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August 14

Social Security Act Signed by President Roosevelt (1935)


On August 14, 1935, President Franklin D. Roosevelt singed into law the Social Security Act, Public Law No. 271 (codified in 42 U.S.C. 7), thus creating the first federal government pension system for the retired.

Priors to the 1930s, the elderly were supported by local and state laws. In fact, prior to 1929, the federal government did not provide pensions, public assistance, health insurance, or unemployment compensation – except to war veterans. However, after the Great Depression, Congress and the president began to look for ways to protect the elderly in their retirement years.

In January 1935, President Roosevelt asked Congress to look into creating a “social security” bill for the elderly. The House of Representatives and Senate began to debate and come up with a program to provide for the elderly, unemployed, poor, and others as part of President Roosevelt’s New Deal. Congress eventually passed through the Social Security Act for the president’s signature and approval.

On August 14, 1935, President Roosevelt signed the Social Security Act into law – and created a colossal entitlement program for the federal government to administer.

The Act provided benefits to retirees and the unemployed. The social security system was (and continues to be) funded by employees’ payroll taxes, i.e. taxes paid directly from employees’ salaries to the social security system, and employers’ matching contributions. As such, the social security system is called an “entitlement” program because contributors are entitled to their money at a later date in the form of retirement. The Act also provided funds to help the unemployed, blind, children, and others.

The Act has been amended numerous times, notably for the first time in 1939 when surviving spouses and minor children were added as beneficiaries. And payroll taxes rose to pay for it.

In the 1940s and 50s, even more people were added to Social Security and the benefit was increased to account for the cost-of-living allowance (COLA). In 1956, disability benefits were added.

Later, early retirement for women at age 62 was permitted. At that time, payroll taxes cost a participant about 4% of his or her paycheck. In 1961, early retirement for men at age 62 was allowed. Payroll taxes rose to 6% to pay for it.

In the 1965, Lyndon B. Johnson signed the Medicare Act into law which made the Social Security Administration provide health care to beneficiaries aged 65 or older.

As the Social Security Program continued to grow in size, participants, and complexity, many began to wonder if it would be able to adequately support so many people.

In 1983, President Ronald Reagan signed a law to tax Social Security benefits in attempt to try and fix some of the problems with the system. In effect, President Reagan’s law created double taxation for Social Security participants – i.e. participants were taxed on the front end through their salaries and on the back end when they received their benefits.

By the 1980s, Social Security had grown so big that in 1985 the Social Security Trust Funds were moved out of the federal budget, so they could be tracked separately from the rest of the federal budget. And payroll taxes rose to over 11%.

Today, Social Security remains a hot topic. In particular, once the “Baby Boom” generation begins to retire (those born between 1946 and 1964) more and more people will be taking from the Social Security pool, rather than paying into it. If changes are not implemented by Congress to account for the high number of retirees, compared to working individuals, the Social Security system could go broke.