. The expenditure for charities and corrections by the counties of the State of Wisconsin totaled $6,390,000 in 1924. By 1928 the figure had increased to $8,583,000 and by 1932 to $17,331,000, or nearly three times the expenditures of 1924. Milwaukee County had an expenditure of less than $3,000,000 in 1928 for social work,

{2} Heer, Clarence E., University of North Carolina, Trends in Public Welfare Costs, 1931. (Unpublished manuscript.)

{3} From the reports of the U. S. Department of Commerce, Bureau of the Census, Financial Statistics of Cities.

whereas it increased the amount to approximately $6,000,000 annually for 1931 and the following years. The counties of California spent $12,285,000 for-charities in 1924, about $20,000,000 in 1928, and $32,000,000 in 1932. The counties of the State of Washington spent $1,250,000 for relief and charities in 1923 (not including hospitals or corrections), and approximately $4,000,000 in 1933. In 1932 the counties of Washington spent over $7,000,000 for public charities, but the total dropped off in the following year with the establishment of the State Emergency Relief Administration.{4}

These few figures show the rapid rise in public expenditures by local units of government for social work since 1920. They show also a tendency to decline within the last year or two, in part because of Federal expenditures for unemployment relief, but also because of the financial difficulties in which many local governments have found themselves during the last several years.

The largest present expenditure by far for public charity comes under the classification of unemployment relief, financed partly by the Federal Government and partly by the State and local governments. The total expenditures in 1933 for this purpose, including local, State, and Federal Governments and including the expenditures for unemployment relief and civil-works administration, amounted to $967,000,000, while the total for 1934 was approximately $1,887,000,000. These figures, of course, are much larger than the total expenditures for ordinary welfare purposes and have caused considerable apprehension. Those who fear the consequences of such large expenditures have raised the question, "Where is the money coming from?"

However, even including emergency relief, expenditures for welfare purposes in the United States are not large when compared with those of Great Britain. Great Britain, with a population of only about one-third of ours, spent for public charity and social insurance, including old-age pensions, unemployment insurance, and health insurance, a total of $1,369,000,000 in 1932.{5} If health insurance is omitted, the expenditure was approximately $1,200,000,000. A similar expenditure in the United States in proportion to population would run about $4,000,000,000 annually. In 1933, while $25,000,000 was spent in the United States for old-age assistance, Great Britain spent nearly $400,000,000 for the aged through noncontributory and contributory pensions. In order to provide as adequately as Great Britain for the aged, we would need to spend annually about $1,200,000,000 for this purpose.

{4} These figures have been compiled from the State and local financial reports in connection with studies of the financial abilities of counties of Wisconsin and Washington.

{5} Compiled from the Statistioal Abstract for the United Kingdom, 1934, and the Abstract of Labour Statistics of the United Kingdom, 1919-33.

It is inevitable that future public-welfare expenditures in the United States will be considerably larger than they have been in the past. For a quarter of a century prior to the depression the public expenditures for social work amounted to only about one-half of 1 percent of our national income, but in the future we will undoubtedly have to contribute a much larger share of our national income for this purpose. Even assuming the return of a high degree of prosperity, a large number of our population may nevertheless be unemployed and destitute. The financing of public assistance in the future constitutes our largest problem of public finance. Only one aspect of this problem is discussed here, namely, the need for Federal aid.

It is often stated that the care of the poor is a function of the local community, and that accordingly the Federal and State governments should provide financial support only when it becomes imperative. This theory of exclusive local responsibility for publicwelfare activities does not fit into the economic and social structure of society today. The local community is no longer a self-contained unit. Our economic life overflows our political boundaries of townships, municipalities, counties, and States. Destitution today arises from causes with which the local community is powerless to deal, and creates financial obligations beyond the capacity of the local resources. The whole problem of financing public-welfare activities needs to be considered in the light of present conditions.

THE FINANCIAL CONDITION OF LOCAL UNITS OF GOVERNMENT

Public welfare has been historically a concern of the local government in the United States. The States have confined their charitable activities largely to the institutional care of special classes of mental and other defectives requiring specialized treatment which the local units were not able to provide. Within recent years State subsidies for special types of charity, such as old-age assistance, aid to dependent children, and unemployment relief have been provided. But public assistance has been regarded as a community rather than a State responsibility. In New England the municipality is entrusted with the function of poor relief, but in many other parts of the country it is the function of the county or the township. In a few States the municipalities and the counties share the responsibility.

Table 68 indicates the status of financial responsibility (as of Aug. 1, 1935) for old-age assistance, blind assistance, aid to dependent children in their own homes, and institutional or other

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care of dependent children in the several States. The checks in the columns of the table signify that the State, county, and other local units, respectively, assume all or a part of the financial responsibility for the welfare activity listed. Table 69 gives in a different form the distribution of financial responsibility for public-assistance measures in States. Local political subdivisions of the State now

(IMAGE OF TABLE 68)

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assume full responsibility for old-age assistance in 6 States, for aid to the blind in 13, for aid to dependent children in their own homes in 26, and for institutional or other care of dependent children in 14. Responsibility for public-assistance measures is shared by State and local governments for old-age dependents in 17 States, for blind in 9, for aid to dependent children in 17, and for other care of dependent children in 27.

Prior to 1932, local governments carried the entire cost. of public unemployment relief, except for State aid in four States in 1931. By 1934 they were contributing part of the funds in all but a very few States. During the year ending September 30, 1934, they contributed $196,500,000, or 16.8 percent of the total unemployment relief cost, and 10.3 percent of the combined expenditure for unemployment relief and civil-works administration (not including supplies of the latter).

It would be conservative to estimate that the revenues of the local units of government for the entire country declined 25 percent between the calendar years 1931 and 1933, at the very time that relief costs were mounting. The trends within the last 3 years may be summarized as follows: (1) local governments are in much worse financial condition at the end of the period, with increased indebtedness, funded and floating, with former reserves wiped out, and many sinking funds depleted to tide over the lean years; (2) local services

have been drastically curtailed, for example by closing public schools or shortening their terms, dismissing public employees, reducing such services as recreation, health, playground, park, and library, now more needed than ever before, and impairing protective services; (3) because of the imperative need, expenditures for relief purposes have been increased at the expense of the other services of the city, and funds for this purpose have been raised by methods of financing which have brought many local governmental units into unsound positions; and (4) the salaries of public employees have been substantially reduced.

