Preparing a report and transforming that report into a law, while
heroic in scope in many ways, is not always the end of the story.
Even though the Social Security Act was enacted into law on August
14, 1935, the country still had to hear from the Supreme Court.
This was a new untested area of federal authority and it was inevitable
that it would be challenged in the courts, and until the Supreme
Court ruled, no one could be sure that the nascent Social Security
Act would survive its infancy.
The constitutional basis of the Social Security
Act was uncertain. The basic problem is that under the "reserve
clause" of the Constitution (the 10th Amendment) powers not
specifically granted to the federal government are reserved for
the States or the people. When the federal government seeks to
expand its influence in new areas it must find some basis in the
Constitution to justify its action. Obviously, the Constitution
did not specifically mention the operation of a social insurance
system as a power granted to the federal government! The Committee
on Economic Security (CES) struggled with this and was unsure
whether to claim the commerce clause or the broad power to levy
taxes and expend funds to "provide for the general welfare,"
as the basis for the programs in the Act. Ultimately, the CES
opted for the taxing power as the basis for the new program, and
the Congress agreed, but how the courts would see this choice
was very much an open question. (See the sidebar
on "A Tea Party That Changed History.")
A Dispute Among the Founders-
|The constitutional issue about the taxing
power had deep roots running all the way back to the founders
and to a dispute between Alexander Hamilton and James Madison.
Although both Hamilton and Madison were Federalists who
believed in a strong federal government, they disagreed
over the interpretation of the Constitution's permission
for the government to levy taxes and spend money to "provide
for the general welfare." Hamilton thought this meant
that government could levy new taxes and undertake new spending
if doing so improved the general welfare in a broad sense.
Madison thought the federal government could only expend
money for purposes specifically enumerated in the Constitution.
The Madisonian view, also shared by Thomas Jefferson, came
in time to be known as the strict construction doctrine
while the Hamiltonian view is called the doctrine of implied
The balance between these two philosophies went one way
and then the other over the years, with Hamilton's view
tending to prevail over the long run, but it was always
possible that in uncharted waters the courts might retreat
to a Madisonian conservatism, and the Supreme Court of the
early New Deal era was highly conservative in outlook.
The AAA & the Social
Already in 1934 lower courts had begun overturning major parts
of the New Deal program. Potentially the most serious threat came
from rulings invalidating the Agricultural Adjustment Act (AAA),
which used the same broad power to levy taxes for the general
welfare as the basis for its program of agricultural price supports
and controls. Lower courts ruled this unconstitutional and the
Supreme Court followed in January 1936, ruling that ".
. .a statutory plan to regulate and control agricultural production,
[is] a matter beyond the powers delegated to the federal government.
There was a silver lining in the cloud, however,
because the same opinion ultimately sided with Hamilton on the
larger question of a strict or a flexible interpretation of the
general welfare clause by holding that: " . . .the power
of Congress to authorize expenditure of public moneys for public
purposes is not limited by the direct grants of legislative power
found in the Constitution." 1
The Supreme Court's ruling on the AAA was a major
rebuff for the New Deal and it was important for Social Security
as well since it seemed to portend what lay ahead for the Social
Security Act. The AAA was an attempt to rescue farmers from the
collapse of the farm economy that happened with the coming of
the Depression. It sought to control agricultural production in
order to stabilize prices and restore farming to profitability.
The actual mechanism by which this control was to be achieved
was to levy a tax on the processing of foodstuffs and to use the
proceeds from this tax to fund agricultural subsidies--in effect,
using the subsidies as "incentives" to control production.
Fearing how the courts would see this new function of government,
the framers of the AAA deliberately placed the tax provisions
and the subsidy provisions in separate titles of the act, so they
could argue that they were not necessarily connected to each other;
that is, so they could argue that the purpose of the tax was not
to control production but was merely to raise revenue. This was
the same strategy adopted by the framers of the Social Security
Act, as can be seen in the separate Titles
II and VIII of the original Social Security Act.
The old-age insurance system introduced in the Social Security
Act was designed, at a public policy level, to be a contributory
social insurance program in which contributions were made by workers
to what was called the "old age reserve account," with
the clear idea that this account would then be the source of monies
to fund the workers' retirement. Actuarial studies were done to
determine what the contribution rate would need to be in order
to have sufficient reserves in the account to pay anticipated
benefits. In the popular understanding of the program, the contributions
established an "earned right" to the eventual benefits.
