The elderly also required immediate relief and insurance in a country that lagged behind the rest of the industrialized world in helping its aged workforce. In August 1935, the president rectified this shortcoming and signed into law the Social Security Act. The measure provided that at age sixty-five, eligible workers would receive retirement payments funded by payroll taxes on employees and employers. The law also extended beyond the elderly by providing unemployment insurance for those temporarily laid off from work and welfare payments for the disabled who were permanently out of a job as well as for destitute, dependent children of single parents.
The Social Security program had significant limitations. The act excluded farm, domestic, and laundry workers, who were among the neediest Americans and were disproportionately African American. The reasons for these exclusions were largely political. The president needed southern Democrats to support this measure, and as a Mississippi newspaper observed: “The average Mississippian can’t imagine himself chipping in to pay pensions for able bodied Negroes to sit around in idleness.” The system of financing pensions also proved unfair. The payroll tax, which imposes the same fixed percentage on all incomes, is a regressive tax, one that falls hardest on those with lower incomes. The regressiveness of the tax proved to be an additional handicap for immediate economic recovery because the tax payments took purchasing power out of the hands of workers, whereas pension payments would not begin for several years. Social Security also disadvantaged working women, who on average earned less than men; nor did it take into account the unpaid labor of women who remained in the home to take care of their children.
Even with its flaws, Social Security revolutionized the expectations of American workers. It created a compact between the federal government and its citizens, and workers insisted that their political leaders fulfill their moral responsibilities to keep the system going. President Roosevelt recognized that the tax formula might not be economically sound, but he had a higher political objective in mind. He believed that payroll taxes would give contributors the right to collect their benefits and that “with those taxes in there, no damn politician can ever scrap my social security program.” Social Security also helped create a larger middle-class constituency for Roosevelt and the Democratic Party.