Arthur J. Altmeyer

Progress and Prospects Under the Social Security Act

An Address
By A. J. Altmeyer, Chairman, Social Security Board
Before the National Conference of Social Work
Indianapolis, Indiana

May 25, 1937

Especially noteworthy in this speech is Altmeyer's discussion of the issue of pay-as-you-go financing versus the reserve funding of the 1935 Act. In the context of this period in Social Security's development this was an intense partisan issue. Conservative opponents of the new program were opposed to the development of a trust fund to finance future benefits. They argued for a pay-as-you-go system, which meant, to them, a system financed by general tax revenues and tied to financial need, i.e., a more traditional welfare system. So the debate between pay-as-you-go and reserve financing, in 1936-1937, was a debate between traditional welfare programs and the new approach of social insurance.

The decisions handed down yesterday by the United States Supreme Court completely validate the unemployment compensation and Federal Old-Age Insurance provisions of the Social Security Act. These decisions are most gratifying to those who have worked so long and so hard in promoting social legislation. However, the real job of providing social security for the people of this country is a long way from being finished. A great responsibility rests upon the Federal officials and the State officials charged with the administration of the various provisions of the Social Security Act to so administer those provisions as to accomplish their high purpose of bringing real security to the people of this country. A responsibility also rests upon us to improve and extend the provisions of the Social Security Act as greater knowledge and experience shall indicate is wise and necessary.

Today it is possible for the first time in the history of this Conference--or, for that matter, in the history of this country- -to report on a full year's progress under a nation-wide program for social security. Although we have not yet found answers to all the questions that have been raised by your discussions --and by our own-- we have come a long way in a very short period of time. Passed in August, 1935, and effective when funds became available in February, 1936, the Social Security Act has now been in operation a year and three months.

We have come a long way in aiding the needy. Through making the Federal government a partner with the States and their local communities, the act has brought public assistance on a sustained basis to more of those who need it and in more adequate amounts than ever before. You know better than I what conditions were before Federal aid became available. In part because of this desperate need, public assistance was one of the first provisions of the act to get under way. When the first Federal grants were made in February, l936, 21 states were participating in one or more of the three programs--aid to the needy aged, the needy blind, and dependent children --and about 326,000 individuals received assistance during that first month. From that time on both the number of participating States and the number of individuals aided have steadily increased. Today 43 States are cooperating in one or more of these programs, 26 in all three. Over the same period there has been more than a fivefold increase in the number of individuals aided, according to estimates for May which show a total of 1,700,000.

We have also come a long way in protection against want during temporary unemployment. In February 1936 only eight States had unemployment compensation laws approved under the Social Security Act and no State was yet paying benefits under such a law. Today 45 States, the District of Columbia, and Alaska have unemployment compensation laws and it is estimated that more than 18,600,000 workers are now employed in jobs covered by these 47 laws. In Wisconsin, the only State to enact an unemployment compensation law before the introduction of the Social Security Bill, benefits began to be payable in July, 1936. Benefits in 29 additional States are scheduled to take effect in 1938, and in the remainder in 1939.

We have come a long way, too, in insuring the American people for the future against dependency in old age. The Federal Old-Age Insurance program-- which in point both of magnitude and of social significance is perhaps the most important section of the entire act --went into effect, according to schedule, on last January 1. A year ago the spade work of planning its administration was already going forward, but to the public the whole program was still a mere matter of speculation. Since last November, when application forms began to go out, over 27,500,000 men and women have been assigned benefit accounts. Through these accounts workers in our major commercial and industrial occupations can build up credits which will entitle them to monthly payments after they are 65 and retire.

These are the provisions of the act for which the Social Security Board is responsible, and to these my discussion will be confined. Rather, since time is limited, my discussion will be confined to a few "high spots" which seem to me, for one reason or another, of special significance at the present stage of development. But before going on to these, to round out the picture I must add that the public-health program is in operation in all the States and that vocational rehabilitation and the three maternal and child-welfare services are progressing at practically the same pace. In every State in the Union at least six of the act's ten provisions are already in operation, and in most the number of provisions in operation is still higher. It will be years before we can estimate the full effect of the Social Security Act but it is clear that it will not only reduce the general relief load but also--and this is even more significant - -help to swing our attack on the whole problem of insecurity from a negative to a positive approach.