President Roosevelt strenuously objected to any attempt to introduce
general revenue funding into the program. His famous quote on
the importance of the payroll taxes was: "We put those
payroll contributions there so as to give the contributors a legal,
moral, and political right to collect their pensions and unemployment
benefits. With those taxes in there, no damn politician can ever
scrap my social security program." 2
Conceptually, the old-age insurance program was a social insurance
program with an obvious connection between the taxes collected
in Title VIII of the Act and the benefits paid in Title II of
the Act. The taxing and spending provisions of the Act were placed
in separate titles in the vain hope of convincing the courts that
what was obvious was not the case--that is, so that the argument
could be made that the taxing and spending provisions had nothing
to do with each other. Whether such a strategy would work was
highly questionable--especially following the ruling on the AAA.
But as it would turn out, the Court itself would change in ways
that rendered the strategy moot and the Social Security Act safe
from legal challenge.
A President Tries
to Pack a Court-
In early 1937 President Roosevelt made what turned out to be the
biggest political blunder of his career, and yet it was a blunder
that would have fortuitous, even pivotal, importance for the fate
of Social Security.
Federal judges are appointed for life. The Supreme Court of the
1930s was the most elderly in the history of the Republic, with
an average age of over 71. President Roosevelt would derisively
refer to them as "those nine old men." Actually, he
only had four of them in mind. The Court was split down the middle
in political terms. On the liberal side were three justices sympathetic
to the New Deal programs (Brandeis, Stone and Cardozo); on the
conservative side were four justices who voted against everything
the Congress and the Administration tried to do (McReynolds, Butler,
Van Devanter and Sutherland). In the middle were Chief Justice
Charles Evans Hughes and Justice Owen Roberts, who were often
"swing votes" on many issues. In the spring of 1935
Justice Roberts joined with the conservatives to invalidate the
Railroad Retirement Act. In May, the Court threw out a centerpiece
of the New Deal, the National Industrial Recovery Act. In January
1936 a passionately split Court ruled the Agricultural Adjustment
Act unconstitutional. In another case from 1936 the Court ruled
New York state's minimum wage law unconstitutional. The upshot
was that major social and political reforms, including social
insurance programs, appeared headed for defeat. This despite the
obvious will of the electorate who returned Roosevelt to office
in 1936 with the largest landslide in history.
1937 Supreme Court. National Archives.
President Roosevelt's response to all of this was stunning
and unexpected. On February 5, 1937 he sent a special message
to Congress proposing legislation granting the President new powers
to add additional judges to all federal courts whenever there
were sitting judges age 70 or older who refused to retire. Couching
his argument as a reform to help relieve the workload burden on
the courts, President Roosevelt's unusually blunt language made
it clear what he really had in mind: "A part of the problem
of obtaining a sufficient number of judges to dispose of cases
is the capacity of the judges themselves. This brings forward
the question of aged or infirm judges--a subject of delicacy and
yet one which requires frank discussion. In exceptional cases,
of course, judges, like other men, retain to an advanced age full
mental and physical vigor. Those not so fortunate are often unable
to perceive their own infirmities. . . A lower mental or physical
vigor leads men to avoid an examination of complicated and changed
conditions. Little by little, new facts become blurred through
old glasses fitted, as it were, for the needs of another generation;
older men, assuming that the scene is the same as it was in the
past, cease to explore or inquire into the present or the future."
The practical effect of this proposal was that the President would
get to appoint six new Justices to the Supreme Court (and 44 judges
to lower federal courts) thus instantly tipping the political
balance on the Court dramatically in his favor. The debate on
this proposal was heated, widespread and over in six months. The
President would be decisively rebuffed, his reputation in history
tarnished for all time. But the Court, it seemed, got the message
and suddenly shifted its course. Beginning with a set of decisions
in March, April and May 1937 (including the Social Security Act
cases) the Court would sustain a series of New Deal legislation,
producing a "constitutional revolution in the age of Roosevelt."
|One of the many cartoons
of the period that were critical of FDR's court-packing
plan. FDR Library.
Switch in Time
intense controversy the court-packing plan provoked, and
the divided loyalties it produced even among the President's
supporters, the legislation appeared headed for passage,
when the Court itself made a sudden shift that took the
wind out of the President's sails. In March 1937, in a pivotal
case, Justice Roberts unexpectedly changed his allegiance
from the conservatives to the liberals, shifting the balance
on the Court from 5-4 against to 5-4 in favor of most New
Deal legislation. In the March case Justice Roberts voted
to uphold a minimum wage law in Washington state just like
the one he had earlier found to be unconstitutional in New
York state. Two weeks later he voted to uphold the National
Labor Relations Act, and in May he voted to uphold the Social
Security Act. This sudden change in the Court's center of
gravity meant that the pressure on the New Deal's supporters
lessened and they felt free to oppose the President's plan.