Tax Revenues and Assessed Valuations.-The total revenue receipts of all local governments in 1932 amounted to $6,643,982,000, of which the tax receipts constituted $4,715,897,000.{7} Since the nontax revenues, such as subventions from the State, earnings of public-service departments, and departmental services and fees, would not be available for new social services, only tax receipts need be considered. Of the total tax receipts of local units of government in 1932, $4,361,307,000, or 92.5 percent, came from the general property tax. In the years 1932 and 1933, when industrial activity reached its lowest point, and the relief burden increased so rapidly, tax receipts from general property dropped very substantially throughout the country. Assessed valuations, which until this time had not been lowered to correspond with the decline in real and personal property values, were very materially lowered in most sections of the country. To top it all, a group of States adopted severe general property tax limitation measures, thus further reducing this almost exclusive source of revenue of local governments.

The situation has not grown much better with the improved conditions during 1935. Although property tax collections are gradually improving, many local governments have been operating with large deficits for a number of years, and very substantial improvements in tax collections are needed. Some of these deficits have been cleaned up temporarily by funding them through long-term bonds, but the debts and debt charges of local governments have been increased very materially at the very time when sources of revenue were declining. This will cause trouble in the future. The only thing which has saved the local governments from financial collapse has been the Federal assumption of a large part of the responsibility for providing unemployment relief.

Too much emphasis cannot be placed upon the fact that the local units of government are supported almost entirely by taxes on general property, a form of taxation which cannot be expanded

{7} Unless otherwise noted, the 1932 figures on local governmental finance are taken from U. S. Department of Commerce, Bureau of the Census, Financial Statistics of State and Local Governments: 1938 (U.S. Government Printing Office, Washington, D. C., 1935).

further to take care of new costs of government. While the statement that the general property tax has "broken down" is an exaggeration, for it is still our principal tax, nevertheless, it would be foolish not to recognize its limitations. It has often been pointed out that although the general property tax was fairly well suited to the economy of a hundred years ago, it is not so suitable today. Assessable general property no longer represents the bulk of existing wealth, and is no longer a fair measurement of ability to pay. Equally important is the fact that the cost of government has increased greatly, and too great reliance upon one source of revenue, such as the general property tax, inevitably has brought about resistance to this form of taxation. A third factor, perhaps more important than the others, has been the constant increase of property values in the past, which has made it possible to collect high property taxes. The general property tax has required the land owner to share with society the unearned increment of his property caused by the rise in land values, which prevailed over a long period of time.

The increase in assessed valuations for the entire country has been as follows:

The assessed valuations in 1930 amounted to $167,562,315,000, or about 43 billion dollars more than in 1922. During the first two decades of the century, assessed valuations were increasing at the rate of about 100 percent each 10 years.

Table 70 shows in more detail the assessed valuations and general property tax receipts in 1922 and 1932.

The statistics of the city of Detroit, shown in Table 71, while not entirely typical, nevertheless indicate the trend of assessed valuations and tax levies in metropolitan areas.

It is of note that in 1915, when Detroit had slightly less than 700,000 population, its assessed valuation was only $554,382,000. By 1930 the population had more than doubled, but the assessed valuation had increased to $3,774,861,000, or 681 percent of the 1915 figure.

{8} U. S. Department of Commerce, Bureau of the Census, Wealth, Public Debt, and Taxation: 1922; Assessed Valuation and Tax Levies (U.S. Government Printing Office, Washington, D. C., 1924), p. 14; U. S. Department of Commerce, Bureau of the Census, Financial Statistics of State and Local Governments: 1932, op. cit., p. 6.

The net increase amounted to $3,220,479,000. The total taxes levied on general property during the period amounted to $739,806,000, or 30 percent of the increase in assessed valuation. Owners of property could stand a tax of about 2 percent of assessed valuation annually upon property which was increasing in value at a much more rapid rates.

(IMAGES OF TABLES 70 AND 71)

But between 1930 and 1934 assessed valuations dropped as rapidly as they had risen. Detroit suffered a decline of $1,523,456,000 in assessed valuations, and doubtless the market value of property in the city declined substantially more. The tax levy also declined, but not as rapidly as assessed valuations. The tax levy in 1934 amounted to 2.47 percent of the assessed valuations, which is considerably higher than for any of the other years listed.

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A similar decline in assessed valuations had taken place generally throughout the country. Governor Horner, in his message to the Illinois Legislature on November 19, 1934, pointed out that assessed valuations in Illinois had dropped from $8,500,000,000 in 1930 to a little more than $5,500,000,000 in 1933, a decrease of 35 percent, or almost exactly the rate of decrease in Detroit. In Wisconsin the assessed valuations declined from $5,975,952,000 in 1929 to $4,262,704,000 in 1933, a decrease of $1,713,248,000, or 29 percent. It is probably safe to assume that assessed valuations throughout the country have declined by at least 25 percent since 1930, and that property values have declined by a substantially larger amount. Under these conditions, it is quite obvious that the general property tax will have great difficulty in standing up during a period of declining or even stationary valuations.. Not only is it incapable of expansion to meet new needs, but it will have to be supplemented by other sources of revenue to carry on the ordinary functions of government.

Tax Delinquency.-With the decline in assessed valuations has come an increase in tax delinquency. A comprehensive survey of tax delinquency, made by the United States Bureau of the Census, showed that on December 31, 1933, the outstanding uncollected and delinquent taxes of the current levy made in 1932-33 (not including delinquencies against former levies) amounted to $909,465,000, or 20.6 percent of the current tax levy of $4,414,187,000.{9} This survey covered all units of government for the entire country for which data were procurable, with estimates for the remainder. The rate of delinquency varied widely from section to section, and from State to State, ranging from 6 percent in Massachusetts, 7 percent in Louisiana, and 8 percent in Wyoming, to 40 percent in Michigan, 37 percent each in Illinois and North Dakota, and 36 percent in Florida. New England generally had the lowest rate of delinquency, with an average of only 8.5 percent, while the East North Central States (Ohio, Indiana, Illinois, Michigan, and Wisconsin) had the highest average delinquency, 34 percent. The other geographical divisions (except the East South Central with a delinquency of only 12.5 percent) had about the same average as that for the entire country, though there was considerable variation from State to State within the same geographical division. It should be borne in mind that these figures are averages for an entire State or for a group of States, and that the tax delinquencies for particular cities, counties, or school districts varied much more widely.