Our first great task has been accomplished--the act is working. Through the recent action of the State legislatures which did not meet until 1937, State participation is going forward rapidly. But passing laws is only, as it were, the "curtain-raiser" in the evolution of such a program. It is already possible to distinguish at least three phases of this evolution, each with its distinctive emphasis - first, the double-barreled job of setting up administrative machinery and getting it into motion almost simultaneously; second, the development and integration of administration and of services within the present framework; and third, further expansion to liberalize existing provisions. These phases are not mutually exclusive; we do not complete one before we begin another. Though the initial phase of setting up State plans was the major task of the first year, it is still in process. Though the second phase of consolidating the gains --with the emphasis on quality rather than quantity--is now well under way, it will continue for months and even years. And though the third phase of further expansion is for the most part still in the future, some advances have already been made.

This overlapping process of evolution may seem slow and uneven, but more would almost certainly be lost than gained by attempting to short-cut it. Patience is a virtue which those who labor for social legislation can no more afford to neglect than foresight.

The policy of the Social Security Board has been conceived to facilitate, in so far as possible, these progressive phases in the development of the Social Security Act. In view of the fact that Federal cooperation was imperative if the States were to make these benefits and services available, the Board has been liberal in its interpretation of State conformity to the terms of the act, and has sought to give the States all possible aid in making a beginning. At the same time, it has organized competent field staffs under its Bureaus of Public Assistance and of Unemployment Compensation to work with the States, at their request. The Board is not interested in--nor does it believe the Social Security Act implies--the overhead imposition of rigid requirements; its objective is, rather, the development of comprehensive, well-rounded social security programs, both State and national.

The Board has, for example, consistently pointed out that public assistance cannot be divorced from the total welfare program in any State; that, indeed, there is a very real danger of promoting these services at the expense of other equally essential welfare measures. In most States--including 15 which have just recently passed the necessary legislation --a single State agency now administers all the State's non-institutional welfare activities, both those for which the State alone is responsible and also the Federal-State programs. So also, the same agency administers unemployment compensation and other labor legislation in 22 States, and in three others the agency administering unemployment compensation and that administering other labor laws have an interlocking membership. Although not even the soundest administrative plan can of itself solve all the problems of State coordination, these developments indicate a definite trend toward more effective integration in both public welfare and labor law administration.

Though coordination is essential within each State, this is only the first link in a far-reaching network of cooperation. In a country five times the size of England, France, Germany, and Italy combined there are bound to be divergent social and economic conditions and needs. The issue of security in the United States, is, to be sure, national; but it will not necessarily raise identical problems in all parts of the nation. Yet to admit that it has local aspects is not to assume that these can ever be dealt with as merely provincial. Because our problem is twofold, we must never forget that uniformity is not the same as equality; that there is as little equity in treating unlike problems in the same way as in treating similar problems differently. This offers ample justification for the cooperative Federal-State system embodied in the Social Security Act.

No one --least of all any of us connected with the administration of the Social Security Act--would attempt to minimize either its interstate problems or its Federal-State problems. The Social Security Board acts as a clearing house for information gathered by the States in the operation of their own laws and places all the facilities of its Washington headquarters and its 12 regional offices at the service of the States. It believes that this pooling of experience offers the soundest basis for defining and establishing both the vertical lines of Federal-State cooperation and the equally necessary horizontal lines of interstate cooperation.

Meantime, in addition to working with the States in these cooperative programs, the Board has begun administering the one part of the act for which the Federal Government is directly responsible--the Federal Old-Age Insurance system. In cooperation with the Post Office, the Board has completed the preliminary handling of applications for benefit account numbers. It has worked out a simple and efficient system which enables it to set up individual accounts for every covered worker. It has taken steps to safeguard the confidential nature of these personal records; and it has established field offices to bring the program as close as possible to the people. Because of the size and complexity of this job, the Board has moved slowly, attempting wherever possible to try out methods before final adoption. Progress to date seems to indicate that this policy has been well warranted.

