Social Security Part One: The Basics

The Social Security program began in the 1930s as a response to the economic woes of the Great Depression. Poverty was acute and jobs were scarce, and many reformers were calling for a government solution, some more radical than others. Movements sprung up in various locales around the country, including the “Ham and Eggs” plan, socialist author Upton Sinclair’s EPIC plan, and Dr Francis Townsend’s “Townsend Plan,” which would have created a national sales tax to fund an elderly pension program. As is often the case, these more radical, localized movements precipitated a “compromise” federal government solution.

The way Social Security works is to tax the income of current workers in order to pay benefits to the currently retired. It is a wealth transfer system from younger workers to elderly retirees. The program began taxing workers 2 percent of their income in 1937, and started paying out benefits in 1940. The tax rate has been raised over the years, with the last increase coming in 1990. It now sits at 12.4 percent.

The very first recipient of Social Security benefits was a retired legal secretary named Ida Mae Fuller. She retired in November 1939, so was taxed for just three years and a total of $24.75. Her first monthly check in January 1940 was for $22.54. She ended up living to 100 years old and received $22,888.92 in Social Security benefits over her lifetime.

Dig Deeper:

Webpage: Social Security, Part 2: The Social Security “Trust Fund”

Webpage: Social Security, Part 3: The Easy Fix

Article: Social Security History

Article: Tax Rate History

Article: Costs of Government Programs

Video: The Government vs. the American Character