Macroeconomics
Social Security
Chapter One: The Structure of the Social Security System
What is Social Security? How does it work? When and why was it started? Who benefits from Social Security? Who pays into Social Security?

According to the Merriam-Webster dictionary, Social Security is “the principle or practice or a program of public provision (as through social insurance or assistance) for the economic security and social welfare of the individual and his or her family; or a U.S. government program established in 1935 to include old-age and survivors insurance, contributions to state unemployment insurance, and old-age assistance”.# Social Security was a plan enacted on August 14, 1935, by President Franklin D. Roosevelt. This program provided people in a need base situation with survivor benefits, disability benefits, health-care benefits, and automatic cost-of-living adjustments. In order to fully understand Social Security one must understand how and why it came about into our economy and society and the effects it has had on our nation. In the late 1800’s many of Americans earned a living out on the farm. People made money according to how well they could produce certain crops, how much they sold, and how easy it was for the farmers to get their goods to a marketplace. This set a basis and standard of living where children didn’t have to worry about what they would do for a living. At that time there was only one option, and that was to be a farmer. Kids grew up knowing exactly what they would do and how they would help the family. A child growing up on a farm, allows for him/her to gain knowledge on farming techniques and certain “tricks of the trade” that others would not understand without the opportunity of living on the farm. As these children grew older they would begin to take on the role and jobs that the parents used to do and as the years passed, they would become in charge of the farm. This family enterprise would continue and the farm would be passed down from generation to generation, and because of this no child on the farm would have to worry about finding work, provided that the farm did well. This sense of security began to change as the Industrial Revolution began. The Industrial Revolution created a society where “workers found themselves dependent on outside forces to provide their families with the necessities of life, forces over which they had little influence. Any misfortune that interrupted their current income could mean destitution and poverty.” (Social Security & You, Social Security Administration, SSA Publication 05-10040)# This left many people without jobs, and therefore without a source of income. People could not rely on family members, and had to become rather independent in their search for financial growth. If they did not do this people would be put in situations where jobs could not be obtained, money could not be made, and therefore their standard of living could not grow. The Great Depression furthered the importance of this problem. The Demand induced recession “dramatized the fact that many American workers were almost universally dependent on factors beyond their individual control for their economic security.”# The people that felt the Great Depression the worst were the elderly. As I stated in the above paragraphs, before the Industrial Revolution people relied on farming as their sole source of money. Because of this many of the elderly people in the 1930’s were farmers and the recession caused agricultural prices to fall. The farmers suffered because there was a “surplus of grains and unprocessed foods that overflowed storage facilities. Meanwhile, millions of Americans were poorly fed and undernourished. And because the farmers could not sell their agricultural product to earn money, they could not buy clothing or other necessities.”# The family members of these people had now backbone to fall on and could not rely on these people to provide them with some sort of economic stability. Franklin D. Roosevelt said, “The civilization of the past hundred years, with its startling industrial changes, has tended more and more to make life insecure. Young people have come to wonder what would be their lot when they come to old age.” The public had to become independent from a family enterprise and they had to worry about making a living for themselves. In an attempt to ameliorate the public’s insecurity, on June 8, 1934, Franklin D. Roosevelt, announced his intention to provide a program for Social Security. On August 12, 1935, the Social Security Act was enacted … “To provide for the general welfare by establishing a system of federal old-age benefits and by enabling the several states to make more adequate provision…”# The new act created a social insurance program designed to pay retired workers age65 or older a continuing income after retirement. Also one provision of the act created a bipartisan Social Security Board, a group composed of members of both political parties#. The original members were John G. Winant, Arthur J. Altemeyer; and Vincent M. Miles. The SSB was given the tasks of providing employers, employees and the public with information on how earnings were to be reported, what benefits were available and how they were to be provided.# In order for the Social Security act to get off the ground the government needed to register employers and workers by January 1, 1937. They used the aid of the U.S. Postal service to distribute applications in November 1936. In between the years 1936-1937 over 35 million SSN cards were issued to the public. The first benefits were to be given out in the year 1942, but before than many amendments were made to the original law. In 1939 amendment were made to the Social Security program and two new categories of benefits were added: payments to the spouse and minor children of a retired worker (so-called dependents benefits) and survivor’s benefits paid to the family in the event of the premature death of the worker.# This amendment sped up the issuing of benefits from the previously suspected year of 1942 to 1940. This was a very significant change because it altered Social Security from a program that helps the retired to a program for individuals into a family-based economic security program. January 31, 1940 marked the date when, Ida May Fuller, of Ludlow, Vermont, received the nation’s first retirement check of $22.54, which in 2005 dollars is $334.27.