Social Security and Tax Reform

The single most important feature of the New Deal’s emerging welfare state was Social Security. An ambitious, far-reaching, and permanent reform, Social Security was designed to provide a modest income to relieve the poverty of elderly people. Only about 15 percent of older Americans had private pension plans, and during the depression corporations and banks often failed to pay the meager pensions they had promised. Corporations routinely fired or demoted employees to avoid or reduce pension payments. Prompted by the popular but impractical panaceas of Dr. Townsend, Father Coughlin, and Huey Long, Roosevelt told Congress that “it is our plain duty to provide for that security upon which welfare depends . . . and undertake the great task of furthering the security of the citizen and his family through social insurance.”

The political struggle for Social Security highlighted class differences among Americans. Support for the measure came from a coalition of advocacy groups for the elderly and the poor, traditional progressives, leftists, social workers, and labor unions. Arrayed against them were economic conservatives, including the American Liberty League, the National Association of Manufacturers, the Chamber of Commerce, and the American Medical Association. Enact the Social Security system, these conservatives and other Republicans warned, and the government will ruin private property, destroy initiative, and reduce proud individuals to spineless loafers.

The large New Deal majority in Congress passed the Social Security Act in August 1935. The act provided that contributions from workers and their employers would fund pensions for the elderly, giving contributing workers a personal stake in the system and making it politically invulnerable. When eligible workers reached retirement age, they were not subject to a means test to prove that they were needy. Instead, they had earned benefits based on their contributions and years of work. Social Security also created unemployment insurance that provided modest benefits for workers who lost their jobs.

Not all workers benefited from the Social Security Act. It excluded domestic and agricultural workers like Florence Owens, thereby making ineligible about half of all African Americans and more than half of all employed women—about five million people in all. The law also excluded employees of religious and nonprofit organizations, such as schools and hospitals, thereby rendering even more women and minorities ineligible.

Social Security provided states with multimillion dollar grants to help them support dependent children, blind people, and public health services. After the Supreme Court upheld Social Security in 1937, the program was expanded to include benefits for dependent survivors of deceased recipients. Although the first Social Security check (for $41.30) was not issued until 1940, the system gave millions of working people the assurance that, when they became too old to work, they would receive a modest income from the federal government. This safety net protected many ordinary working people from fears of a penniless and insecure old age.

Fervent opposition to Social Security struck New Dealers as evidence that the rich had learned little from the depression. Roosevelt had long felt contempt for the moneyed elite who ignored the suffering of the poor. He looked for a way to redistribute wealth that would weaken conservative opposition, advance the cause of social equity, and defuse political challenges from Huey Long and Father Coughlin. Roosevelt charged in 1935 that large fortunes put “great and undesirable concentration of control in [the hands of] relatively few individuals,” He urged a graduated tax on corporations, an inheritance tax, and an increase in maximum personal income taxes. Congress endorsed Roosevelt’s basic principle by taxing those with higher incomes at a somewhat higher rate.