Arthur J. Altmeyer
Statement Before the Senate Special Committee on Old Age Security
By Arthur J.
Chairman of the Social Security Board
Monday, July 21, 1941
Mr. Chairman, and members of the Committee:
The Chairman of the Committee has asked me to outline briefly the present provisions for old-age security contained in the Social Security Act. Before doing so I should like to trace very quickly the background and evolution of the present provisions.
Report of Committee on Economic Security
As you know, the Social Security Act became law on August 14, 1935, after many months of deliberation in Congress. The Act was the outgrowth of the recommendations of the President's Committee on Economic Security which was appointed in 1934, the Report of which was transmitted by the President to Congress, on January 17, 1935 with recommendations for legislative action. The basis of the present old-age security provisions was outlined in the Presidents message: "first, non-contributory old-age pensions for those who are now too old to build up their own insurance; . . . Second, compulsory contributory annuities . . . for those now young and for future generations."
During 1934 the proposed plans for old-age security were discussed with an Advisory Council consisting of 23 members, representing employers, employees, and the public. This Council unanimously recommended both Federal grants to the States for old-age assistance and a "Federal system of old-age insurance which will be compulsory for all industrial workers who can be brought under its terms."
In recommending this two-fold approach to the problem of old-age security the objective was to provide a system of insurance to minimize future dependency and a program of assistance to relieve existing dependency. The Report of the Presidents Committee on Economic Security stated the relationship between the two programs and their respective values and limitations, as follows:
"An adequate old-age security program involves a combination of non-contributory pensions and contributory annuities. Only non-contributory pensions can serve to meet the problems of millions of persons who are already superannuated or shortly will be so and are without sufficient income for a decent subsistence. A contributory annuity system, while of little or no value to people now in these older age groups, will enable younger workers, with the aid of their employers, to build up gradually their rights to annuities in their old age. Without such a contributory system the cost of pensions, would in the future, be overwhelming. Contributors pensions are unquestionably preferable to non-contributory pensions. They come to the workers as a right, whereas the non-contributory pensions must be conditioned as a "means" test. . .
"Contributory annuities can be expected in time to carry the major, but under the plan we suggest, never the entire load. Until literally all people are brought under the contributory systems, non-contributory pensions will have a definite place even in long-time old age security planning."
Social Security Act of 1935
The Social Security Act was passed by an overwhelming majority in both the House and the Senate. In the house the vote was 372 to 33; in the Senate, 77 to 6. Though not perfect or all inclusive, the Social Security Act did embrace the most comprehensive program for social security ever launched at one time by any government. By providing for unemployment insurance, aid to dependent children, aid to the blind, and for grants for public health, maternal and child welfare, crippled children, and vocational rehabilitation, in addition to aid for the aged, the Act recognized that the problem of insecurity must be attacked on many fronts at the same time.
Before I discuss in detail the two provisions for old-age security in the present law--that is, State old-age assistance and Federal old-age insurance--I should like to point out some of the recommendations made to Congress by the Committee on Economic Security in 1935 which were not enacted into law.
The provision for Federal grants to the States for assistance to the aged contained in the original bill recommended by the Committee on Economic Security provided that each State must give each aged person a sufficient amount of assistance which when joined with the income of that person and the person's spouse, is adequate to provide "a reasonable subsistence compatible with decency and health." This requirement was questioned by members of the Senate Committee on Finance and when the bill was finally reported out this requirement was not only deleted but the word "needy" aged was specifically written into the bill.
Moreover, in 1935, the Committee on Economic Security recommended that agricultural workers, domestic servants, employees of non-profit institutions, etc. be covered by the Federal old-age insurance law. These groups were later excluded from the law by Congress and are not included under the present system.
FEDERAL GRANTS TO STATES FOR OLD-AGE ASSISTANCE
The 1935 law first became effective, insofar as Federal grants to the States for old-age assistance is concerned, on February 11, 1936. While at the end of 1934--immediately prior to congressional consideration of the Social Security Act--only about one-half of the States had effective old-age assistance laws with only 200,000 aged persons in receipt of assistance, today all States have old-age assistance laws and there are over 2,100,000 aged persons in receipt of such assistance--an increase of over ten-fold. Since 1936, the total amount expended by the Federal, State, and local governments for such assistance has amounted to over $2 billion.
The number of aged persons receiving assistance and the average amount received per person has steadily increased during the past six years. At the present time the 2,100,000 aged individuals in receipt of assistance are receiving an average of $20.63 per month. Thus, present expenditures for old-age assistance are running about $43,000,000 per month or at a rate of $516,000,000 per year.
FEDERAL OLD-AGE INSURANCE
The Federal old-age insurance law first came into operation on January 1, 1937 when contributions became payable from employers and employees. At the present time about 2,000,000 employers employing nearly 40,000,000 employees during the year are contributing under the insurance system. During the past five years, since the system first came into operation, about 47,000,000 individuals have made some contributions under the system.
SOCIAL SECURITY AMENDMENTS OF 1939
In 1939, the Social Security Board presented its recommendations to the President and to Congress for amending the Social Security Act. Among the recommendations made was a proposal for increased Federal grants to the States for old-age assistance, aid to dependent children, and aid to the needy blind. The Board pointed out at that time that the result of the 50-50 matching plan "has been wide difference between the States, both in number of persons aided and average payments to individuals. . . while these variations may be explained in part on other grounds, there is no question that they are due in very large measure to the varying economic capacities of the States."
