Seventy-five years ago today, President Franklin Roosevelt signed the Social Security Act into law.
In April of that year, at a meeting of the U.S. Chamber of Commerce, Roosevelt and his Social Security plan were roundly condemned – it was declared that this was all part of FDR’s attempt to “Sovietize” America.
Despite the hysterical fear-mongering from the Chamber and its allies, on June 19 the U.S. Senate had gone on to pass the Social Security Act by a vote of 77 to 6 – with New Mexico’s two Senators, Carl Hatch and Dennis Chavez voting with the majority. In April, the House passed the measure the previous April by a vote of 372 to 33. Our single congressman at the time, John J. Dempsey (who went on to become Governor), also cast his vote in the affirmative.
Never knew those guys were all a bunch of Bosheviks.
Yet somehow, seventy-five years later, the Republic has survived. Indeed it reached its greatest heights of prosperity, and built the greatest middle class in the history of the world — thanks to programs like Social Security and the G.I. Bill.
An American Success Story
Here are just a few key facts about the importance of Social Security today, courtesy of the Center for Budget and Policy Priorities.
- Social Security is more than just a retirement program. It provides important life insurance and disability insurance protection as well.
- Children have an important stake in Social Security.
- Social Security provides a guaranteed, progressive benefit that keeps up with increases in the cost of living.
- Social Security provides a foundation of retirement protection for nearly every American, and its benefits are not means-tested.
- Almost half of the elderly would be poor without Social Security. Social Security lifts 13 million elderly Americans out of poverty.
- Most elderly beneficiaries rely on Social Security for the majority of their income.
- Dependence on Social Security increases with age, as older people are less likely to work and more likely to have depleted their savings.
This last point about elder poverty is worth pondering. Today, without this social insurance program that we all pay into throughout our working lives, almost half of the elderly (13 million) would be living below the poverty line if it weren’t for Social Security. That had been the fate of a majority of elderly Americans in first part of the twentieth century.
Included in that number are the 129,000 New Mexicans (77,000 elderly) who escape poverty thanks to Social Security. This includes 46,000 women over the age of 65. (Here’s some more New Mexico Social Security facts.)
And according to the Census, about 6 million children nationwide under age 18 lived in families that received income from Social Security in 2008. Over 3 million children received their own benefits as dependents of retired, disabled, or deceased workers.
Social Security in crisis? Consider the alternative.
We still hear the drumbeat to “privatize” Social Security by putting the trust fund into the hands of Wall Street. But those drums have been muffled since the stock market meltdown of September 2008 and the collapse of home equities.
There is no question that the stock market can, if funds are invested wisely, yield a better return. But — and that’s a really big “BUT” — when used to build a retirement nest egg, timing is everything when betting on the casino know as Wall Street. The reality of market volatility makes privatization schemes an extremely risky proposition as a 2008 study by the Center for American Progress Fund makes clear. Looking at a hypothetical portfolio for a typical worker:
A person with a private Social Security account similar to what President George W. Bush proposed in 2005 that was invested in stocks retiring on October 1, 2008 after saving for 35 years (since 1973), would have seen a negative return on their account—an effective -0.6 percent net annual real rate of return—and lost $26,000 on the market.
Let’s face it. Without the reliability of guaranteed Social Security, our current Great Recession instead would be Great Depression II. Without the dollars of Social Security’s beneficiaries coursing through the economy, boosting effective demand for goods and services, businesses would have laid off even more workers, rocketing unemployment to far greater heights than we’re now experiencing.
True, a lot of things have changed since 1935. People are living longer (thanks in part to Social Security and Medicare!) and a larger proportion of the population is older. That means there are fewer workers are paying into the system. And the Boomers are starting to retire.
Still, this old girl has worked pretty well. It has been a financial lifeline for millions of Americans for generations and will continue to do so.
More importantly, there is no Social Security “crisis.”
More facts. Social Security has not caused the federal deficit. The program has a $2.6 trillion surplus today, which is projected to grow to $4.3 trillion by 2023.
Of course, this won’t stop the modern day anti-Social Security propagandists, like the Albuquerque Journal with its running headline stories forecasting the imminent demise of Social Security. But don’t be fooled. Read this new study from the Center for Budget and Policy Priorities. Its conclusions based on the new Social Security Trustees’ Board’s Report:
Even after 2037, Social Security could pay more than three-fourths of scheduled benefits using its annual tax income. Those who fear that Social Security won’t be around when today’s young workers retire misunderstand the trustees’ projections.
The program’s shortfall is relatively modest, amounting to 0.7 percent of Gross Domestic Product (GDP) over the next 75 years (and 1.4 percent of GDP in 2084). A mix of tax increases and benefit modifications — carefully crafted to shield recipients of limited means, potentially make benefits more adequate for the neediest beneficiaries, and give ample notice to all participants — could put the program on a sound footing indefinitely.
By far the most important fiscal decision that Congress will face between now and the end of 2010 is whether to extend the Bush tax cuts that are scheduled to expire at the end of the year… Some legislators have called for extending all of the tax cuts permanently; others have called for extending the high-income tax cuts temporarily on the grounds that they provide economic stimulus, though the Congressional Budget Office ranked this as the least effective of a large number of stimulus proposals. The revenue loss over the next 75 years just from extending the tax cuts for people making over $250,000 — the top 2 percent of Americans — would be about as large as the entire Social Security shortfall over this period. Members of Congress cannot simultaneously claim that the tax cuts for people at the top are affordable while the Social Security shortfall constitutes a dire fiscal threat.
So Happy Birthday, Social Security. And if you can hear this, thank you Governor Dempsey and Senators Chavez and Hatch. And if they were alive today, my mom and dad would second that.