|
|
| 1965
Advisory Council on Social Security |
| Introduction |
A generation ago the United States established a system of contributory
social insurance providing protection against the loss of earnings
due to retirement in old age. Under this system employees, together
with their emp]oyers, and self-employed persons make contributions
during their working years and receive a continuing income for themselves
and their families when they no longer have income from work.
As enacted in 1935 this social security program was limited to the
risk of retirement in old age, and it was limited in coverage to industrial
and commercial employees. Today, the program covers practically all
kinds of employment and self-employment, and provides benefits for
the wives and children of retired workers as well as for the retired
worker himself. It provides benefits, also, for survivors of deceased
workers and for totally disabled workers and their dependents when
the disability is expected to be of long-continued and indefinite
duration. Over the years the program has been improved and broadened
in other ways as well. From time to time benefits have been increased,
and other adjustments have been made, to take account of social and
economic change and to improve the protection provided.
For the vast majority of Americans this Federal program of social
secunty gives assurance that old age, total disability or death will
not mean the end of a regular family income. Some 20 million men,
women and children--1 out of 10 Americans--are receiving social security
benefits every month. During 1964 about 77 million earners paid social
security contributions. Nine out of ten children and their mothers
can look to the program for a regular income if the head of the family
should die. Over 85 percent of the people past 65 are either getting
benefits or will be entitled to benefits when they or their husbands
retire. About 53 million workers have now worked long enough in covered
employment so that they and their families have disability insurance
protection.
The Council strongly endorses the social insurance approach as the
best way to provide, in a way that applies to all, that family income
will continue when earnings stop or are greatly reduced because of
retirement, total disability or death. It is a method of preventing
destitution and poverty rather than relieving those conditions after
they occur. And it is a method that operates through the individual
efforts of the worker and his employer, and thus is in total harmony
with general economic incentives to work and save. It can be made
practically universal in application, and it is designed so as to
work in ongoing partnership with voluntary insurance, individual savings,
and private pension plans.
Under the social security program the right to benefits grows out
of work; the individual earns protection as he earns his living, and,
up to the maximum amount of earnings covered under the program, the
more he earns the greater is his protection. Since, unlike relief
or assistance, social security benefits are paid without regard to
the beneficiary's savings and resources, people can and do build upon
their basic social security protection and they are rewarded for their
planning and thrift by a higher standard of living than the benefits
alone can provide.
The fact that the program is conttibutory--that employees and self-employed
workers make contributions in the form of earmarked social security
taxes to help finance the benefit--protects the rights and dignity
of the recipient and at the same time helps to guard the program against
unwarranted liberalization. The covered worker can expect, because
he has made social security contributions out of his earnings during
his working lifetime, that social security benefits will be paid in
the spirit of an earned right, without undue restnctions and in a
manner which safeguards his freedom of action and his privacy. Moreover,
the tie between benefits and contributions fosters responsibility
in financial planning; the worker knows that improved benefits mean
higher contributions. In social insurance the decision on how to finance
improvements is always an integral part of the decision on whether
they are to be made.
Because of these characteristics of social insurance the Council believes
that where it can be properly applied it is much to be preferred to
the method of public assistance, with its test of individual need,
and the Council therefore strongly favors the improvement of social
insurance as a way of reducing the need for assistance. The Council
recognizes the need for an adequate public assistance program, but
it believes that assistance should play the role of a secondary and
supplemental program designed to meet special needs and circumstances
which cannot be dealt with satisfactorily by other means.
No matter how well designed and administered, assistance has serious
inherent disadvantages in terms of human dignity and incentives to
work and save. People view receipt of assistance as meaning a loss
of self-support. In contrast, they view social insurance as an extension
of self-support. People who have led productive lives and have supported
themselves through their own efforts do not want to see their self-reliance
end with their ability to work.
Moreover, applying for assistance is at best a negative experience.
Eligibility for assistance depends upon the individual's asking the
community for help and proving that he is without the resources and
income to support himself and his family. On the other hand, under
social insurance the individual proves, not that he lacks something,
but that he has worked and contributed, and has thus earned a right
to a benefit.
In all its considerations a primary concern of the Council has been
the financial soundness of the program. Clearly, no change in the
program should be made, and no present trend should be permitted to
continue, if the result were to jeopardize financial soundness in
any way. In the light of this primary concern, the Council has undertaken
to assure that the financing will be sufficient to meet all benefit
and administrative costs as they fall due.
The Council has also considered the economic impact of the program.
In important respects the program supports consumer demand and helps
to prevent deflation. Because of social security, 20 million retired
people, disabled people, widows and orphans now have an assured regular
income which, of course, continues undiminished even when other segments
of consumer income decline. Moreover, the program operates automatically
to compensate in part for the loss of income arising from the higher
rate of retirement that occurs when the general level of employment
declines.
The Council is concerned, however, about the deflationary effect of
the present contribution schedule in the years just ahead. Under that
schedule there would be a shift from an approximate balance of income
and outgo in 1965 to an annual rate of trust fund accumulation of
about $4 billion beginning in 1968. The Council recommends a large
reduction in the size of these accumulations.
The Council is concerned also that in both the short run and the long
run, the economic impact should be reasonable--and should he capable
of being absorbed by the economy and by the employee, employer and
the self-employed without undue burden or strain. For this reason
the Council is recommending that needed increases in both the contribution
rate and the contribution and benefit base be put into effect gradually
so that there will not be large changes in the level of contributions
at any one time.
The Council's major recommendation in the pages that follow is for
the extension of the program so that workers (and their employers)
and the self-employed will make contributions during their working
years in order to have protection against the cost of hospital care
and related services in old age or in the event of permanent and total
disability. The Council believes that the time has come to apply the
method of social insurance to this pressing problem in order to assure
the continuing effectiveness of retirement protection. While social
security cash payments, if adequate, can assure that the older person
and his family, or the disabled person and his family, will be able
to meet regularly recurring, budgetable costs of food, clothing and
shelter, they cannot in practice be made sufficient to replace the
need for insurance protection against the large and uncertain costs
of hospital care. If our social insurance system is to be truly effective
in preventing both dependency and the fear of dependency, the system
must be broadened to include hospital insurance for the aged and the
totally disabled. Otherwise more and more of these people will have
to turn for help to public assistance with all the disadvantages that
this has for them and for society as a whole.
The Council is also concerned that the social security cash payments
be made more adequate and, particularly, that the system take into
account increases in prices and earnings levels that have occurred
since the last time major revisions were made in the benefit provisions.
One of the strengths of social insurance is its ability to adjust
to changing economic conditions so that retired and disabled persons
and survivors can share on a reasonable basis in the increasing productivity
of our economy.
Other major recommendations of the Council relate to the way in which
the social security program is financed, the maximum amount of annual
earnings taxable and creditable toward benefits under the program
(the contribution and benefit base) and the level of benefits and
extensions of coverage.
The Council's recommendations, together with the considerations which
prompted them, are presented in three parts. Part I presents the Council's
findings with respect to the financing of the social security program,
assuming no changes in the benefit and coverage provisions. Part II
presents recommendations for an extension of the program to help meet
the cost of hospital care and related services for the aged and the
totally disabled. Part III of the report presents the Conneil's recommendations
for improving the cash benefit provisions, extending the coverage
of the program and financing the recommended changes.
|
|