The Board stated at that time that it believed that "It is essential to change the present system of uniform percentage grants to a system whereby the percentage of the total cost in each State met through a Federal grant would vary in accordance with the relative economic capacity of the State." The Board repeated this recommendation in its Annual Report to Congress in 1940 and 1941. In my testimony before the Committee on Civil Liberties of which the Senator from Wisconsin was chairman, I repeated this recommendation over a year ago. The same recommendation was made by the Interdepartmental Committee to Coordinate Health and Welfare Activities in 1940. In transmitting the Social Security Board's Report to Congress in 1939, the President stated that he believed this approach to be sound. The Senate did adopt the so-called Connally proposal in 1939 increasing the Federal grants to the States for old-age assistance from one-half to two-thirds on the first $15. While this proposal passed the Senate by a vote of 43 to 35, the proposal was eliminated by the Conference Committee, after length consideration, and the only change made in old-age assistance as a result of the 1939 legislation was that the Federal matching was increased from one-half of any payments up to $30 per month to one-half up to $40 per month.
ADVISORY COUNCIL ON SOCIAL SECURITY
In the insurance program, however, Congress made a number of significant changes in 1939 along the lines recommended by the Advisory Council on Social Security and the Social Security Board. The Advisory Council was created in May 1937 by the Senate Committee on Finance and the Social Security Board. It was composed of outstanding citizens representing employers, employees, and the public. This Advisory Council of 25 members, composed of persons from both political parties, including representatives from both the A.F. of L. and CIO, and officials of life insurance companies, banks, and business firms, university professors, and others, spent more than a year in study and deliberation and transmitted its final report and recommendations on December 19, 1938. The Council unanimously reported as follows:
"After a thorough consideration of the growing problem of old-age dependency facing our country and of the experience thus far under the program of old-age assistance, the Council is convinced of the wisdom of Congress in establishing a contributory program of old-age insurance. The Council believes that such a method of encouragement of self-help and self-reliance in securing protection in old age is essentially in harmony with individual incentive within a democratic society. It is highly desirable in preserving American institutions to provide protection afforded as a matter of right, related to past participation in the productive processes of the country. It is only through the encouragement of individual incentive, through the principle of paying benefits in relation to past wages and employment, that a sound and lasting basis for security can be afforded."
The Council also stated unanimously that:
"The contributory insurance method safeguards not only the wage earner but the public as well. By this method benefits have a reasonable relation to wages previously earned, and costs may be kept in control relative to tax collections. Through careful planning the continued payment of benefits can be assured without undue diversion of funds needed for other governmental services. . . Old-age insurance is only one element in the whole structure of governmental social services. The protection of the aged must not be at the expense of adequate protection of dependent children, the sick, the disabled, or the unemployed; or at the cost of impairing such essential services as education or public health or of lowering of the standard of living of the working population."
RESULTS OF 1939 AMENDMENTS
The specific recommendations of the Council and the Social Security Board resulted in the following changes in the insurance system in 1939:
- The old-age insurance system was expanded to furnish protection for widows, orphans, and the dependent parents of insured workers who die prematurely. This is a logical and necessary part of any contributory insurance system since many contributors die before reaching retirement.
- Monthly benefits became payable in 1940 instead of 1942 as provided in the original law.
- The entire system was shifted from individual protection to family protection. In addition to the monthly survivorship benefits, provision was made that an insured wage earner who retires received an additional benefit of 50% when his wife also reaches the age of 65.
Before enacting the 1939 amendments the House Committee on Ways and Means gave lengthy consideration to various other proposals for old-age security. The Committee, however, in its Report to the House, concluded: "The foundations of a permanent program have been laid and it seems wise to build upon the present structure." The Senate Committee on Finance in reporting out the 1939 amendments said: "It is essential then that the contributory basis of our old-age insurance system be strengthened and not weakened." The Social Security Board has administered the program with these objectives in mind. It has also studied the operation of the legislation in order to improve the existing permanent structure and to strengthen the contributory insurance program.
The Social Security Act now provides for ten different programs which are in actual operation. I shall discuss only those two programs dealing with old-age security.
FEDERAL OLD-AGE AND SURVIVORS INSURANCE
The old-age and survivors insurance program is the only one of the ten programs administered entirely by the Federal government. Contributions are collected from the worker and his employer through the Bureau of Internal Revenue of the Treasury Department. The Social Security Board administers the benefits through the Bureau of Old-Age and Survivors Insurance.
At the present time the contributions are 1% on the wages of the employee, and 1% on the employer's payroll--making 2% in all. These rates are scheduled to increase to 2% each in 1943-44 and 45--or a total of 4%; and to 2% each--or a total of 5% during 1946-47 and 48, and to 3% each--or a total of 6% in 1949 and thereafter. These increases are already provided in existing laws.
The revenue received comes into the Federal Treasury and an amount equivalent to the contributions received is deposited automatically in the Federal old-age and survivors insurance trust fund. A Board of Trustees supervises the Trust Fund. The three members of the Board of Trustees are the Secretary of the Treasury, the Secretary of Labor, and the Chairman of the Social Security Board.
