The Freeman 1972 - The Ludwig von Mises Institute

228 THE FREEMAN AprilThe Social Security Act becamelaw on August 4, 1935.Let us see first of all what happenedto the old-age provisions ofthat act. There have been constantadditions and expansions of benefits.The act was overhauled asearly as 1939. Coverage was broadenedsubstantially in 1950. In1952, 1954, 1956, 1958 and 1960(note the correspondence withyears of Congressional elections)there were further liberalizationsof coverage or benefits. The 1965amendments added Medicare forsome 20 million beneficiaries. The1967 amendments, among otherliberalizations, increased paymentsto the 24 million beneficiaries byan average of 13 per cent andraised minimum benefits 25 percent. In 1969, retirement and survivorsbenefits were raised againby about 15 per cent, effectiveJanuary 1, 1970.(It is sometimes argued thatthese benefit increases from 1950to 1970 were necessary to keeppace with increases in living costs.Actually, the increases in individualmonthly benefits totaled 83per cent, compared with a 51.3 percent increase in consumer pricesover the same period.)from $60 to $936From 1937 to 1950, Social Securitywas financed by a combinedtax rate of only 2 per cent onboth employer and employee (1per cent each) on wages up to$3,000 a year. Since then boththe rates and the maximum wagebasehave been increased everyfew years. In 1972 the combinedtax rate is 10.4 per cent (5.2 percent on each the employer and theemployee) on a maximum wagebasethat has been raised to $9,000.The result is that whereas themaximum annual payment up to1950 was only $60, it has risen to$936.In 1947, payroll tax collectionsfor old age and survivors insuranceamounted to $1.6 billion; by1970, these taxes had increased to$39.7 billion.At the beginning, the Social Securityprogram was sold to theAmerican public as a form of oldage"insurance." The taxes wererepresented as the "premiums"paid for this insurance. Everybodywho was getting benefits wasassured that he could accept thesewith no loss of "dignity',', becausehe was "only getting what he hadpaid for."This was never true, even at thebeginning, and has become lesstrue year by year. The low-wagereceivers have always been paidmuch more in proportion to their"premiurns" than the higher-wagereceivers. The disparity has beenincreased with succeeding revisionsof the act. The typical bene-