Social security: a program and policy history

Many of the federal and state programs that provide income security to U.S. families have their roots in the Social Security Act (the Act) of 1935. This Act provided for unemployment insurance, old-age insurance, and means-tested welfare programs. The Great Depression was clearly a catalyst for the Social Security Act of 1935, and some of its provisions--notably the means-tested programs--were intended to offer immediate relief to families. However, the old-age insurance program-the precursor to today's Old-Age, Survivors, and Disability Insurance, or Social Security, program-was not designed specifically to deal with the economic crisis of that era. Indeed, monthly benefit payments, under the original Act, were not scheduled to begin until 1942. In addition, from the beginning, the Social Security program has embodied social insurance principles that were widely discussed even before the onset of the Great Depression. The first four decades of the Social Security program were, in general, ones of expansion. In fact, the program was expanded even before it became truly operational. In 1939, amendments added child, spouse, and survivor benefits to the retirement benefits authorized by the 1935 Act. Those amendments also allowed for monthly benefits to begin in 1940. Although the program was not changed substantially during the war years and the initial postwar period, the 1950s were a transformational decade in the program's history: benefit amounts were increased substantially, coverage under the program became close to universal, and a new disability insurance benefit was offered. The 1960s witnessed additional growth in Social Security, but the most important development in social insurance occurred in health insurance, with the creation of the Medicare program in 1965. Legislative actions in the 1970s had profound effects on the Social Security program and, indeed, set the stage for many of today's reform debates. Large benefit increases, a new benefit formula that was erroneously generous, and other changes in the early 1970s created a situation in which annual program costs, as a share of gross domestic product, increased during a 12-year period from about 3 percent to 5 percent. In 1977, amendments to the Act corrected the flawed benefit formula and made other changes in the financing of the system to shore up the program. Thus, the 1970s represent a watershed in the program's history-program growth gave way to increasing concerns about the program's finances. Those concerns were reflected in the amendments to the Act in 1983, which were the last major changes to the program. These amendments, based largely on recommendations from a commission chaired by Alan Greenspan, adjusted benefits and taxes to address pressing near-term financing problems faced by the system. Although the Greenspan Commission focused to a large extent on short-range issues, the resulting reforms have generated large surpluses in the program and the buildup of a substantial trust fund. However, the looming retirement of the baby boomers and several other demographic factors will, according to projections, result in the exhaustion of the trust fund by 2042.