- 1862: Congress establishes a pension system for Civil War veterans. Initially modest pension benefits are greatly increased over time to include generous disability, survivors, and old-age benefits for veterans and their extended families.1 The expansive system creates a precedent for later welfare-state spending by the federal government.
- 1889: German leader Otto von Bismarck creates a government-run pension system and other welfare-state programs. Other European countries follow suit with their own government pension plans, such as Britain in 1908 with its Old-Age Pensions Act.2
- 1909: The first federal old-age pension bill is introduced in Congress.3
- 1914: Arizona is the first state to enact a broad-based old-age pension plan, but the plan is declared unconstitutional by the state supreme court.
- 1920: Charles Ponzi pockets millions of dollars by taking money from an ever greater number of new investors while paying back a fewer number of past ones.4 He creates the illusion of earning his investors high returns, but his scam eventually falls apart. Ponzi's scheme has similarities to Social Security, which Nobel-prize winning economist Milton Friedman would call the "Biggest Ponzi Scheme on Earth."5
- 1923: An old-age assistance plan is passed in Pennsylvania but declared unconstitutional by the state supreme court, and a plan is passed in Nevada but later repealed.6 In Ohio, voters shoot down a referendum for a government old-age pension plan by a large margin. Meanwhile, Montana's Old-Age Pension Law passes and withstands constitutional scrutiny.
- 1927: Russian-born economist Abraham Epstein establishes a lobby group called the American Association for Old-Age Security.7 In 1933 the group changes its name to the American Association for Social Security, which is the first significant use of the phrase "Social Security."8
- 1929: Government pension plans are in place in 35 nations, primarily in Europe and Latin America.9
- 1933: President Franklin Roosevelt is inaugurated and launches his "New Deal" array of subsidy programs.
- 1933: Prominent doctor Francis Townsend proposes a national retirement plan that would pay $200 a month to Americans age 60 and older when they leave the labor force. The plan gains widespread popularity.10
- 1934: President Roosevelt sends a message to Congress that he will pursue a plan "to provide at once security against several of the great disturbing factors in life—especially those which relate to unemployment and old age."11
- 1935: President Roosevelt's annual address to Congress calls for legislation to provide assistance for the unemployed, disabled, and the aged.
- 1935: The blue ribbon Committee on Economic Security issues a report to President Roosevelt. The report recommends a range of new welfare-state programs, including old-age insurance, public assistance, unemployment insurance, and health services. The proposals begin to move through the House and Senate.
- 1935: President Roosevelt signs the Social Security Act, which is passed by large majorities in Congress. Roosevelt ensures that Social Security retirement is a monopoly government system by threatening to veto any bill that allows people to opt out if their employers offer a better private pension plan.12
- 1935: The Social Security Board is established and later becomes the Social Security Administration in 1946. In addition to administering Social Security, the agency plays a key role in advocating for program expansion over the decades.
- 1936: In United States v. Butler (297 U.S. 1), the Supreme Court rules that the Agricultural Adjustment Act is unconstitutional. However, the court also states that "the power of Congress to authorize expenditure of public moneys for public purposes is not limited by the direct grants of legislative power found in the Constitution." Thus, the case sets precedent for an expansive interpretation of the Constitution's General Welfare Clause.
- 1936: A government pamphlet advertising the benefits of Social Security to the public states, "beginning in 1949, twelve years from now, you and your employer will each pay 3 cents on each dollar you earn, up to $3,000 a year. That is the most you will ever pay."13
- 1936: Republicans criticize the Social Security program leading up to the 1936 elections, but the Social Security Board counters by distributing 50 million leaflets in favor of the program and releases films to movie theaters describing the program's benefits.14
- 1937: Social Security payroll tax collections begin. The initial tax is 2 percent on wages up to $3,000, but tax increases over the decades push up the rate to the 12.4 percent on wages up to $113,700 by 2013.
- 1937: The Supreme Court rules that parts of the Social Security Act are constitutional in Steward Machine Company v. Davis (301 U.S. 548) and Helvering v. Davis (301 U.S. 619). The latter case rests on an expansive view of the General Welfare Clause in supporting old age benefits. This counters James Madison's logic that the Clause does not grant Congress open-ended authority because "for what purpose could the enumeration of particular powers be inserted, if these and all others were meant to be included in the preceding general power?"15
- 1939: Amendments to Social Security abandon the idea of building a large reserve fund to pay for future benefits, thus putting the system on a pay-as-you-go financing basis. The amendments also add benefits for dependents of retired workers and surviving dependents of deceased workers.
