The history of Social Security

By George Garza
Info Guru, Catalogs.com

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A variety of proposals have been put forth to increase the size of the retirement fund, to increase its payout, and to have more people participate in it
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Where did social security originate from?

The history of social security begins in Europe. Read on to discover the fascinating facts behind the history of social security.

Social Insurance in Europe: Germany and Bismarck

In the early 1880s the conservative German Chancellor Otto von Bismarck was motivated to introduce social insurance in Germany both in order to promote the well-being of workers in order to keep the German economy operating at maximum efficiency, and to stave-off calls for more radical socialist alternatives.

Germany became the first nation in the world to adopt an old-age social insurance program in 1889. Bismarck put forth the idea 1881 to Germany's Emperor, William the First, who in turn introduced the notion to the German Parliament. William wrote: ". . . those who are disabled from work by age and invalidity have a well-grounded claim to care from the state."

Social Insurance in the United States: The Civil War

Still the idea of a social security program in the US was introduced years earlier. Civil War veteran pensions were the first widespread program of social security in the United States. The Civil War had left many soldiers as disabled veterans. At the beginning Union veterans, who had sustained battlefield injuries and were disabled, or the widows of the soldiers, were given the pension payments. Confederate veterans and their families were excluded. Later, this pension program was expanded to include all Union soldiers, regardless of whether they had sustained injuries or not.

But the growing size of the pension population became a significant problem. Once the program was expanded, it became so huge that by 1894, for example, more than one third of the federal budget went toward military pensions. It was because of this size that efforts to expand to non-military recipients were stalled, as no way of funding it seemed feasible or possible.

Social Insurance in the United States: The Great Depression

The next significant event in the development of a social insurance system was in the 1930s, when America reeled under the effects of the Great Depression. Although the focus was on helping the elderly and poor, so that they could survive independently, the stability of the country was also at stake. Millions of Americans had lost their jobs or had no avenue of earning enough money to support their families. Social decay was possible, so it was in 1932, that Franklin Roosevelt as President of the United States advocated an idea which was referred to as social insurance. Eventually, this idea developed into the social security system that is in existence today.

In 1934, the Committee on Economic Security, or the CES, was formed at the behest of Franklin Roosevelt. This committee, made a plan that allowed workers to put a small percentage of their wages into an aggregate account. Later, on retiring, they would be able to withdraw the money from that account to take care of their monthly expenses.

The Social Security Act 1935

The Social Security Act of 1935 was an omnibus act, creating a variety of programs to serve many groups of citizens. But the Act takes its name from the social insurance program which was designed to pay retired workers age 65 or older a continuing income after retirement.

Modifications and Expansions

In 1939 benefits were extended to surviving spouses and minor children. In the 1950s additional changes were made to Social Security's participant base. It also increased the benefit, which included the first cost of living increase (COLA) since 1940. In 1972 the law was modified to provide a COLA each year based on the annual increase in inflation.

Medicare Insurance was added in the 1960s which provided healthcare to Social Security beneficiaries aged 65 or older under the Medicare Act. 

Problems and Solutions

Two problems began to appear in the 1980s. People were living longer, and hence collecting Social Security benefits longer. Also, the ratio of the number of contributors to the number of recipients to the fund dropped. Worries about the financial health of the Social Security System began in earnest in the 1980s.

In 1983, President Reagan signed new provisions into law which included raising the retirement age starting in 2000; taxing Social Security benefits, extending coverage to federal employees, and increasing the reserves in the Social Security Trust Funds.

In 2000, President Clinton signed "The Senior Citizens' Freedom to Work Act of 2000." This eliminated the Retirement Earnings Test (RET) for beneficiaries above the retirement age. Nine hundred thousand people who were collecting benefits but also working would not have their benefits reduced.

A variety of proposals have been put forth to increase the size of the retirement fund, to increase its payout, and to have more people participate in it. The modification to the system is a political hot-potato, and it is very hard to make significant changes to the system now.

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