# In the early years of the Social Security program not many changes were made, and the retirement benefits that were given out were very low. In order to ameliorate this problem the coverage was expanded. Before the amendments were made only about 50% of American workers were under the program. In 1954 an amendment was made to include a disability insurance program that would cover the portion of the public that are forced to retire early from their jobs due to an injury or illness. After the decades many changes around nine out of 10 jobs were covered. These amendments raised benefits and allowed for a broader and wider coverage of American jobs and therefore reached out and touched more people, and for the first time making the effect that President D. Roosevelt had hoped for in the mid 1930’s. In the mid 1960’s many more additional amendments were made. In 1961 the age where men are first eligible to receive benefits from retirement was lowered from 65 to 62. 1960 also marked the decade where Medicare was incorporated in Social Security. Health coverage was extended to Social Security beneficiaries aged 65 or older.# The SSA had responsibility for all aspects of Medicare until the Health Care Financing Administration was created in 1977. In 1972 Cost-of Living Adjustments were made to counteract the effects that inflation has on fixed incomes. Benefit increases are made to follow the rise of inflation and this was a guarantee to the public. They no longer had to fear receiving money that was slower than the increase of inflation. If this law was not made than people would be loosing money and wouldn’t be able to keep up with the changes of prices and the effects the government will make on interest rates and on other tools to control monetary policy. “In 1972, the law was changed to transfer state public assistance programs under the Social Security Act for the aged, blind, and disabled to the federal level, administered by the Social Security Administration. A new program was created- “Supplemental Security Income” or SSI. SSI payments provide a nationwide, uniform floor of income protection for aged, blind, and disabled persons. The program makes monthly cash payments to people in these categories with limited income and resources. The states supplement the federal payment based on regional standards of need. SSI is financed from the federal general revenues, not from Social Security taxes.”# In the 1980’s many amendments were passed which required SSA to review the list of disability beneficiaries to assure that they are still eligible. These tests were run on a consistent basis and were conducted to make sure that we were not giving money to people who don’t fulfill the requirements. Congress passed the Disability Benefits Reform Act in 1984, which modified several aspects of the disability program. This decade marked the first time that we had to face a financing crisis. A final bill was signed in 1983 in order to ameliorate our financial problems. Many changes were made in the Medicare and Social Security program, including “the taxation of Social Security benefits; the first coverage of federal employees; rising the retirement age starting in 2000; and increasing reserves in the Social Security Trust Funds.”# In the 1990’s four major changes were made. The original framework of three members on the Social Security Board was changed to a permanent seven members. In 1996 a law was passed that new applicants for Social Security or SSI disability benefits could no longer be eligible if drug played a major role in their disability. On December 17th, 1999, President Clinton signed the “Ticket to Work and Work Incentives Improvement Act of 1999.” This law provides disability beneficiaries with a voucher they may use to purchase vocational rehabilitation services, employment services, and other support services from an employment network of their choice.# In order to understand Social Security further, one must understand that there are five basic principles which guide and lead the framework for the program. They are, statutory right (no needs test), work-related benefits, contributory financing, compulsory participation, and weighted benefits.# The statutory right means that you are entitled to the benefits that you deserve when compared to your earnings, and workers do not need to prove that they are entitled to it. The work related benefits represent the amount of money you will receive in your benefits based on your earnings. You are also taxed a certain amount on your earnings, if you are an employee you are taxed at a rate of 7.65%, and if you are self-employed you are taxed at a rate of 15.30%. You can only be taxed on the first $94,200 of you income. The Social Security system has two sources of dedicated tax revenues. All of the revenues from the Social Security payroll tax and part of the revenues from taxing some Social Security benefits are credited to the trust funs for the Old-Age and Survivors Insurance and Disability Insurance programs. The trust funds act as a way to track revenues and spending for Social Security. It allows for the government to monitor the taxes and to find out whether or not the taxes are producing enough revenue to pay for expected benefits. As we all know the Social Security program is one with a compulsory participation rate and because of this five things are guaranteed. Benefits are assured, the benefits are backed by the government, the benefits automatically rise with the cost of living (due to COAL), benefits alleviate economic insecurity, and benefits provide continuing income to families. Last but not least the weighted benefits represent the goal of social adequacy as well as individual equity. This entails that lower paid workers receive higher benefits and increased benefits are paid to families.# The Social Security program will pay monthly benefits to about 45 million people this year--more than 28 million retired workers, 5 million disabled workers, and 12 million family members of retired, disabled, or deceased workers. In general, workers are eligible for retirement benefits if they are at least age 62 and have had sufficient earnings on which they paid Social Security taxes in at least 10 years. Survivors must have worked for at least one and half years and the disabled must have worked for one an half years if you are under 24 and five out of the last ten years if you are over 31.# Employee’s wages are reported on a W-2 form and you must have at least a $400 net earning in order to count for Social Security coverage. You can retire at age 62 and receive 80% of the benefit, or wait until age 65 and get 100% of your benefit amount. Although Social Security is often characterized as a retirement program, only about 63 percent of its beneficiaries receive their payments as retired workers.# As you can see Social Security played a large role in the growth of our economy and the strength of our nation. Social Security took away the insecurity of our economy that was created by the Great Depression and allowed the public to feel more secure with their money and to know that there family will be safe. It also provides a guaranteed income for people who are disabled or retired. People can live a much more relaxed and worry free life when they are covered by the Social Security program.