{9}All statistics on tax delinquency are taken from the mimeographed report of the U. S. Department of Commerce, Bureau of the Census, Current Tax Delinquency, prepared under the supervision of Dr. Lent D. Upson. 1934.

A study of the trend of tax delinquency, involving about one-third of the property tax levies of the country, showed the following percentages of the current levy delinquent one year after it became due and payable:

In many communities the problem of tax delinquency is much more severe than the above average figures for the entire country would indicate. These figures show only current delinquencies and not the accumulated delinquency, which in many communities exceeds the annual levy. In many rural sections, particularly timber and cut-over lands, studies indicate that large solid areas, sometimes almost whole counties, are now tax delinquent and are approaching the time of foreclosure.

Tax Limitations.-A widespread movement has grown up within recent years to place definite limits upon the tax rate which may be levied upon general property. Although property tax limitations have been utilized very widely by many States throughout the country for years, the present movement involves much more drastic over-all limitations. Five States (Ohio, West Virginia, Michigan, New Mexico, and Oklahoma) have recently amended their constitutions to adopt tax-limitation measures. Indiana and Washington have adopted recent tax-limitation measures by statute. Similar movements are under way in many other States, and such limitations will probably spread. In 1934 Florida adopted by a heavy majority an amendment exempting homesteads up to a $5,000 valuation from ordinary taxes. Similar proposals are being made in other States, the net effect of which will be to reduce greatly the revenue from general property taxes.

The past experience of this country with fixed property limitations has been very unsatisfactory. The assessed valuations vary so widely within a State that a maximum rate suitable for one community will force other local governments to discontinue essential services, while some units with high assessed valuations will not be affected at all. Tax-limitation measures in the past have caused local governments to resort to unsound financial practices, such as increased borrowings, temporary loans, and emergency appropriations for ordinary activities, until the financial structure of the government was very badly strained, and the limitation was modified.

NEED FOR FEDERAL SUPPORT

Despite this experience, the protest against the general property tax is so insistent that it may be expected that such limitation measures will be adopted more widely. The only thing which will forestall such adoptions will be the voluntary reductions of general property tax levies. Homestead exemption measures, such as adopted in Florida, threaten to destroy the general property tax as a major source of revenue for local governments.

The cumulative effect of (1) lowered assessed valuations, (2) lowered property tax rate limitations, and (3) tax delinquency is to reduce greatly the possible revenue of local governments from the general property tax. By way of illustration, let us assume that city A has its assessed valuation decreased by 25 percent. On top of that the State adopts a tax-limitation law which reduces the rate of the levy by 25 percent. The net levy of the city is reduced to 56 percent of what it was formerly. If to that is added a tax delinquency of 25 percent, the tax collections drop to 42 percent. This is not an extreme example, but would be fairly typical of the States recently enacting new property tax-limitation laws.

It is significant to compare the part which the general property tax plays in taxation in the United States and in Great Britain. In the fiscal year ending 1932, general property tax collections of State and local governments in the United States totaled $4,684,784,000, or 73.7 percent of State and local taxes, and 57.4 percent of the total taxes collected by all units of government, including the Federal Government. In the United Kingdom, on the other hand, the property tax (rate receipts) of England and Wales, Scotland, and Northern Ireland totaled £177,403,000, or only 17.7 percent of the total tax receipts of the national and local governments.

Larger State and Federal grants-in-aid to the local units of government will be required in the United States, and, in view of our general taxation structure, are in order. Table 72, showing the ratio between local taxes (rates) and grants from the National Government of England and Wales, is of significance. This table does not include earnings from public utilities or capital loans. During the last 10 years the British National Government has increased its grants from slightly less than one-third of the total to almost one-half. The grants cover practically all the ordinary functions of local governments, including education, public health, poor relief, highways, police, elections, and others. Grants-in-aid have been an important means for many years by which the National Government has exercised supervision over the local governments, raising the standards of administration. By this means, for example, a high degree of national unity has been obtained in police administration.

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Public Debt of Local Governments. The trend of public debt is also very important in considering the financial abilities of the local units of government in the United States. Table 73 shows the trend since 1902. It should be noted that the figures of net debt in table 73 include the debts incurred for public-service enterprises, as well as for general governmental purposes. Data are not available on the net debt, excluding public-service enterprises. {10} During

(IMAGES OF TABLES 72 AND 73)

the last 10 years the net indebtedness of local units of government increased by $7,461,685,000, or 96.2 percent. This large increase in indebtedness is the result, in part, of the inability of the tax revenues of the local units to meet the expenditures. With the decline in assessed valuations, the increase in debt service charges, and the increased need of public assistance, the debt situation is serious. It is probable that, as a result of the lowered assessed valuations since 1932 and the increased debts, the present net indebtedness is about 12 percent of the assessed valuation.

{10} In 1932, however, the gross debt of all local units of government was $16,680,567,000, and in 1931 the debt of municipalities for public-service enterprises amounted to $2,950,575,437.

Not only has the debt of local units of government mounted very rapidly during the decade ending with the fiscal year 1932, but the trend during the depression has been upward at an even greater rate. Table 74 shows this trend. The increase in indebtedness is significant when we take into account the fact that assessed valuations during the period dropped by about 25 percent. Several of the cities listed in the table are not charged with poor relief, which is under the county, and accordingly the increase in their debt cannot be attributed to the increased cost of relief. In New England, where poor relief is a function of the municipalities, the indebtedness of the 12 cities of over 100,000 population increased from $160,834,902 in 1929 to $205,232,932 in 1934, or an increase of 27.6 percent.