Employers send their contributions and the contributions which they have collected from their workers to the Collector of Internal Revenue every three months on quarterly reports listing the name, social security account number and wages of each individual employed by the employer during the particular quarterly period. These records are sent by the Treasury Department to the Social Security Board offices in Baltimore, Maryland, where the records are kept for each individual under the supervision of the Bureau of old-age and survivors insurance.
Contributions are collected and benefits are payable on the basis of employment covered by the insurance system. Nearly 40 million workers in industry and commerce are currently covered under the insurance plan but self-employed businessmen and farmers, agricultural labor, domestic servants, employees of non-profit institutions, Federal, State and local governmental employees and certain other groups are excluded from the system at the present time.
The Bureau of old-age and survivors insurance maintains 477 local field offices throughout the United States and in Hawaii and Alaska where individuals may file their claims for benefits. The eight types of benefits provided under existing legislation are briefly as follows:
- Primary insurance benefits are payable to each insured worker who has reached the age of 65 and is not receiving wages of $15 per month or more from employment covered under the insurance plan.
- A wife's insurance benefit is payable to the wife of any insured person in receipt of benefits if the wife is 65 years old or older.
- A widow's insurance benefit is payable to the widow of an insured man when she reaches age 65. The benefit is payable in the event that the husband dies before age 65 as well as when he dies after the age of 65.
- A widow's current insurance benefit is payable to the widow of an insured person who has a child or children under the age of 18 in her care.
- A child's insurance benefit is payable to each unmarried child under the age of 18, of an individual entitled to a primary old-age benefit or of an insured individual who died, irrespective of age.
- 6. A parent's insurance benefit is payable to either or both parents of an insured individual who died and left no widow or child under the age of 18. The benefit is payable if the parent was wholly dependent upon and supported by the deceased individual at the tine of his death. It commences at age 65.
- Lump-sum death payments are payable in the case of individuals who die and leave no surviving widow, child, or parent entitled to benefits beginning with the month in which the individual died.
- Lump-sum death payments are payable in the case of individuals who died prior to January 1, 1940, when the monthly survivorship benefits of the amended legislation first became effective.
The various monthly benefits range between a minimum of $10 per month to a maximum of $85 per month. The amount paid to each individual depends upon the amount of wages the insured worker received in covered employment since the insurance plan first became effective and the length of time such person was in the insurance system. The lump-sum benefits which are paid may range from a minimum of $60 to $300 or more.
In computing the amount of each individual's monthly benefits the primary insurance benefit must be computed first. This is computed as follows:
First, take 40% of the first $50 of average monthly wages;
Second, an additional 10% of any average monthly wages above $50, but not over $250;
Third, to this sum there is added 1% of the amount for each year in which the individual had $200 or more in covered wages.
This computation yields the monthly benefit payable to each insured individual age 65 and over. All other payments are based upon this primary benefit. Wives, children, and dependent parents who are eligible for monthly benefits receive one-half of the primary amount; widows receive three-fourths. Several persons in a family may receive benefits at one time, but the family total may not exceed twice the primary benefit.
A simple illustration may be helpful. Suppose that a worker receives wages of $100 per month. His employer now pays $1 per month and the worker pays $1 per month which the employer deducts from his wages. After the worker is in the insurance system for ten years he becomes 65 and retires or dies. Here is how his benefits would be computed. Since his average wages are $100 per month, 40% on the first $50 of such wages is $20. To this is added 10% of the next $50 which amounts to $5. This makes a total of $25. Since he has been in the system ten years he is entitled to an additional 10% this amount or $2.50. This makes a total of $27.50 per month which he will receive. When his wife reaches age 65 she will receive an additional 50% which will make a total benefit payable to him and his wife of $41.25. If he dies, his widow will receive $20.63 in monthly benefits for the rest of her life.
If on the other hand, this worker had died in early life, let us says at age 40, leaving his widow with two small children, a benefit of $20.63 would be payable to his widow plus $13.75 for each child. This would make a family total of $58.13. If one of the children reached the age of 18, died, or married, his widow would still receive her three-fourths of the primary benefit plus one-half for the other child. When that child ceased being eligible for benefits, the widow's current insurance benefits would cease, until and unless she became eligible for monthly benefits again at the age of 65.
In order to be eligible for these various benefits individuals must be insured in accordance with requirements of the law which are necessitated by the limitation of this program to the areas of employment now covered. In general, any individual is fully insured for all benefits under the system if he has been in covered employment roughly half of the time. The law measures the insurance status of each individual in terms of quarter-years, which is the time-period for which each employer reports concerning each employee. Thus, each individual must earn wages of at least $50 in half of the quarters up to age 65. There is a minimum of six quarters and a maximum of 40 quarters. In other words, when an individual has earned $50 per quarter--that is about $16.66 per month--in 40 quarters--equivalent to 10 years--he is fully insured for all benefits. At the present time an individual needs only nine quarters to be fully insured, since 18 quarters have elapsed since the system went into operation in 1937.
An individual may be eligible for certain survivorship benefits, however, if the deceased wage earner was only "currently" insured. Thus, if an individual earned at least $50 in six out of the last 12 quarters his widow and children would be eligible for monthly benefits. The eligibility conditions for survivorship benefits are based upon current insurance status similar to term insurance. The eligibility requirements for old-age retirement insurance, however, increase progressively as the insurance system matures.
