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Democrats made impressive gains in the midterm elections of 1934, which President Franklin D. Roosevelt interpreted as a popular mandate for the New Deal that he had launched upon taking office in 1933. In 1935, therefore, he placed before Congress a series of measures on a wide variety of subjects in what has become known as the “Second New Deal.” Perhaps the most important of these was the Social Security Act, which provided for unemployment insurance and old-age pensions to be paid through a six percent payroll tax divided between employers and employees. The revenues generated from these payroll taxes would be more than sufficient to provide for the current elderly; the surplus would be deposited in a special fund that would – theoretically, at least – maintain the program in perpetuity. Other aspects of the plan directed that federal money would also be passed along to the states to support assistance programs for the blind, the disabled, and families with dependent children. While the benefits to the elderly would be managed at the federal level by a Social Security Administration, unemployment insurance and other assistance programs would remain under the control of the states.
The Social Security Act appeared sufficiently moderate that it aroused little real opposition, except from a few die-hard conservatives such as Republican Representative James W. Wadsworth of New York, who feared that it would destroy incentives to work and save. Others claimed that the proposed payroll tax was excessive; not only would it retard recovery, but they feared that the resulting surplus might be used to fund other attempts at New Deal “social engineering.” In spite of such criticism the bill passed both houses by wide margins, and Roosevelt signed it into law on August 14, 1935.
Liberals felt the Act did not go far enough. They had hoped that the program would be funded from revenues generated by the income tax, so that it might redistribute wealth from rich to poor.
One of Roosevelt’s most prominent opponents on the left was Huey P. Long, who as a popular and reform-minded Democratic governor of Louisiana took on the oil industry and built a powerful state political organization. After being elected to the U.S. Senate (in 1930, although he did not take his seat until 1932), he used his national standing to issue frequent denunciations of the wealthy and the banking system. In 1932 he supported Roosevelt’s presidential campaign and supported most of the measures of the early New Deal. However, the personalities of the two men immediately clashed, and the New York patrician and the colorful, rural senator known as the “Kingfish” (after a character in the popular radio show Amos & Andy) came to loathe one another.
Long’s greatest complaint about the New Deal was that to his mind it did not go far enough in reducing the great inequalities of wealth in American society. In March 1933 he proposed a series of bills that would have seized all fortunes greater than $100 million, as well as all annual income in excess of $1 million. When these laws failed – as did, indeed, everything Long proposed as senator – he established a national organization called the Share Our Wealth Society. By 1935 the society boasted 27,000 chapters nationwide, with a total membership of 7.5 million. Long hoped to use this group as a launching pad for a presidential run in 1936; however, in September 1935 he was assassinated by the son of one of his many political enemies.
Social Security has been one of the most enduring legacies of the New Deal. Roosevelt insisted on funding Social Security through payroll taxes because it would give recipients “a legal, moral, and political right to collect their pensions and their unemployment benefits. With those [payroll] taxes in there, no damn politician can ever scrap my social security program.”
The program began paying out old-age benefits in 1940, when there were 159.2 taxpayers for every recipient. By 2013, however, according to the Social Security Administration, demographic patterns and longer life expectancy had changed the ratio to 2.8 taxpayers for every recipient. Without major changes, some have suggested that the Social Security system cannot remain solvent.
President Franklin D. Roosevelt, Speech to Congress on Social Security, January 17, 1935, The Public Papers and Addresses of Franklin D. Roosevelt, Volume Four, The Court Disapproves, 1935; with a special introduction and explanatory notes by President Roosevelt (New York: Random House, 1938), 43–46. Available at https://goo.gl/Q4526x.
In addressing you on June 8, 1934, I summarized the main objectives of our American program. Among these was, and is, the security of the men, women, and children of the nation against certain hazards and vicissitudes of life. This purpose is an essential part of our task. In my annual message to you I promised to submit a definite program of action. This I do in the form of a report to me by a Committee on Economic Security, appointed by me for the purpose of surveying the field and of recommending the basis of legislation. . . .