(IMAGE OF TABLE 74)

Trend of Local Governmental Expenditures.-The trend of revenues, expenditures, and indebtedness of all cities of 300,000 population and over from 1924 to 1932 is given in table 75. Particular attention is given to public-welfare expenditures, embracing charities and hospitals, and their relation to total governmental revenues and expenditures. The table includes all local units of government within the cities, including a part of the county allocated to the city. Accordingly, it gives a complete picture of the trends of local finances for the period, but, of course, is confined to the large cities. Unfortunately, it stops with the fiscal year 1932, which for many cities ended during the first half of the calendar year. The downward trend of tax receipts brought on by the depression was just becoming evident. The reductions of ordinary governmental costs were generally instituted in the calendar year 1932, and consequently are not indicated in the table. The great increase in charities in

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1932 over previous years indicates that the cities were being forced to meet the problem of unemployment relief, though it had not yet become as acute as it did later. The percentage of public-welfare expenditures to the total operating and maintenance expenditures for all departments increased from 5.58 percent in 1924 to 12.28 percent in 1932. Most of the increase, however, came with the last 2 years.

(IMAGES OF TABLES 75 AND 76)

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Relief Administration. It will be noted that the local expenditures reached their peak before the Federal Government came into the field of unemployment relief in 1933. In general, local expenditures then declined. In some cities, as, for example, Detroit, local expenditures had been forced down earlier owing to the financial inability of the city to continue its relief activities upon a large scale.

The large cities (or counties in which they are situated) which have remained in a strong financial position have greatly increased their welfare expenditures, while decreasing their other governmental costs. The same trend applies equally to smaller cities and to rural areas. However, the local units of government which have had acute financial difficulties have been forced to curtail their welfare activities, not because of a diminution of the need, but simply because they were at the end of their resources. In many of the poorer communities the ordinary charities for unemployable groups have been curtailed or discontinued and these groups placed upon unemployment relief.

The Need for State and Federal Aid.-The financial condition of local units of government, and the trend over recent years, shows very clearly the need of State and Federal aid to carry on the present welfare activities, and to provide any expansion of these activities as for old-age assistance. The general property tax, which is relied upon almost exclusively for local support of welfare activities, faces further reductions in the future and is not susceptible to expansion. Property values and assessments have greatly declined within recent years, and the long upward trend of land values has been halted. Property limitations have been adopted by a number of States, and are likely to be adopted by others. Local indebtedness has increased rapidly over a long period, and has taken an upturn during the depression, even though the general property taxes, from which these debts must be paid, have fallen off greatly. Increased public charities have forced many cities into an unsound financial position, and have necessitated curtailments of other governmental activities.

THE FINANCIAL CONDITION OF STATE GOVERNMENTS

The financial condition of States is quite different from that of the local governments. The States have largely given up the general property tax as a source of revenue (it constituted less than 20 percent of the total tax receipts in 1932), and within the last decade have turned to new taxes, particularly income, inheritance, and sev-

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eral types of sales or gross income taxes. Unlike the local units of government, the States have the power to enact new forms of taxation. Like the local units of government, States, too, are facing financial difficulties, and the legislatures of 1935 had to grapple with the problem of providing new forms of taxation to take care of State and local governmental requirements.

Recent Trends.-For the most part, available statistics upon State revenues and expenditures stop with the fiscal year 1932 (which usually ended during the first few months of the year) and consequently do not indicate present conditions. States generally reached the peak of their revenues in the fiscal year of 1931, the taxes being collected largely in 1930 on business of 1929. The fiscal year 1932 showed a decline of only 9 percent in tax collections over 1930 and 1931, and slightly exceeded the collections of 1929. State expendi-

(IMAGE OF TABLE 77)

It will be noted from table 77 that State tax receipts rose by 46.2 percent during the 7 years from 1925 to 1932. The general property tax showed a decline of 10.7 percent, dropping from 32.4 percent of

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the total to 19.8 percent. All the other classes of taxes increased, motor fuel showing the highest increase, 375 percent. Inheritance and income taxes were adopted widely during the period, and showed substantial increases. The total tax receipts, exclusive of motor fuel and motor-vehicle licenses, however, showed an increase of only 14.2 percent, or, on a per-capita basis, 3.9 percent.

While the tax structure of State governments was undergoing such fundamental changes within the brief span of 7 years, the cost payments showed no such changes in distribution. Highway maintenance and outlays, which constituted 35 percent of the total in 1925, declined in the 2 following years, and then steadily mounted to 38.4 percent in 1932 (see table, 78). Other classes of expenditures

(IMAGE OF TABLE 78)

remained about constant, or declined slightly. Charities, hospitals, and corrections remained constant in their percentage of the whole until 1929, when they declined, but increased again in 1932. The total governmental expenditures increased 52.3 percent during the 7-year period. The cost of operation and maintenance of general departments increased by 44.1 percent, and the expenditures for operation and outlays of all departments, excluding highways and schools, increased by 42.7 percent.

While the States have not suffered so much as the local governments, they have also had their financial difficulties, particularly within the last 2 years. Many States went into the depression with

large reserves of cash on hand in the various State funds. For the most part these funds have now been exhausted, and many States have deficits of millions of dollars. New forms of taxation, particularly the income tax and various forms of sales and gross revenue taxes, have been enacted, the latter usually as emergency measures. These have been necessary to tide the States over the depression years and to help out the local governments. A few States have taken over some of the more expensive local functions, such as highways and schools, in order to relieve the payer of local property taxes. A very decided trend is noticeable for States to increase their grants to local governments, or to take aver certain local functions.

State governmental expenditures have been reduced within the last several years in practically every State, in many very substantially. A large number of States have been operating for the last 4 or 5 years with substantial deficits each year. This has been possible by using up reserves and by borrowing. While the trend of State revenues is now upward, the demands upon the States by local governments for relief of some of their heavy expenditures for welfare activities, and for a share of new State revenues, will exceed any increases in revenues through new taxes. Heretofore the States have contributed to unemployment relief largely through issuing bonds.