This is important since some progressive increase in the eligibility conditions is essential, as long as the system covers only a limited area of employment, in order to make certain that the benefits bear a reasonable relationship to contributions and wage loss. Otherwise, it would be possible for individuals to work most of their lives in some non-covered occupation, and then enter covered employment for a very brief period solely in order to get benefits. They might have a very unrepresentative wage record for that brief period, and they would have paid practically no contributions. Thus, they would have an unjustified advantage over other persons who had been in covered employment and have paid contributions during most or all of their working lives. So long as coverage is limited, relatively strict eligibility requirements are necessary to distinguish bona-fide participants in the system from those who are normally outside its scope.
On the other hand, if a social insurance system is to be adequate, it is necessary to pay benefits to those retiring in the early years which are in excess of the actuarial value of their contributions, since they have not had an opportunity to make sufficient contributions in the past. Here social insurance does nothing more than adopt the example afforded by private group insurance contracts, where employers assume "past-service" liability. It is also obvious that the earnings qualifications cannot be as strict in the early years because those reaching retirement age in these years have had only a limited opportunity to demonstrate their earnings record since the system went into effect. However, as the system grows older and the opportunity to establish a contributions and wage record increases, it is desirable that the contributions and earnings qualifications also be strengthened in order to protect the persons in covered employment who are paying for the benefits.
In considering the 1939 amendments the appropriate Congressional Committees recognized the difficulties involved in working out the various elements in the insurance plan. The Committees pointed out that "Only after experience has been obtained in paying benefits for several years will we have a better picture of the probable future development of the system." It was also specifically pointed out that "the estimates presented are subject to a margin of error...Constant study and frequent reevaluation are, therefore, essential for the long-run financing of our social security system."
During the past fiscal year nearly $700 million has been collected in contributions from employers and employees. The expansion of employment due to the national defense program has resulted in an income yield substantially in excess of the estimates made in 1939. In addition, the benefit payments have been substantially below the estimates originally made and these two factors have resulted in a larger reserve fund at the present time than was originally estimated by the actuaries in 1939. At the present time, the reserve fund for this purpose totals approximately $2.4 billion. Although the reserve fund is somewhat larger than originally estimated, it must be remembered that the insurance system is now incurring a tremendous liability for payments which will become due after the defense stops and for many years in the future. It is estimated that by June 30, 1943, there will be approximately one million fully insured persons over 65 who will have retired or who could retire at any time. The increase in employment in covered industry due to the defense program will substantially increase benefit payments later on and will necessitate a careful reappraisal of the relationship between contributions, benefits, and the reserve fund during the ensuing years.
Since the introduction of this system, social security account numbers have been issued to nearly 56 million persons, about 47 million of whom have some earnings in covered employment. In any one year, however, as few as 32 million persons may work in such covered employment. At the present time it is estimated that nearly 40 million persons will be employed in covered employment during 1941 and this figure will undoubtedly increase further during the operation of the defense program.
Although monthly benefits under this program were made initially only a little more than a year ago, over one-third of a million persons already have received insurance payments. By the end of June 1941, nearly 220,000 aged persons, including retired workers, their wives, and surviving aged widows and parents were on the insurance rolls. In addition, more than 120,000 young widows and children were in receipt of monthly insurance benefits. Total monthly insurance payments now amount to approximately $6.5 million, or an annual rate of disbursement of $78 million. The monthly insurance payments to all aged persons in June were $4.6 million and for younger beneficiaries, $1.9 million.
The number of beneficiaries and amount of benefits paid out for June 1941 was as follows:
In addition to the number of persons in receipt of insurance benefits there are other persons whose claims for benefits have been filed and approved. However, because of favorable employment opportunities they have returned to work. Nearly 27,000 aged persons are eligible for insurance benefits but were not receiving benefits in June because their payments were temporarily deferred for this reason. Many other persons who would have otherwise retired have not applied for their insurance benefits because of favorable employment opportunities and the national defense program.
The total number now eligible for payments is only a fraction of the millions of workers who already have made contributions and acquired rights toward benefits under the old-age and survivors insurance system, and of the millions more who will come under the program as they obtain jobs in covered employment. As these rights now being accumulated by contributors and insured workers mature, the number of annuitants and the total annual disbursements will increase markedly. Despite the impact of the national defense program on employment and the necessity of keeping aged skilled workers on the job, insurance disbursements have more than doubled during the past fiscal year.
Federal Grants to States for Old-Age Assistance
The other program for old-age security incorporated in the Social Security Act provides for Federal grants to the States for the payment of assistance to needy aged individuals. In addition, the Social Security Act provides similar Federal grants to the States for aid to dependent children and aid to the blind. These three programs together are usually referred to as the "public assistance" program.
The Federal grants to the States are made on a 50-50 matching basis. The Federal Government, however, does not match on any amounts paid by the State to any individual in excess of $40 per month, or if the individual is under the age of 65, or is an inmate of a public institution. The States have wide latitude in the operation of their program within the framework of the provisions of title I of the Social Security Act which contains the provisions for this purpose. The State, or such local officer as it designates, receives all applications for assistance and is responsible for the determination of the eligibility of all persons for assistance. The amount of the assistance to be given to each individual is also determined by the State. The State may, if it so wishes, provide aid to individuals under the age of 65 although no Federal funds will be matched for this purpose.