This sudden switch by Justice Roberts was forever after
referred to as "the switch in time that saved nine."
The Supreme Court Cases-
Three Social Security cases made their way to the Supreme Court
during its October 1936 term. One challenged the old-age insurance
program (Helvering vs. Davis) and two challenged the unemployment
compensation program of the Social Security Act. The Court would
issue rulings on all three on the same day.
Helvering vs. Davis:
George P. Davis was a minor stockholder in the Edison Electric
Illuminating Company. Edison, like every industrial employer in
the nation, was readying itself to start paying the employers'
share of the payroll tax in January 1937. Mr. Davis objected to
this arguing that by making this expenditure Edison was robbing
him of part of his equity, so he sued Edison to prevent their
compliance with the Social Security Act. The government intervened
on Edison's behalf and the Commissioner of the IRS (Mr. Helvering)
took on the lawsuit.
The attorneys for Davis argued that the payroll tax was a new
type of tax not listed in the Constitution's tally of taxes, and
so it was unconstitutional. At one point they even introduced
into their argument the definitions of "taxes" from
dictionaries in 1788 (the year before the Constitution was ratified)
to prove how earnest they were in the belief that powers not explicitly
granted in 1789 could not be created in 1935. Davis was also of
the view that providing for the general welfare of the aged was
a power reserved to the states. The government argued that this
was too inflexible an interpretation of the powers granted to
Congress, and (loosely) that if the country could not expand the
interpretation of the Constitution as it stood in 1789 progress
would be impossible and it would still be 1789.
Steward Machine Company:
In the Steward Machine Company case the unemployment compensation
provisions of the Act were disputed. The Company dutifully paid
its first unemployment tax installment ($46.14) and then sued
the government to recover the payment, claiming the Social Security
Act was unconstitutional. Steward made the same as points as Davis
about the meaning of the word "tax," and argued in addition
that the unemployment compensation program could not qualify as
"providing for the general welfare."
Carmichael vs. Southern Coal & Coke
Co. and Gulf States Paper:
This was also a case disputing the validity of the unemployment
compensation program. In this variation the companies were challenging
the state portion of the federal/state arrangement. Unwilling
to pay their share of state unemployment compensation taxes the
two companies sued the state of Alabama declaring that it was
the Social Security Act, which they deemed unconstitutional, that
gave Alabama its authority to tax them in this way and since they
believed the Act to be invalid, they did not have to pay the tax.
Alabama differed. It was again the same issues as in the two prior
Mr. Justice Cardozo for the
On May 24, 1937 the Supreme Court handed down its decision in
the three cases. Justice Cardozo wrote the majority opinion in
the first two cases and he announced them on what was, coincidentally,
his 67th birthday. (See sidebar on Justice
Mirroring the situation in Congress when the legislation was considered,
the old-age insurance program met relatively little disagreement.
The Court ruled 7 to 2 in support of the old-age insurance program.
And even though two Justices disagreed with the decision, no separate
dissents were authored. The unemployment compensation provisions,
by contrast, were hotly disputed within the Court, just as they
had been the focus of most of the debate in Congress. The Court
ruled 5 to 4 in support of the unemployment compensation provisions,
and three of the Justices felt compelled to author separate dissents
in the Steward Machine case and one Justice did so in the
Southern Coal & Coke case.
Justice Cardozo wrote the opinions in Helvering vs. Davis
and Steward Machine. After giving the 1788 dictionary the
consideration he thought it deserved, he made clear the Court's
view on the scope of the government's spending authority: "There
have been statesman in our history who have stood for other views.
. .We will not resurrect the contest. It is now settled by decision.
The conception of the spending power advocated by Hamilton . .
.has prevailed over that of Madison. . ." Arguing that
the unemployment compensation program provided for the general
welfare, Cardozo observed: ". . .there is need to remind
ourselves of facts as to the problem of unemployment that are
now matters of common knowledge. . .the roll of the unemployed,
itself formidable enough, was only a partial roll of the destitute
or needy. The fact developed quickly that the states were unable
to give the requisite relief. The problem had become national
in area and dimensions. There was need of help from the nation
if the people were not to starve. It is too late today for the
argument to be heard with tolerance that in a crisis so extreme
the use of the moneys of the nation to relieve the unemployed
and their dependents is a use for any purpose [other] than the
promotion of the general welfare."