Indexes of Wealth and Income.-The financial ability of States as territorial units may be studied by the use of available indexes of wealth and income of the several States. These indexes include the estimated income of all residents of the State in 1929, retail sales in 1933, estimated taxable wealth in 1931, automobile registrations in 1933, savings-bank deposits, value of manufactured products in 1931, value of 64 principal farm crops in 1933, and others. The first three have been used in this study since they appear to be more significant and broader in scope than the others. Particular use has been made of the estimated income of 1929. It is recognized that by 1932 the national income had declined to about one-half of the 1929 level, and that the decline was not uniform between States. Nevertheless, for a study of the problem from a long-range point of view, the 1929 figures are as valid as those of later years would be, if available. In fact, it would be unwise to take the incomes during the depression years as indication of what they will be in the future.

The variation in the estimated per-capita income of 1929 between States, as indicated in table 79, is unbelievably great. New York with a per-capita income of $1,365 was highest, while Delaware, California, Connecticut, New Jersey, Nevada, and the District of Columbia each had over $1,000 per capita. Massachusetts and Illinois were only slightly under $1,000. These eight States and the District of

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(IMAGE OF TABLE 79)

Columbia had a total population of 36,178,000 in that year, or 29.8 percent of the total for the United States. Their combined incomes amounted to 45.0 percent of the national income and their average per-capita income was $1,142. At the other end of the scale were South Carolina, with a per-capita income of only $261, and Mississippi with $287. These States had per-capita incomes of only about one-fourth of those of the group of States listed above. Five other southern States had per-capita incomes of less than $350, considerably less than one-half of the national average of $750, and about one-third of that of the group of States with the highest per-capita incomes.

The distribution of States by incomes is given below

The per-capita retail sales of 1933 have two merits as an index of the financial ability of the several States; namely, first, the figures are very recent, and thus take into account the effect of the depression, and second, they were obtained by an actual census conducted by the Bureau of the Census and may be relied upon as being quite accurate. A comparison of the rank orders of the States for retail sales shows a close correspondence with the per-capita incomes in 1929. Of the 10 States having the highest per-capita incomes, 9 were included in the first 10 of retail sales. Similarly, of the 9 States ranking 40 and below in incomes, 8 ranked 40 or below in retail sales.

The eight States and the District of Columbia listed above with the highest per-capita incomes in 1929 had average per-capita retail sales of $287.35. This group, representing 29.8 percent of the population, had 40.9 percent of the retail sales. On the other hand, the 13 States having less than $150 per-capita retail sales, including all the States in the East South Central and Southeastern divisions, except Florida, and including also Oklahoma, Arkansas, and New Mexico, had average per-capita retail sales of $115.80, or only 55 percent of the national average. This group included 23.3 percent of the total population, but had only 12.9 percent of the retail sales.

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The following tabulation gives figures for the income and retail sales per capita by geographical divisions:

State and Local Tax Receipts.-With such a wide variation in indexes of wealth and income it would be expected that there would be a corresponding variation in the total cost of State and local government. That such is the case is indicated in table 80, showing. the total and per-capita tax receipts by States and the ratio of tax receipts to indexes of wealth.

The State and local, tax receipts per capita by geographical divisions vary widely, as the following tabulation indicates

{11} Preliminary report of a subcommittee of the Committee on Ways and Means, op. cit.

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(IMAGE OF TABLE 80)

$18 per capita in each. The other low States were South Carolina, Georgia, and Mississippi ($24 each), Kentucky ($25), and Tennessee ($26).

It is apparent at once that there is a close relation between the tax receipts and total income. Each section of the country is paying in taxes about the same percentage of its income. If the total tax receipts are compared to retail sales or to the taxable wealth, approximately the same ratios are obtained throughout the country. This

(IMAGES OF TABLES 81 AND 82)

is indicated by geographical divisions in table 81. In general, the poorer States tend to contribute a larger part of their income to government, but the difference is not wide. The ratio of tax receipts to retail sales and to taxable wealth is extraordinarily uniform throughout the country.

State and Local Indebtedness.-The trend of the total State and local gross debt, less sinking-fund assets, since 1912 is given in table 82. The increase of $8,900,000,000 in the net indebtedness of State and

local governments between 1922 and 1932 is very significant. This is about one and one-half times the annual tax collections of State and local governments at the rate of the 1932 collections. The net public debt of these units of government almost exactly doubled within the 10-year period. It will be noted that these figures include selfsupporting public utilities, which could not be separated in the census reports. The gross debt of municipal utilities in 1932 amounted to $2,592,000,000.

An analysis of the per-capita net debt of State and local units of government by States and by geographical sections indicates that the amount of public debt is not proportional to the income and wealth of the particular State or section, as is the case with tax receipts and the expenditures for operation and maintenance of governmental departments. Many of the lowest income States which have low tax receipts per capita have relatively high State and local debts, and many of them show very great increases in their debt during the last 10 years. This is indicated in table 83.

The great increase of public debt in the face of declining property values is cause for concern. It also indicates the fundamental weaknesses of our local tax structures, for the constantly mounting indebtedness indicates that the current income has been insufficient to meet governmental costs. If the State and local governments have had this difficulty during the last 10 years, or longer, it is at once apparent that they will have still greater difficulties in the present decade with reduced taxes, heavier debt charges, and increased demands for public-welfare expenditures.

The Need for Federal-State Cooperation.-Eight conclusions may be drawn from the foregoing analysis of the distribution of wealth and indebtedness among the States.

(1) The per-capita incomes of the citizens of the several States show an extremely wide variation, many States having less than onehalf of the average per-capita income of the entire country and less than one-third of the income of the States with high per-capita incomes.

(2) The per-capita retail sales of 1933 show a corresponding variation between the States, though not quite so wide. The ranking of the States by per-capita retail sales in 1933 corresponds closely to the ranking by incomes of 1929.

(3) The per-capita taxable wealth of States in 1931 is a less reliable figure than the two other indexes. In the main, however, it shows a close correlation with the other indexes.

(4) All three of these indexes of State wealth and income show an exceedingly wide difference in the financial abilities of the several States.

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(IMAGE OF TABLE 83)

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(5) The tax receipts of State and local governments varied from $18 per capita in two of the poorer States to $82 in New York. In general, tax receipts were proportional to income. The poorer States have devoted about the same percentage of their income to government as the wealthier States, with the result that their governmental expenditures are only about one-half of the national average and about one-third of the average in the wealthiest States.