The Federal law requires that before the Social Security Board can grant Federal funds to the State that the State plan for old-age assistance first provide for the following:
- That the plan will be in effect in all political subdivisions of the State.
- That there will be financial participation in the plan by the State itself in addition to any financial participation by the counties or other political subdivisions.
- Provide for the establishment of a single State agency to administer or supervise the administration of the plan.
- Provide for a fair hearing for the State agency for any individual whose claim for assistance is denied.
- Provide such methods of administration as are necessary for the proper and efficient operation of the plan, including the maintenance of personnel standards on a merit basis.
- Provide that the State agency shall, in determining the need of any individual, take into consideration any other income and resources of the individual claiming assistance.
- Provide safeguards which restrict the use or disclosure of information concerning applicants and recipients to purposes directly connected with the administration of old-age assistance.
- No age requirement of more than 65 years can be imposed.
- No residence requirement of more than 5 years with the 9 years immediately preceding the application for assistance can be imposed.
- No citizenship requirement can be imposed which excludes any citizen of the United States.
As long as a State has a plan that follows these provisions of the Social Security Act it receives regular grants of Federal money. The State uses this money along with its own and any it may receive from counties or other political subdivisions to meet the cost of old-age assistance.
As a result of the Federal aid State requirements as to age, residence and citizenship have been progressively liberalized during the past few years. Moreover, the Federal funds have enabled the States not only to increase the number of individuals receiving assistance but also to increase the average amount received per month.
The average old-age assistance payment for the United States was $20.63 for April 1941. The average ranged from $37.82 in California to $7.49 in South Carolina. The State of Iowa came closest to approximating the national average with an average monthly payment of $20.82. These averages, however, do not mean that each individual within the State receives the same amount. Each individual receives assistance from the State on the basis of the State's evaluation of his income and his need. During November 1940 about 30% of all aged persons in receipt of assistance were receiving less than $15 per month. About 50% were receiving between $15 and $30 per month and about 20% were receiving $30 a month or more. In 18 States payments of $40 a month or more were made. In California, for instance, nearly 80% of all payments were for $40.
THE ECONOMIC STATUS OF THE AGED
The passage of the Social Security Act was public recognition of the fact that the aged constitute a large and needy part of our dependent groups. It does not follow, however, that the aged persons still outside the provisions of the act constitute the largest or most needy group remaining in our dependent population. In considering what further legislation needs to be enacted it is imperative that careful analysis be given to the present economic status of the aged in relation to other needy groups.
At the present time it is estimated that there are about 14,200,000 persons age 60 and over, of whom 9,200,000 are age 65 and over. While many of the aged still unprovided for are needy, it is frequently assumed that all aged persons are needy. As a matter of fact many of those with the highest income and the largest amount of wealth or savings are to be found in the higher age groups.
Moreover, the census indicated that 3.7 million persons aged 60 and over were still at work in March of last year and this number has probably increased to over 4 million at the present time.
In addition, more than three quarters of a million individuals have been retired upon Federal pensions, 371,000 on veterans allowances, 30,000 on military pay, 56,000 on Civil Service Retirement, the Foreign Service, Panama Canal Zone, Alaskan Railway, Coast Guard and Geodetic Survey and each of the smaller Federal retirement systems, 145,000 on railway retirement and 220,000 on Federal old-age insurance benefits.
Approximately 50,000 persons have been retired on State pensions and 60,000 on municipal pensions.
Private industrial pensions provide for 120,000 retired workers, trade union pensions for 13,000 and other private pensions for an additional 40,000.
The number of aged with insurance and annuity contracts in their own right is substantially in excess of one-half a million and this does not include approximately 250,000 with insurance who are living with relatives to whom the policies will be paid upon their death.
Altogether it has been estimated that 1 million persons are retired on pensions or annuities.
Most of the persons still working or retired on pensions are men and 1.5 to 1.7 million of them are married to wives aged 60 and over. This is a fact which is frequently forgotten. Oftentimes these women are considered as being "dependent" along with persons dependent upon charity or public aid. These persons, under our present economic system, should be considered as being in the same economic group as their husbands. It is also estimated that 20 to 25 percent of the aged have made some provision for their old age through savings. After making due allowance for overlapping with the groups mentioned above it still appears that there are 8 to 9 million aged with independent means of support.
Of the remaining 5 to 5 million aged who are dependent upon resources other than their own, it is known that 2.2 million are on the public assistance rolls while an additional 800,000 are in institutions or in receipt of private or public aid. Figures on the remaining 2 to 2 million aged are uncertain. Some have miscellaneous means of subsistence or are dependent upon friends and relatives, approximately 190,000 are on the public assistance waiting lists and others are undoubtedly in need of public assistance. It is this residual group which most needs consideration at the present time.
Another picture of the economic situation of the aged can be gotten from the Family Composition Study which was conducted by the United States Public Health Service in 1935 and 1936. The income of some 520,000 households consisting of only one family indicated the following per capita incomes for persons of different ages:
65 and over
The families included in this analysis exclude aged persons who live with their married children. The study shows that persons aged 60-64, as a group, are members of families receiving the highest per capita income followed by persons aged 65 and over.
There is, therefore, good reason for believing that the aged persons as a group receive more than an average share of the national income or that they are members of families securing more than an average share. In general, children stand out as the neediest element and the group for which the Social Security Act is doing less than. for any other segment of the population, considering their relative needs.