And finally, he extended the reasoning to the old-age insurance
program: "The purge of nation-wide calamity that began
in 1929 has taught us many lessons. . . Spreading from state to
state, unemployment is an ill not particular but general, which
may be checked, if Congress so determines, by the resources of
the nation. . . But the ill is all one or at least not greatly
different whether men are thrown out of work because there is
no longer work to do or because the disabilities of age make them
incapable of doing it. Rescue becomes necessary irrespective of
the cause. The hope behind this statute is to save men and women
from the rigors of the poor house as well as from the haunting
fear that such a lot awaits them when journey's end is near."
With these cases decided, Justice Stone could then dispose of
the third case in short order. "Together the two statutes
now before us embody a cooperative legislative effort by state
and national governments, for carrying out a public purpose common
to both, which neither could fully achieve without the cooperation
of the other. The Constitution does not prohibit such cooperation."
The Social Security Board Breathes
a Sigh of Relief-
Putting the Social Security Act into operation was a massive challenge,
in some respects it was unprecedented in American history (e.g.,
the record keeping involved was on a scale never before attempted).
The Social Security Board could ill afford to wait until a definitive
Supreme Court ruling was issued before starting to work. Issuance
of social security numbers (SSNs), collection of payroll taxes,
and payment of the first lump-sum benefits all had to start by
January 1937. And the Board would have to hire staff, acquire
facilities, set up record keeping procedures, and a million other
things before then. All of which it did, without knowing whether
its actions were constitutional. By the time of the court's ruling
in May 1937, more than 26 million SSNs had been issued; around
$150,000,000 in taxes had been collected; a dozen or so benefit
claims had already been paid, and there were about 150 local field
offices in operation around the country.
So we can well imagine the tension felt by the Board's employees
as the court assembled on that Monday morning in late May to hand
down its rulings. The Board's General Counsel,
Thomas Eliot, has given us a description of the moment:
"Finally came the great Monday--Monday was the Court's
'decision day'--when the Chief Justice announced the name of the
first case to be decided (Helvering vs. Davis, in which the constitutionality
of old age insurance was challenged) and, signaling that the Court's
opinion was to be read by its author, nodded to --Justice Cardozo.
Victory! My letter of May 25 began: Dear Ma 'n' Pa--Yesterday
was a big day! I hadn't really expected the decision until next
week. The result itself was not so surprising, but gratifying
nevertheless. Late yesterday afternoon Lois and I went down to
see Miss Perkins and split a bottle of (domestic!) champagne with
the Supreme Court Building after the rulings are a happy group
of Administrators (left to right): Murray Latimer, Railroad
Retirement Board Chairman; R. Gordon Wagenet, Unemployment
Compensation Director; Arthur J. Altmeyer, Chairman of the
Social Security Board; and Frank Bane, Executive Director
of the Social Security Board.
Notes & References
1. Quoted in Niskanen, William, "Spending
legacy of a 60-year-old ruling," Washington Times, Tuesday January
30, 1996, pg. A19.
2. Schlesinger, Arthur M., Jr., The Age
of Roosevelt: The Coming of the New Deal, Houghton Mifflin, 1988 American Heritage Library edition.
3. Quoted in Leuchtenburg, William E.,
The Supreme Court Reborn: The Constitutional Revolution in the Age
of Roosevelt, Oxford University Press,
1995. pgs. 133-134.
4. According to Leuchtenburg's compelling history of this episode
op. cit. Although the court-packing plan never made it to the Senate
floor for a vote, and although various straw polls showed the plan
losing by only a narrow margin, the national sentiment was overwhelmingly
against the plan. President Roosevelt's political power was so damaged
by the episode that his Secretary of Agriculture (and later Vice
President) Henry Wallace would eventually say: "The whole New
Deal really went up in smoke as a result of the Supreme Court fight." (Cf. Leuchtenburg, op. cit.,
5. The other "switch in time" happened on the morning
of May 18, 1937 when President Roosevelt, who was breakfasting in
bed, received a messenger with a letter of resignation from Justice
Van Devanter. This gave the President the opportunity to appoint
another liberal Justice, further strengthening his hand. And when
it became clear following the Social Security Act rulings that the
Court had indeed shifted course, support for the court-packing plan
turned to opposition and ultimately the plan was defeated (cf. Leuchtenburg, op. cit., pgs.
6. Constitutionality of the Social Security
Act: Opinions of the Supreme Court of the United States,
U.S. Senate Document No. 74, 1937, pgs. 32, 8, 33, 48. A good summary
of the issues in these cases, and their broader context, can be
found in Lopez, Eduard A., "Constitutional
Background to the Social Security Act of 1935,"
Social Security Bulletin, January 1987/Vol. 50, No. 1, pgs. 5-11.
7. Eliot, Thomas H., Recollections of
the New Deal: When People Mattered, Northeastern University Press, 1992, pg. 142-143.