(6) The ratio of tax receipts of State and local governments to income, retail sales, and taxable wealth are substantially uniform throughout the country.

(7) The total net debt of State and local governments increased by $8,900,000,000 from 1922 to 1932, or 102 percent. This huge increase in public debt in the face of declining assessed valuations and property-tax receipts is cause for concern. It indicates fundamental weaknesses in the tax systems of State and local governments.

(8) The State and local debts have increased most rapidly in some of the States with lower per-capita incomes. In many of these States the ratio of public debt to income and taxable wealth is more than double the national average.

The financial limitations of State and local units of government, and the consequent need of Federal aid in order to finance adequately old-age assistance, aid to children, and other welfare activities related to economic security are clearly indicated. Because of the very great practical limitations upon State taxation, as well as State constitutional limitations, even the wealthier States are having great difficulties in raising needed revenues. The superior position of the Federal Government as a tax gatherer is at once apparent. It is not hampered by State boundary lines, or competition between States; it has an extremely broad taxing power under the Constitution. It is the only unit of government which can effectively tax according to ability to pay, with jurisdiction reaching to the entire country. Its vastly superior financial position in comparison with the State and local governments is well indicated by the fact that during the decade following the World War it was able to reduce its indebtedness by about 10 billion dollars, meanwhile reducing the tax rate several times. On the other hand, the State and local net debt increased by nearly 9 billion dollars from 1922 to 1932, or approximately doubled.

Parts of the Federal program for economic security give aid in the development of effective State plans for old-age assistance, aid to dependent children, aid to the blind, maternal and child welfare, and expanded public-health activities. There is no remote possibility of accomplishing this objective without the financial support of the

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Federal Government. The Social Security Act calls for cooperation by the Federal, State, and local governments at many points. The problem of public assistance is too great and at the same time too closely related to the particular conditions and institutions of each part of the country, to be met successfully by any unit of government alone. Federal aid to the States and also State aid to the local units of government are measures in harmony with our political institutions and Federal-State relationships.

Although Federal aid to the States has in the past been granted for vocational rehabilitation and for public-health services, particularly in the field of maternal and infant hygiene, Federal financial cooperation with the States has heretofore largely been confined to grants for education, the militia, experiment stations, and highways. The Social Security Act which provides Federal aid for regular, recurrent welfare activities upon a permanent basis--as

(IMAGE OF TABLE 84)

is the established practice in many foreign countries--is an extremely significant development in the United States in opening up new avenues of Federal-State cooperation in financing programs of public welfare.

In addition to the public-assistance program embodied in the Social Security Act, the Congress has authorized Federal assumption of two additional functions in the promotion of the general welfare: (1) the offer of encouragement to States in the enactment of unemployment compensation laws and (2) the establishment of a Federal system of old-age benefits for workers who retire at age 65 or over from regular employment.

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COSTS OF THE FEDERAL PROGRAM

The Social Security Act authorizes a total appropriation of nearly $98,500,000 for grants to States for unemployment compensation administration and public welfare and assistance during the fiscal year 1935-36; and for subsequent years an appropriation of amounts far in excess of this is authorized to carry out the purposes of the act. The distribution of the authorized appropriation is shown in table 84.

Five of these authorized appropriations-for maternal and child health, for crippled children, for child welfare, for public health, and for vocational rehabilitation {12}--are the same amounts for 1935-36 and for subsequent years, and a sixth, unemployment compensation administration, will remain fixed after 1936.

After the first fiscal year no amounts are named as suitable appropriations for old-age assistance, aid to dependent children, or aid to the blind. These Federal costs will increase substantially over the years because of future increases in the number eligible for such aid and because States will doubtless tend to increase the size of their grants to individuals when Federal aid becomes available.

NEW SOURCES OF FEDERAL REVENUE

In addition to its measures authorizing appropriations for the general welfare the Social Security Act contains in titles VIII and IX {l3} two tax measures, levying two excise taxes on employers and an income tax on the wages and salaries of employees.

Pay-roll taxes were imposed by Congress in preference to any other additional source of tax revenue. But in order to make sure that industry will not be unduly burdened by the immediate imposition of these taxes at maximum rates, the taxes begin at low rates and increase gradually over a period of years.

Title VIII levies a tax, beginning with the calendar year 1937, on both employers and employees in all employment within the United States except (1) agricultural labor; (2) domestic service in a private home; (3) casual labor not in the course of the employer's trade or business; (4) service performed by an individual who has attained the age of 65; (5) service performed as an officer or member of the crew of a vessel documented under the laws of the United States or of any foreign country; (6) service performed in the employ of the

{12} The appropriation authorized under the Social Security Act for 1935-36 and 1936-37 is supplementary to an annual appropriation for these two years amounting to $1,097,000 authorized under ch. 219, 41 Stat. 735 (29 U. S. C. Sec. 31), as amended by ch. 265, 43 Stat. 430 (29 U. S. C. Sec. 31) ; ch. 414, 46 Stat. 524 (29 U. S. C. Sec. 31) ; and ch. 324, 47 Stat. 448 (29 U. S. C. Sec. 31).

{13}49 Stat. 636, 639 ; 42 U. S. C. (1935 Supp.), § § 1001-1011, 1101-1110.

United States Government or of an instrumentality of the United States; (7) service performed in the employ of a State, a political subdivision thereof, or an instrumentality of one or more States or political subdivisions; (8) service performed in the employ of a corporation, community chest, fund, or foundation, organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual. The act of August 29, 1935, levying an excise tax upon carriers and an income tax upon their employees {14} further exempts from the tax employment by a carrier as defined in that act. The tax rate for each tax starts at 1 percent of pay roll in 1937, 1938, and 1939, and increases by one-half percent increments every 3 years to 1.5 percent in 1940, 1941, and 1942; 2.0 percent in 1943, 1944, and 1945; 2.5 percent in 1946, 1947, and 1948; and 3.0 percent in 1949 and thereafter.

Both employer and employee pay at the same rate-the employer on the wages he pays and the employee on the wages he receives. Wages for both employer and employee tax are defined as all remuneration for employment, including the cash value of all remuneration paid in any medium other than cash, except that any remuneration paid to an individual by a single employer in excess of $3,000 per annum is not taxable.