EXISTING UNMET NEEDS OF OTHER DEPENDENT GROUPS
In addition to those aged persons who are still needy there are also other needy groups in our population who require consideration. The dependent widow and child, the permanently disabled, the unemployed, the sick, and other unemployables deserve equal treatment along with the needy aged. Therefore, available financial resources must be carefully apportioned with due regard to all unmet needs. I should like to describe briefly some of these unmet needs of other groups before I return to discuss what can and should be done to provide for the unmet needs of the aged.
The Dependent Widow and Child
As I have already pointed out, the per capita income of families with children under age 16 is lower than any other age group in the population. The White House Conference on Children in a Democracy reported to the President in 1940 that as many as two-thirds of the children in American cities live in homes where the family income is less than sufficient for a "maintenance level of living." These children are our citizens of tomorrow and should receive adequate food, clothing, shelter, and other services necessary to proper development for their responsibilities as men and women.
It is estimated that at the present time there are 6,000,000 widows in the United States of whom about 60% or 3,500,000 widows were under the age of 65. Each year 400,000 women become widows. Each year 220,000 children under the age of 16 become orphans because of the death of their fathers.
At the present time there are probably 2,000,000 children under the age of 18 who are fatherless. An additional three million children live in homes in which the father is sick, disabled, or absent for some reason. These five million fatherless children live in families with about 9,000,000 additional related persons. These families are usually the neediest in the community. Frequently, there is no employable member in the household. Often the widow must seek employment to the neglect of the health and welfare of the children. The result is usually more costly to society in the long run.
Over 900,000 children are already receiving aid to dependent children under Title IV of the Social Security Act. However, an additional million and one-half children are in need of such aid and would be eligible for such assistance under existing legislation if funds were available. The average amount now being paid per child is only about $10 per month when allowance is made for the mother or other caretaker of the child. If the dependent child were to receive as much as the aged person at the present time the average payment would be doubled to about $20.
In other words, aid to dependent children could be more than doubled in terms of the number to be aided and then doubled again if adequate assistance were to be given to the needy children.
There is no need for me to review the experience of the last decade with respect to unemployment. We are still making large expenditures for this purpose through the WPA, CCC, NYA, unemployment insurance, general relief, and other programs. What many people frequently forget, however, is that even in good times there are probably 2,000,000 to 2,500,000 persons unemployed. Our present economic system, even at peak performance, seems to require about that many persons at a minimum to be unemployed on the average due to seasonal factors, technological changes, inventory, repair of equipment, bankruptcy, and other similar causes.
At the present time our unemployment insurance benefits are inadequate. In many States the waiting period is much too long. Frequently an unemployed worker does not receive his first payment until the fifth or sixth week of unemployment. The amount of benefits is also inadequate. The payments in some cases have been as low as $2 and $3 per week. But the most significant inadequacy of the present laws is the very short duration of benefits. Last year over one-half of all workers in the United States receiving benefits were still unemployed when they exhausted all their benefit rights. In one State over 80% of the worker exhausted their benefits. In some States the maximum duration of benefits has been two or three weeks for particular individuals. An individual may receive a few dollars per week for only very few weeks after a three-week waiting period and a further delay of one or two weeks for administrative reasons.
The amounts being paid are admittedly low relative to the need. Unemployment compensation benefits compare very unfavorably with workmen's compensation benefits which are also not adequate in many respects. There is no doubt that the existing benefits must be made more nearly adequate if we are to achieve the objectives of unemployment insurance as a real first line of defense in meeting the ever present problem of unemployment.
At the present time unemployment insurance benefits are financed through a 3% payroll tax on employers. However, it is probable that in the long run 3% will be insufficient to pay adequate unemployment insurance benefits.
We know that unemployment will again be with us when this emergency is over and many readjustments take place. It is not too soon to consider this problem and the cost and other aspects involved.
Temporary Disability and Medical Care
There is a striking paradox in our provisions for insurance against wage loss during unemployment: If a worker becomes ill during the course of a spell of unemployment, his benefits stop, just at the time when he needs them most. Sickness is one of the most important causes of dependency. On an average day in the year seven million persons are sick and disabled. The method of social insurance can be applied to the problem of health as it already has been applied in the case of unemployment, old age and death. Cash benefits to those persons who are unemployed because of sickness should be made a counterpart of the cash benefits paid to those persons who are unemployed because of business conditions.
Temporary disability benefits as generous as those under any of our State unemployment compensation systems could be provided at a cost which would probably amount to less than 1% of taxable pay rolls. Unfortunately compensation for wage loss from non-industrial disability would not completely solve the problem of those who are sick or temporarily disabled. Wage loss represents only about a fifth or sixth of the total cost of ill health to workers and their families. Our system of social insurance should furnish protection not only against the wage loss due to non-industrial disability, but also protection against the costs of medical care involved. A reasonably adequate system of medical care would cost between 4% and 5% of pay rolls, in addition to the 1% needed for temporary disability benefits, the 6% needed for old-age, survivors, and disability insurance, and the 3% needed for unemployment insurance.
In connection with the problem of medical care it is important to note the many men examined for military service who have been rejected because of physical defects. The lack of proper medical care reaps a heavy toll in terms of our national security. Many of the defects of these men are remedial and a concerted program of governmental action would repay many times the cost.
