This Day in History: FDR Signs Social Security Act
The Social Security Act was signed by FDR as part of his New Deal. Social Security taxes were collected for the first time in January 1937 and the first one-time, lump-sum payments were made that same month. Ernest Ackerman was the first person to receive Social Security. He got a lump sum payment of 17 cents. In December 1939, monthly payments began.
Originally intended as a retirement benefits payment to primary workers, the law was amended in 1939 to include survivors benefits and benefits for the retiree's spouse and children. Disability benefits were added in 1956.
The original law contained the first national unemployment compensation program, aid to the states for various health and welfare programs, and the Aid to Dependent Children program.
Social Security today is paid by a payroll tax of 12.4 percent, half paid by workers and half paid by employers. Social Security is in a separate account from the government's overall budget so when its income exceeds its expenses, by law it must lend its surpluses to the general fund of the U.S. Treasury. The Treasury must pay this money back to the Social Security program with interest, however, the unpaid debt owed to Social Security is $2.789 trillion.
As of now, Social Security faces insolvency in 2034, as 10,000 retiring Baby Boomers per day shift from paying taxes to collecting benefits. At the end of 2015, 60 million people were receiving benefits, and the income is expected to exceed expenses through 2019. Social Security's Board of Trustees say it will be earning less than it spends beginning in 2020. If current interest payments on the fund are eliminated from the calculation, then Social Security is not earning more than it costs, and hasn't since 2010.
To be "solvent," Social Security has to have more money in tax revenue than it will pay out in benefits over the next 75 years. According to Social Security Board of Trustees,
For the ... Trust Funds to remain fully solvent throughout the 75-year projection period: (1) revenues would have to increase by an amount equivalent to an immediate and permanent payroll tax rate increase of 2.58 percentage points to 14.98 percent, (2) scheduled benefits would have to be reduced by an amount equivalent to an immediate and permanent reduction of about 16 percent applied to all current and future beneficiaries, or about 19 percent if the reductions were applied only to those who become initially eligible for benefits in 2016 or later; or (3) some combination of these approaches would have to be adopted.
What should be done to keep Social Security solvent? Follow the Pursuit of Happiness and leave a comment.