The two taxes are to be collected from the employer, who is authorized to deduct from the employee's wages the amount to which the employee is liable. The Bureau of Internal Revenue, under the direction of the Secretary of the Treasury, is responsible for collecting the revenue, which will be paid into the general funds of the Federal Government. Collections will be made either by making or filing returns or by stamps, coupons, tickets, books, or other device prescribed by the Commissioner of Internal Revenue.

It is anticipated that the revenue received from these two taxes will amount to $1,706,300,000 in 1949, when the maximum rate is in effect.

Title IX imposes an excise tax on employers who employ eight or more persons in some portion of each of some 20 days in different weeks during the taxable year. In addition to the exclusion of employers with less than eight employees, the following employments are excluded from the tax: (1) Agricultural labor; (2) domestic service in a private home; (3) service performed as an officer or member of the crew of a vessel on the navigable waters of the United States; (4) service performed by an individual in the employ of his son, daughter, or spouse, and service performed by a child under the age of 21 in the employ of his father or mother; (5) service performed in the employ of the United States Government or of an instrumentality of

{14} Ch. 813, 49 Stat. 974; 45 U. S. C. (1935 Supp.), Secs. 241-253.

the United States; (6) service performed in the employ of a State, a political subdivision thereof, or an instrumentality of one or more States or political subdivisions; (7) service performed in the employ of a corporation, community chest, fund, or foundation organized and operated exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual.

The tax is levied on the total pay roll of employers who are covered by title IX. The rate starts at 1 percent of the entire remuneration paid for employment, as defined for the purposes of title IX, including the cash value of all remuneration paid in any medium other than cash. In 1937 the tax on pay rolls increases to 2 percent, and in 1938 it reaches its maximum of 3 percent. The employer alone is subject to this tax, which, like the two imposed under title VIII, is to be collected by the Bureau of Internal Revenue and merged with the general revenues of the Treasury.

The amount of revenue collected by the tax imposed by title IX cannot be estimated even approximately, for employers in States with unemployment compensation laws approved by the Social Security Board will be allowed a tax deduction up to 90 percent of the Federal tax for contributions to the State unemployment compensation fund for employment as defined for the purposes of the Federal tax. A 3-percent levy in 1933 would have yielded $517,000,000 in the entire United States, according to the estimates presented in table 16. If all States in the Union had approved unemployment compensation systems with the same coverage and tax rates as those established by title IX, only 10 percent of the $517,000,000, or $51,700,000, would have been paid into the Federal Treasury in that year, since 90 percent would have been claimed by employers as a tax deduction. It is impossible to prophesy how rapidly unemployment compensation systems will be established in the various States and how much of the tax will actually be collected by the Bureau of Internal Revenue.

The actual effect of the two excise taxes upon employers, starting at 1 percent of pay rolls in 1936 and increasing to 6 percent in 1949, is not subject to any accurate prediction. This extra labor cost (1) may be borne by the employer, or (2) may be passed on to the consumer in increased prices, or (3) may be shifted to the employee through a lowering of wage rates. What will actually happen in any particular case will depend upon the circumstances. Employers will obviously desire to pass this charge on to the consumer, but failing ability to do this, owing to a competitive market, price structure, or other reasons, they will have to absorb the charge or pass it back to the employee. Doubtless the total cost of the excise taxes will be borne in part by employee, employer, and consumer, but it is impossible to predict in what proportions.

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The anticipated effect of a pay-roll tax is often exaggerated. According to the latest available census of manufactures, labor costs in the United States during 1933 amounted to only 21 percent, on the average, of the value of the product. This means that a 1-percent tax on wages would add only twenty-one hundredths of 1 percent of the value of the product; a 3-percent tax would add sixty-three hundredths of 1 percent; and a 6-percent tax would add 1.26 percent. The pay-roll tax, however, applies not only to manufacturing but also to each other phase of production and consumption. In order to appraise the effect of a pay-roll tax it is, therefore, necessary to consider the total labor cost in products and services affected by the tax. It has been estimated that the labor cost of goods or services averages somewhat less than two-thirds of the final value of the product. If this estimate is accepted as correct, it would indicate that a 1-percent tax would on the average result in an increase of not more than two-thirds of 1 percent in the final value. Moreover, labor costs vary greatly in the part which they play in the total value of commodities. Table 85, which shows the cost of various taxes on wages for selected industries in terms of the value added by manufacture and total value of products, indicates that labor costs are extremely small in the manufacture of food products, oil and gas, and tobacco, amounting in each case to only 10 percent of the value of the product or even less. In the manufacture of flour and butter, for example, labor costs amount to only 5 percent of the value of the product. A pay-roll tax of 1 percent would increase the manufacturing costs of these items by only one-twentieth of 1 percent. On the other hand, textile and agricultural machinery, aircraft and boats, machine tools, pottery, and jewelry show relatively high labor costs, ranging from 34 percent for jewelry to 53 percent for aircraft. Even in the latter cases, a 1-percent tax would increase the manufacturing cost only from one-third to one-half of 1 percent.

(IMAGE OF TABLE 85)

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THE NEW FEDERAL RESPONSIBILITY

For the first time in the history of the United States the Federal Government has utilized its taxing and appropriating powers for a Nation-wide, permanent attack against destitution and its causes. The Social Security Act has launched a program for the general welfare whereby the Federal Government will share with the States the financial responsibility for certain public-welfare services.

The role of the Federal Government in the social security program is threefold:

(1) Granting funds to States--

(a) For aid to dependent individuals and administration of State public assistance plans,

(b) For the provision or extension of services for the alleviation or prevention of conditions leading to dependency, and

(c)For the administrative expenses of unemployment compensation systems;

(2) Levying a tax throughout the United States with credit offset to remove the economic deterrent in the establishment of State unemployment compensation systems; and

(3) Establishing an old-age benefit system which will serve to reduce old-age dependency among wage earners who ate employed in industry or commerce.

The grants to States, which cover nine different types of welfare activities, in all instances require State initiative in the establishment of State plans or services which meet the approval of the Federal agency authorized to allot funds to the States.