Permanent total disability is a major risk against which our present social security program provides no insurance protection. On an average day in the year, about 2 million persons are found to be suffering from disabilities that have already lasted more than a year. Almost a third of these are persons who, but for their disability, would be engaged in productive work.
It is significant that, with the single exception of Spain, every other country in the world which has an old-age insurance program has also made provision for insurance against chronic or permanent total disability.
A substantial proportion of the chronic disability prevalent today is merely premature old age and the incidence of disability increases rapidly among the higher age groups. Thus the United States is almost alone among the great nations of the word in insisting that a worker who becomes disabled at 50 or 60-- from causes, in many cases, which are the same as those which impel us to provide retirement pensions--must wait until he reaches 65 to receive insurance benefits.
Protection against permanent total disability could be added to the protection now offered under our old-age and survivors insurance system. Such benefits would cost $500,000,000 to $1,000,000,000 per year. These are large sums but the need exists and consideration must be given to meeting this need. The permanently disabled are perhaps the most unfortunate of the needy group. A sound system of social insurance providing benefits for the disabled would be both humanitarian and economical in the long run.
Goal of Comprehensive Insurance Protection
The two social insurance programs have just gotten under way. Remarkable progress has been made in a few short years in getting these two programs established. Now we must take the necessary steps to strengthen and expand these programs. We have managed to cope effectively with the most difficult administrative problems involved in the first years of operation and there now exists an administrative foundation in this country capable of supporting the task of a broader and more comprehensive social insurance system.
Our eventual goal should be the establishment of a well-rounded system of social insurance to provide at least a minimum security to individuals and their families due to unemployment, sickness, disability, old age, and death. In addition, we must provide a series of constructive social services to supplement the cash aids provided under social insurance.
Even though our social insurance programs provided protection against all the economic hazards to which wage earners in general are subject, there would still be groups of the population for whom special public assistance--on the basis of need--would be necessary.
It is for that reason that it is necessary to have a program of general relief to provide for those persons who are not cared for by other programs.
The most conspicuous weakness in our present provisions for public assistance is the failure of the Federal Government to aid the States in meeting the costs of their residual relief burdens. There are wide variations in the extent to which the States provide for the needs of their aged, blind, and dependent children, but the disparities are even more pronounced in the case of assistance to needy persons who do not fall within any of these special categories.
More than 5 million families are at present receiving some form of public aid. About a fourth of these families are dependent upon what has come to be known as general relief, which is financed for the most part out of local funds and in a few States by State funds as well. The average amount paid per family is only $25 per month or only about $8 per person per month. It is obvious, therefore, that this group is greatly in need of more adequate assistance. Since the average payment to the needy aged is over $20 per month, there remains much to be done before this group attains the level of the aged.
More than half of the families dependent on general relief do not include a person who is employable even under favorable employment conditions.
Even with the general increase in employment which is anticipated during the next few years, the States and localities will still have a very large general relief burden.
The Federal Government should establish a system of grants-in-aid general relief along the lines of those for the special types of public assistance.
Such a system should not be regarded as a substitute for the Federal work programs. On the contrary such a system should be helpful in making work programs more effective, by reducing the necessity for distorting work programs to meet the needs of persons who could best be cared for through direct assistance.
A system of Federal grants to the States for general relief would probably cost the Federal Government initially $200,000,000 to $300,000,000 per year. During periods of depression this cost would probably be doubled or trebled. Since the persons on general relief are so inadequately cared for at the present time it would appear that any available funds should be expended on their behalf.
In considering various proposals for aid to the aged and to other needy groups consideration must be given to the existing situation with respect to the incomes received by all of the population. Frequent mention has been made concerning proposals to pay aged persons a flat rate per month regardless of need. The smallest amount usually proposed is $30 a month, yet this amount is more than the monthly per capita income of the inhabitants of 13 States. These 13 States are as follows: South Dakota, North Dakota, Oklahoma, Louisiana, New Mexico, Kentucky, North Carolina, Tennessee, Georgia, South Carolina, Alabama, Arkansas and Mississippi. In other words, the payment of $30 per month to some groups in the community would be more than the income of many other groups who receive their incomes from gainful employment. Moreover, there are 20% of the earners of this country who are working who earn less than $30 per month and this figure varies from 15% in the New England area to 30% in the Southern area. Under these circumstances any flat amount would be inequitable as between various individuals and as between various States.
Unfortunately, it must be recognized that at the present time our economic system cannot supply all our wants for all of our people. The only way all of us can live better is by our economic system both producing an increased amount of goods and services, and by providing the necessary income to buy those goods and services. There are many needs today which must be met. Each need must be balanced against other needs.
At the present time there are about 14,000,000 persons in the United States still in receipt of some form of public relief. In addition there are about 30,000,000 persons in the low income groups who are only a little better off than those who are dependent upon public aid. Thus, nearly 45,000,000 persons are probably ill-housed, ill-clad, and ill-fed. Their incomes are so low that they cannot afford to buy sufficient quantities of goods, the necessary clothing, medical services, or other needs.
