The History of Major Changes to the Social Security System

By King, Teresa T.; Cecil, H. Wayne | The CPA Journal, May 2006 | Go to article overview

The History of Major Changes to the Social Security System


King, Teresa T., Cecil, H. Wayne, The CPA Journal


Social Security's financial woes are making headlines; both Congress and the President are publicly considering an overhaul of a system that has existed for 70 years but will face challenges in the coming decades. This study presents a brief history of Social Security, its creation in the 1930s, the many changes to the program since its inception, and its financial position as it has developed over the last several decades. The history of Social Security provides a context in which proposed changes to the system can be evaluated.

Earliest Developments

In 1934, President Franklin D. Roosevelt created the Committee on Economic Security (CES). The CES was assigned the task of studying the need for an economic security system to provide income for the elderly and disabled. Care for those unable to work was traditionally provided by family members or, in limited cases, by the government. Roosevelt recognized the need for a national system. In January 1935, the CES issued a report to President Roosevelt outlining a plan for a national program of economic security. This plan ultimately became the Social Security Act (SSA), which was passed by Congress on August 14, 1935.

The SSA created a social insurance program covering a variety of individuals. The law provided a monthly benefit to individuals age 65 and older and no longer working. The monthly benefit was paid to the primary worker when he retired; the amount received was based on the individual's payroll tax contributions. The SSA also provided unemployment insurance, aid to dependent children, and grants to states for medical care. The Social Security Board was established and charged with implementing a system to enroll employees, report earnings, and collect payroll tax contributions. Under the initial SSA, monthly benefits were to begin in 1942; from 1937 until 1942, Social Security would pay out a single lump sum to anyone retiring. This "payback" sum was given to those paying into Social Security but not having sufficient contributions to vest in monthly benefits.

Changes to the 1935 Act

There have been several important amendments to the original 1935 Social Security Act. In 1939, Social Security was modified to add benefits to the spouse or minor children of a retired worker. It also added a survivor's benefit, paid to the family in the event of the premature death of a covered worker. Thus, with the 1939 amendment, the idea of economic security became a family-based program rather than an individual-based one, and one that provided benefits for retirement, disability, premature death, and medical costs after retirement. The payment of monthly benefits was accelerated to begin in 1940 rather than 1942. Interestingly, the first monthly retirement check was issued to an individual who had paid a total of $22.54 into the system and received $22,000 in benefits over her lifetime!

The next significant change to the SSA occurred in 1950, when the first cost of living adjustment (COLA) was added the program. This was a one-time increase in benefits of 7.7%; the next COLA occurred in 1952, a 12.5% increase. In 1954, a stipulation was added that would freeze a worker's record during the years he was disabled and unable to work. This amendment avoided a worker's receiving reduced or no benefits in the event of a disability.

In 1961, the retirement age for men was reduced to 62, with a reduced monthly benefit for those choosing to retire early. Several major changes to Social Security occurred with the 1972 amendment: automatic COLAs were instituted, a minimum monthly benefit was established, monthly benefits were significantly increased to those individuals waiting until age 65 to retire, and a system for automatic increases in the amount of earnings subject to Social Security taxation was developed.

Social Security Today

The first recognition of the fragility of the Social Security program occurred in 1975. A report developed by the Treasury Department indicated that Social Security payroll taxes collected would be insufficient to meet Social Security payments by 1979. …

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