The States must take the initiative in plans for adequate Statewide measures to provide for the dependent aged, for the dependent blind, and for dependent children in families deprived of a parent's support. In these three types of public-assistance programs the Federal Government shares the financial responsibility for administration of the State agencies and for money payments to the individual recipients of State aid.

State plans for each of these three public-assistance measures must receive the approval of the Social Security Board before the Federal grants may be allotted. The conditions for approval of each State plan, which are summarized in appendix XII, require State-wide operation of the program, financial participation by the State, centralization and efficient operation of State administration or supervision, submission of reports required by the Social Security Board, and opportunity for fair hearing to persons whose claim for assistance is denied. The Social Security Act also specifies the limits of the citizenship and residence requirements and, in the case of old-age assistance, the age requirements which the State laws may impose.

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The Federal Government in the Social Security Act also authorizes grants to States (1) to raise the standard and increase the extent of (a) maternal and child-health services and services for crippled children, (b) child-welfare services, (c) public-health services, (d) vocational rehabilitation; and (2) to pay the costs of administering State unemployment compensation systems.

The conditions established by the act for grants to States for maternal and child-health services and services for crippled children--like those for public assistance--require the submission of State plans and State financial participation. The Children's Bureau, through the Secretary of Labor, will authorize the annual distribution of $20,000 to each State for maternal and child-health services and $20,000 for services and facilities for crippled children or for children suffering from conditions which lead to crippling. The remainder of each of the appropriations for these purposes authorized by the Social Security Act ($2,780,000 for maternal and child health, and $1,830,000 for crippled children) will be distributed to States on the basis of such factors as birth rates and need.

In the Social Security Act, the appropriations for child welfare and for public health are not specifically conditioned on State financial participation. The Children's Bureau and the Public Health Service are responsible for administering the $1,500,000 and $8,000,000, respectively, authorized as annual appropriations for these two purposes in cooperation with State authorities. (See appendix XII.)

An earlier act "to provide for the promotion of vocational rehabilitation of persons disabled in industry or otherwise and their return to civil employment", approved June 2, 1920, and as amended,{15} requires the submission of a State plan of vocational rehabilitation to the Federal agency for approval. Appendix XII summarizes the conditions required for Federal grants to the States with plans for vocational rehabilitation. The provisions of the Social Security Act merely supplement the Federal funds available to the States as grants to State vocational rehabilitation programs, bringing the total to $1,938,000 a year until June 30, 1937. After that date an annual appropriation of $1,938,000 is authorized for this purpose by the Social Security Act. The Office of Education of the Department of the Interior is the Federal agency authorized to administer the service.

The grants to States for the administrative expenses of their unemployment compensation systems are administered by the Social Security Board which must approve State unemployment compensa-

{15} 29 U. S. C., ch. 4, Secs. 31, 32, 34, 35, 37, 39, 40.

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tion laws before the grants may be allotted. The conditions for approval are those which will guarantee that the State law in its framework and operation provides a genuine compensation system, efficiently administered on a sound financial basis. These grants, for which an annual appropriation of $49,000,000 is authorized after June 30, 1936, represent only one phase of Federal action to promote State protection of workers against the hazard of unemployment. Title IX, with its uniform tax upon employers throughout the country, removes a competitive economic barrier which has hitherto prevented the enactment of State laws except in Wisconsin. State legislators have feared that the imposition of an unemployment compensation tax on employers would drive industry to States without such legislation. A credit offset allowed against 90 percent of the uniform Federal tax on the pay rolls of employers of eight or more will remove this deterrent. Employers in States without unemployment compensation laws will not escape the tax burden imposed in progressive States which protect their workers against the risk of unemployment.

The program widest in scope and affecting the largest number of individuals is that incorporated in the section establishing an oldage benefit system. While the old-age assistance grants to States are designed to alleviate the destitution of individuals who are old now and are without sufficient means for self-support, the old-age benefit system looks forward toward prevention of old-age dependency among individuals who have not yet reached old age. All workers in industry and commerce, regardless of the size of the establishment by which they are employed, will, after December 31, 1936, accumulate credit on their wages toward retirement incomes. Of all the programs it will be the slowest to get under way, since no annuities will be paid to workers before January 1, 1942. But once annuities become payable, more individuals will benefit from this section of the act than from any other part of the program. The initial coverage of the system is estimated at 25 million workers.

A word needs to be said about the method of administration which will be used in the old-age benefit system. It is the only part of the program which is not based on Federal-State cooperation, the principle which underlies all other sections of the act. Instead the Federal Government assumes the entire responsibility for its administration.

Throughout their working lives, individuals employed in industry and commerce will gradually accumulate wages which will entitle them to old-age benefits payable by the Federal Government when they reach the retirement age. While the States do not share in the

responsibility of administering the old-age benefit system, it is expected that their burden of providing for destitute aged residents will gradually be lightened.

The old-age benefit system of the Social Security Act is perhaps the most significant and far-reaching of the entire program, for it touches at many points upon other phases of economic security. Permitted to retire at 65 years of age from gainful occupations with the income given them on the basis of their past employment, superannuated workers will leave open many employment opportunities for younger persons, thus reducing the volume of unemployment. Younger persons will in large measure be freed from the cost of supporting their aged parents and relatives and, as a result, will be able to provide more adequately for their own children. Moreover, public and private welfare agencies, when the drain of assisting the needy aged is lessened, can concentrate their efforts to a greater degree upon eradicating the causes of economic insecurity rather than alleviating its effects. Under the Social Security Act, $49,750,000 was authorized as an appropriation for old-age assistance for the fiscal year 1935-36, an amount-constituting nearly half of the total Federal appropriation authorized for the entire program. (See table 84. )

Approximately one-third of the total appropriations authorized in the act for the first year were for measures designed to improve the physical and economic welfare of children. Approximately one-twelfth was to be allocated to vocational rehabilitation and aid to the blind and the remaining one-twelfth to the furtherance of public-health services in the States. When, through the operation of the old-age benefit system, old-age dependency assumes smaller proportions in the sum total of economic distress a far larger proportion of the Federal and State expenditures for the general welfare may be diverted to remedial rather than palliative measures.