It is my best judgment that this legislation should be brought forward with a minimum of delay. Federal action is necessary to, and conditioned upon, the action of States. Forty-four legislatures are meeting or will meet soon. In order that the necessary State action may be taken promptly, it is important that the Federal Government proceed speedily.
The detailed report of the Committee sets forth a series of proposals that will appeal to the sound sense of the American people. It has not attempted the impossible, nor has it failed to exercise sound caution and consideration of all of the factors concerned: the national credit, the rights and responsibilities of States, the capacity of industry to assume financial responsibilities and the fundamental necessity of proceeding in a manner that will merit the enthusiastic support of citizens of all sorts. . . . can we get rid of the orphans
Three principles should be observed in legislation on this subject. First, the system adopted, except for the money necessary to initiate it, should be self-sustaining in the sense that funds for the payment of insurance benefits should not come from the proceeds of general taxation. Second, excepting in old-age insurance, actual management should be left to the States subject to standards established by the Federal Government. Third, sound financial management of the funds and the reserves, and protection of the credit structure of the nation should be assured by retaining Federal control over all funds through trustees in the Treasury of the United States.
At this time, I recommend the following types of legislation looking to economic security:
1. Unemployment compensation.
2. Old-age benefits, including compulsory and voluntary annuities.
3. Federal aid to dependent children through grants to States for the support of existing mothers’ pension systems and for services for the protection and care of homeless, neglected, dependent, and crippled children.
4. Additional Federal aid to State and local public-health agencies and the strengthening of the Federal Public Health Service. I am not at this time recommending the adoption of so-called “health insurance,” although groups representing the medical profession are cooperating with the Federal Government in the further study of the subject and definite progress is being made.
With respect to unemployment compensation, I have concluded that the most practical proposal is the levy of a uniform Federal payroll tax, 90 percent of which should be allowed as an offset to employers contributing under a compulsory State unemployment compensation act. The purpose of this is to afford a requirement of a reasonably uniform character for all States cooperating with the Federal Government and to promote and encourage the passage of unemployment compensation laws in the States. The 10 percent not thus offset should be used to cover the costs of Federal and State administration of this broad system. Thus, States will largely administer unemployment compensation, assisted and guided by the Federal Government. An unemployment compensation system should be constructed in such a way as to afford every practicable aid and incentive toward the larger purpose of employment stabilization. This can be helped by the intelligent planning of both public and private employment. It also can be helped by correlating the system with public employment so that a person who has exhausted his benefits may be eligible for some form of public work as is recommended in this report. Moreover, in order to encourage the stabilization of private employment, Federal legislation should not foreclose the States from establishing means for inducing industries to afford an even greater stabilization of employment.
In the important field of security for our old people, it seems necessary to adopt three principles: First, noncontributory old-age pensions for those who are now too old to build up their own insurance. It is, of course, clear that for perhaps 30 years to come funds will have to be provided by the States and the Federal Government to meet these pensions. Second, compulsory contributory annuities which in time will establish a self-supporting system for those now young and for future generations. Third, voluntary contributory annuities by which individual initiative can increase the annual amounts received in old age. It is proposed that the Federal Government assume one-half of the cost of the old-age pension plan, which ought ultimately to be supplanted by self-supporting annuity plans. . . .
The establishment of sound means toward a greater future economic security of the American people is dictated by a prudent consideration of the hazards involved in our national life. No one can guarantee this country against the dangers of future depressions but we can reduce these dangers. We can eliminate many of the factors that cause economic depressions, and we can provide the means of mitigating their results. This plan for economic security is at once a measure of prevention and a method of alleviation.
We pay now for the dreadful consequence of economic insecurity – and dearly. This plan presents a more equitable and infinitely less expensive means of meeting these costs. We cannot afford to neglect the plain duty before us. I strongly recommend action to attain the objectives sought in this report.