A History of Social Security
In 1935, with the country mired in an economic depression (The Great Depression), President Franklin D. Roosevelt signed into law the Social Security Act and the creation of the Social Security retirement program. While this fact is widely known among our current congressional leaders, the purpose for Social Security and its creation seems to have been lost.
Before Social Security, most American workers were on their own with regard to retirement. Many larger companies had instituted defined benefit retirement plans as a means to attract and retain workers. But those employed in small to medium sized businesses or those self-employed had no employer sponsored retirement plans available. Personal savings was the only hope of retirement for most Americans.
When the stock market collapsed in 1929 throwing America into an economic depression, millions of Americans lost their savings and along with them that hope of retirement. However, their losses were not sustained in the stock market. The fact is, few Americans owned stocks at that time; among individuals stock ownership was for the most part something only the wealthy had.
Most Americans at that time kept their savings in the banks and insurance companies. Most of the banks, especially the larger ones, were heavily invested in the stock market and immediately following the stock market crash the vast majority of banks in this country closed their doors. Many did so only temporarily, but many others permanently and taking with them the personal savings of millions of Americans.
A fact often overlooked today is that few insurance companies failed; and because of the practice of reinsurance, very few policyholders lost any money. In fact, it was the insurance industry that lent money to the banks enabling them to reopen their doors.
Many companies became bankrupt and closed their doors. Unemployment soared, reaching nearly 30% by 1933. And, since many of the reserves of the defined benefit plans of these companies was invested in the stock of the company, workers not only lost their jobs, they lost their retirement benefits as well.
Many of those who had been retired and lost their savings and/or retirement benefits were now competing along with those who lost their jobs for employment. To help restore a sound economy President’s Hoover and Roosevelt passed several acts designed to put America back to work and restore confidence in the American financial markets.
To help attract investment into the markets and prevent a re-occurrence of the events that led to the Great Depression, the financial markets were segregated. Banking was placed under federal and state jurisdiction as was investments. Insurance remained subject to state regulations and business opportunities/franchises were placed under federal jurisdiction; 9 states adopted similar laws regulating such.
The purpose of segregation was to prevent the ills of one sector from being visited upon the others. In addition, a number of government back and regulated insurance funds were created to help restore confidence in the markets and protect future savings and investments. FDIC to protect bank deposits, FSLIC to protect deposits in Savings and Loans, SIPC to protect investors (protects investors against fraud only, not market risks) and every state operates a guaranty fund to protect insurance policyholders.
Social Security was created to serve several purposes:
- To immediately provide supplemental income to those over the age of 65 to hopefully enable many to return to retirement and free up jobs for the younger and more able bodied;
- Create a defined benefit plan that would cover every American worker…a plan that they could count on to supplement their retirement income needs; and
- The contributions to this program, levied as a tax on wages, was set at a rate higher than necessary to meet the current benefit payment requirements in order to create reserves to both assure that future benefits would be paid and to give the government money it needed to help pay for the public works programs.
It was these public works programs that not only restored our economy, they provided infrastructure that improved the quality of life for Americans and the means to attract new business. These projects brought improvements in water, sewage, drainage, transportation and power…expanding their availability and making them more reliable and affordable.
Today our infrastructure is in decay, many of our factories have closed and our jobs are being outsourced to China, India, Philippines and other countries where labor is cheaper. Through holding companies our financial markets have once again become intertwined and we find ourselves in the midst of the worst economic situation since the Great Depression…so severe that it has been dubbed The Great Recession. It’s true, history repeats itself!
And now, after outsourcing American jobs the corporations and Wall Street are pressuring Congress to give them the savings of the American workers…they want to privatize Social Security. Shame on us if we let them.
The privatization of Social Security will be the beginning of the end of America’s reign as the greatest economy in the world. Therefore, I offer you an alternative. A plan that will not only restore financial health to Social Security without raising taxes, reducing benefits or privatization. A plan that not only will restore health to Social Security, but create jobs rebuilding the American infrastructure and restoring health to the American economy in the process. It worked before, it will work again!
Social Security is not the problem; it’s the solution to the problem. Please read Saving Social Security – A Commonsense Solution and join me in demanding of Washington that such a plan is implemented.
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The Official Website of the U.S. Social Security Administration.
Official information about the APT Tax.
The AARP Official Website.
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