All these efforts to devise efficient administrative mechanisms at every level, and to gear the interlocking parts of the machinery for effective cooperation, are outstanding characteristics of this second phase of the social security program. But a still more significant trend has to do with the people who are called upon to man this administrative organization. The Social Security Board believes--as I know you do--that in its effects upon the long-term success of social legislation, the issue of competent personnel is second to none. The Board has stood definitely for appointment on an objective merit basis, both in recruiting its own staff and in making recommendations to the States. Less than 5 per cent of its own employees have been appointed other than from Civil Service registers, and all of these excepted appointments have been approved by the Civil Service Commission. But the Board harbors no illusions regarding the personnel difficulties in a pioneer undertaking like the Social Security Act. Even on the Federal level it is far from easy to assemble a complete staff of high caliber for a new agency operating in fields where relatively few people with specific experience are available. Difficult at best, in many States the problem is further complicated. Few of the States have civil service, and in many parts of the country any "merit system" is still regarded as an innovation.

The development of effective administration places an obligation upon everyone who believes in social legislation --and who believes that sound training, practical experience, mature judgment, and all-round competence are essential to its success. The profession of social work has already made major contributions to our understanding of public welfare administration--its techniques and skills, its objectives and fundamental philosophy; it has already given the country some of its outstanding leaders in allied fields as well. The future, even more than the past and the present, will compel us to clarify our own thinking, to develop our own capacities and, by the character of our own work, to interpret the meaning of a social security program to all the people. But the problem of administration can never remain a charge upon any special group. Fundamentally, it is the responsibility of the whole nation; for no government, and in particular no democracy, can legislate effectively beyond its capacity to administer.

We have enacted more social legislation in the last year and a half than we enacted during the preceding quarter of a century, but the program is by no means perfect or complete. Already the process of legal amendment, both on the State and the Federal level, has begun. Twenty-two States have recently passed amendments to their unemployment compensation laws; 20 States with approved public assistance plans have amended the law on which these plans are based; and public assistance amendments in a number of other States are in various stages of development. The majority of these are intended simply to facilitate the operation of existing provisions. A few, however, represent a definite trend toward further expansion. One of the most important issues before the States today, since some of them are already moving toward this third phase of development, is to weigh the responsibilities of administration and of financing which this development entails.

Following out the charge placed upon it by the Social Security Act, the Social Security Board has been studying the Federal law with the purpose of considering such changes as may be found advisable. In this connection the Board has taken the position that, since we are still in the pioneer stages of this great enterprise, it is sound policy to make haste slowly. The proposals which the Board has been studying with a view to immediate action are therefore largely for the purpose of simplification and clarification, and relate to matters of immediate concern regarding which there seems to be rather general agreement.

The Board does, however, definitely favor the liberalization of existing provisions in so far as our experience and present circumstances seem to warrant. And with this purpose in view it has been studying the possibility of certain modifications relating to both taxation and coverage.

Because of the considerable discussion that has occurred relative to the "pay-as-you-go" plan as compared with the "reserve" plan for financing the Federal Old-Age Insurance system, I feel that I should say a word about this problem. I am afraid that these expressions have become pretty largely catch-words. This is unfortunate because their use results in an over-simplification of a very complex problem. It is no more helpful to say that a person believes in the pay-as-you-go system than to say that the person believes in the law of supply and demand. Both statements are so general that they are of no value whatsoever in dealing with a specific case. An added danger in the use of the term pay-as-you-go lies in the fact that its meaning in this connection is exactly the opposite of its traditional meaning. The term pay-as-you-go has traditionally been used to mean that a government meets its currently accruing obligations as those obligations are incurred. However, the meaning of the phrase as it relates to the Federal Old-Age Insurance plan is that the government does not meet its currently accruing obligations as they accrue.