In conclusion I world like to restate the underlying purposes to be served by a program of payments to the aged and the considerations involved in carrying out these purposes. The first and obvious purpose, but one which requires emphasis because it is so often neglected, is to reduce the hazards of dependency in old age by providing to the aged a recurring stable source of income which would permit them to maintain a level of living on an assured and secure basis. Variations in amount of payment and insecurity in the receipt thereof not only tend to disrupt the lives of those dependent on such payments but also offset in large measure the beneficial economic consequences which may be anticipated from a program of old-age protection.
The second purpose of such a program is to aid in achieving general economic stability and to enhance employment opportunities. In whatever measure economic well-being of the Nation a whole may be achieved through a program of protection of the aged, this purpose should be pursued. Essentially, the welfare of the aged as well as other groups of our population is dependent upon the level of economic activity and of national income. In the long run any proposals which may adversely affect the level of economic activity and of the national income will not be in the interest of the aged or any other group in the community.
There are a certain number of considerations which are essential to any improved program for the aged which are frequently overlooked. Perhaps the most important of these factors is the increasing number of aged and the anticipated rise in the proportions of aged in the total population. The population aged 65 and over, estimated at 9 million or 6.8 percent of the population in 1940, is anticipated to rise to 11 million within a decade and to in excess of 22 million or 14-16 percent of the total population by 1980. The number of aged 60 and over is expected to increase from 14 million to 31 million in the next forty years. Whatever mechanisms are adopted for the protection of those now aged must be adaptable to the problems of the future. Those entering their productive life at present require assurance that at the close of their working life, provision for their retirement will be no less adequate than that afforded the present aged.
The second consideration that is often overlooked is the fact that income levels and cost of living, vary considerably from region to region and from urban to rural areas. No single fixed sum would provide similar real protection to the aged in the different sections of the country. While a given amount may be adequate in one region of the United States to maintain prior levels of living, it will be out of line in terns of prevailing income levels and cost of living in another, thus making this same sum inadequate to provide for the minimum basic needs in some areas and more than enough to meet the same minimum needs in other areas.
One reason for regional and individual differences arises from the fact that not all incomes can be measured in monetary terms. There are still large numbers of the population whose incomes are received partly in kind and much of this does not end suddenly with old age as do cash wages.
The present program gives full weight to both of the essential factors just mentioned. The insurance program takes account of the secular growth in the aged population by developing rights to specified benefits through contributions from individuals in all age groups and by a system of financing designed to provide adequate funds, to meet disbursements both in the immediate period and in the long-time future. Both the assistance and insurance programs take full account of regional and individual differences in need and apply objective yardsticks to measure these differences--in the case of old-age assistance by the locally devised and locally applied tests of need and in the case of old-age insurance by relating benefits to wage loss due to retirement from gainful employment.
NEXT STEPS IN OLD-AGE SECURITY
The present two-fold program for old-age security can and should be constructively improved. I would like to lay before you the following suggestions as meriting the consideration of Congress:
- Extension of coverage of the insurance plan to cover all persons who work for a living. Coverage should be extended to the self-employed, the small-business man and professional person, the farmer, agricultural worker, domestic servant, and employees of non-profit institutions, etc.
- If such extension or coverage took place it would be possible to liberalize the benefits of the insurance system since the problems arising because of the large numbers of persons excluded from the system would be materially minimized. The eligibility conditions could be liberalized, benefits increased, and benefits paid to women beginning at the age of 60.
- Permanent total disability insurance could be included so that persons who became physically superannuated prior to retirement age would also receive insurance benefits. This proposal would greatly aid persons in the age group 50 to 65.
- Federal grants to the States for old-age assistance should be modified so that these grants instead of being on a uniform, 50-50 basis would vary in relation to the per capita income of the States. This would enable the States to increase their average payments or to increase the number of individuals in receipt of assistance, or both, as the State desired.
- If such additional Federal funds are provided, the Social Security Act could be amended to permit the States to apply simpler and more liberal tests of eligibility.
- The residence requirement for old-age assistance should be liberalized so that instead of the present retirement of five years within the last nine years there would be a residence requirement of only one year within the State for the aged person.
- The Federal Act could also be amended so that no State could require the actual transfer of a homestead to the State and could not enforce a lien against property used as a home until the death of the aged person and the spouse of such person.
- The Federal Act could also be amended so that no State would deny assistance in whole or in part to an individual on the ground that relatives should support such individual if in fact such relatives were not doing so.
- The Federal Act could also be amended to make it clear that in determining the requirements of an applicant who lives as the member of a needy family the State may take into consideration the needs of other members of the household who are dependent upon the aged person or whose presence in the home are necessary to his welfare or to the maintenance of the home.
- If the Federal Act were amended to provide that the Federal Government would pay one-half of all the necessary administrative expenses of the State for old-age assistance, just as the Federal Government does in the case of aid to dependent children and aid to the blind, this would make it possible for the States to improve the administration of their State programs.
- Consideration should also be given to an amendment to the Federal Act to provide that the Federal Government would match direct expenditures by the State for medical care and medical services on behalf of persons in receipt of public assistance. Since a large number of the aged have chronic ailments, medical care is an important part of their needs. In many cases such care can be furnished more effectively through direct arrangements by the administrative agency with doctors and hospitals than through the inclusion of an amount in the monthly payment to the aged person. If such an amendment were included in the Federal Act, it would go a long way toward improving and liberalizing the program and making more adequate the assistance given to aged persons.