As a matter of fact, there is very little difference between the pay-as-you-go and the reserve systems in so far as the next few years are concerned. Violent disagreement arises, however, when the respective advocates undertake to project their imagination to the distant future, two generations hence, when in the nature of the case it is impossible to properly assay the conditions that will then be prevailing. This disagreement arises to a large extent out of the almost inevitable tendency of the human mind to discuss the future as if it were the present. A second important reason for this violent disagreement is that the respective advocates fail to come to grips as to whether or not they would apply the pay-as-you-go system before or after there is practically universal coverage, the pay-as-you-go advocates apparently assuming universal coverage as an accomplished fact. The significance of the extent of coverage lies in the fact that unless the system operates on the reserve principle, either the future payroll taxes must ultimately increase to a figure double that now contemplated or there must be a substantial government subsidy, which means in effect that the uncovered portion of the population pays for a part of the cost of insuring the covered population.

It is entirely possible that the controversy between the pay-as-you-go advocates and the reserve advocates may become of only academic interest because of the fact that we may achieve more nearly universal coverage before there is any practical difference in the application of the two plans. Moreover, if we start monthly benefit payments sooner, pay such benefits in more liberal amounts during the early years, add survivors' benefits and benefits for permanent total disability, we would be hard put to it to finance these benefits under even the existing tax rates. However, there is this real difference between pay-as-you-to advocates and the reserve advocates. The pay-as-you-go advocates would collect less money in payroll taxes in the early years of the system than the reserve advocates.

It is absolutely vital to recognize clearly that if we adopt a pay-as-you-go system either before or after we have been able to achieve universal coverage, we must bear in mind the effect on our entire tax structure and government budget. To be concrete, if we adopt the pay-as-you-go system, we must make absolutely certain that at the same time we not only balance the budget but proceed to retire the government debt within the next generation through the imposition, let us hope, of progressive taxes, in order that we do not reach a period in the future when the burden of the interest charges on a large public debt and the burden of a large government subsidy to the Federal Old-Age Insurance plan cannot be sustained through current taxation.

No one realizes more clearly than the Social Security Board that possible amendments now under consideration represent only the first beginnings in a long slow process of growth and development. And no critic of the Social Security Act recognizes its imperfections and limitations more fully than those of us who are closest to it. The Social Security Board can call the roll of all its problems--problems of Federal-State and interstate cooperation; of administration and personnel; of extending protection to groups not yet covered; of adequate and sound financing, both present and future; and finally of exploring the possibilities of social legislation in directions as yet untried, at least in this country. There is no responsibility which it takes more seriously than the duty, placed upon it by the act itself, of studying and making recommendations to Congress, not only within the scope of the present act, but also in the whole field of social security legislation. Because it recognizes the magnitude of the task before it and before the nation, and because it believes profoundly that no program of social legislation is ever complete or final--that, indeed, in social legislation to "finish" would be to fail --the Board has no sense of apology either for the Social Security Act in its present form or for the admission that it is open to amendment.

It subscribes--as I believe you do--to the faith of a great American who on this point has said: "Concessions of friends of the plan that it has not a claim to absolute perfection have afforded no small triumph to its enemies. 'Why,' say they, 'should we adopt an imperfect thing? Why not amend it and make it perfect before it is irrevocably established?' This may be plausible enough, but it is only plausible. In the first place, the extent of these concessions has amounting to an admission that the plan is radically defective and that, without material alterations, the rights and the interests of the community cannot be safely confided to it. This.... is an entire perversion; for no advocate of the measure can be found who will not declare.... that the system, though not perfect in every part, is upon the whole a good one; is the best that the present views and circumstances of the country will permit,.... In the next place, I should esteem it the extreme of imprudence to prolong the precarious state of our national the chimerical pursuit of a perfect plan. I never expect to see a perfect work from imperfect man.."

The "imperfect thing" in behalf of which Alexander Hamilton wrote this vindication was the Constitution of the United States. Time has proved his wisdom--and will prove it again. The Social Security Act, like the Constitution, may be imperfect; yet it, and other efforts like it in the days to come, will contribute their full measure to the often halting but never ending struggle toward social progress.