- 1940: Ida May Fuller of Vermont is the first person to receive a Social Security check. She pays just $24.75 in Social Security taxes between 1937 and 1939, and her first benefit check is for $22.54.16 Over her lifetime, she collects more than $20,000 in benefits, about 800 times the amount she contributed.
- 1941: In its annual report to Congress, the Social Security Board recommends the addition of disability benefits.17
- 1943: In his State of the Union address, President Franklin Roosevelt asserts that people "want assurance against the evils of all major economic hazards—assurance that will extend from the cradle to the grave. And this great government can and must provide this assurance."18
- 1943: The Social Security Board runs the Assistance and Services to Enemy Aliens program, which "helped finance the relocation or internment of Japanese-Americans, German-Americans, and Italian-Americans and their subsequent return to their homes after the war."19
- 1944: In his State of the Union address, President Franklin Roosevelt states, "the one supreme object for the future … for all the United Nations, can be summed up in one word: security," which he defined to include "economic security, social security, moral security." He also proposes a "second Bill of Rights" that would create a "right" to a good job, a decent home, healthcare, high prices for farm products, and Social Security.20
- 1946: The Social Security Administration replaces the Social Security Board.
- 1950: The Social Security payroll tax rate increases to 3 percent.21
- 1950: Congress expands Social Security to cover an additional 10 million workers, and it increases average benefits by 77 percent.22
- 1951: The Social Security payroll tax is expanded to cover all self-employed workers.
- 1954: The Social Security payroll tax rate increases to 4 percent.
- 1956: Congress adds the disability insurance program to Social Security.23
- 1956: Congress sets an early retirement age of 62 for women.
- 1959: Social Security pays out more in benefits than it brings in from taxes for the first time.
- 1960: In Fleming v. Nestor (363 U.S. 603), the Supreme Court rules that people have no legal right to Social Security benefits. The Court majority states, "A person covered by the Social Security Act has not such a right in old-age benefit payment … To engraft upon the Social Security system a concept of ‘accrued property rights' would deprive it of the flexibility and boldness in adjustments to ever-changing conditions which it demands and which Congress probably had in mind when it expressly reserved the right to alter, amend or repeal any provision of the Act." Interestingly, a 1936 government pamphlet advertising the new Social Security program said, "The checks will come to you as a right."24
- 1960: The Social Security payroll tax rate increases to 6 percent.
- 1961: Congress sets an early retirement age of 62 for men.
- 1966: The new Medicare program includes a 0.7 percent Hospital Insurance payroll tax on top of the Social Security payroll tax. Today the Medicare payroll tax is 2.9 percent on all wages.
- 1967: President Lyndon Johnson signs Social Security Amendments, which increase Social Security benefits by 13 percent.25
- 1969: President Richard Nixon signs the Tax Reform Act, which increases Social Security benefits by 15 percent.26
- 1971: President Nixon signs another 10 percent across-the-board increase in Social Security benefits.27
- 1972: A month before the November elections, policymakers increase Social Security benefits by 20 percent.28 Social Security beneficiaries receive a letter in the mail telling them that the increase stemmed from a "new statute enacted by Congress and signed into law by President Richard M. Nixon."29 The payroll tax increase to pay for the increased benefits does not take effect until after the election.
- 1972: Cost of living adjustments are adopted for Social Security, which will automatically increase benefits each year in line with the consumer price index.
- 1972: Congress creates the Supplemental Security Income program, which provides benefits to the elderly and disabled poor who don't have substantial work histories.
- 1973: For the first time, the annual report of the Social Security Trustees foresees a long-term actuarial imbalance for the program.30
- 1977: Congress substantially raises Social Security taxes and modestly trims benefits in an effort to fix the system's financial imbalances.31 President Jimmy Carter says that the changes will "guarantee that from 1980 to the year 2030, the Social Security funds will be sound."32
- 1980: The Cato Institute publishes Peter Ferrara's Social Security: The Inherent Contradiction, which makes the case for privatizing the system.
- 1981: With projections showing that Social Security's finances are again out of balance, President Ronald Reagan proposes a number of reductions in program benefits. His proposals are fought back quickly by congressional leaders of both parties.33
- 1981: President Ronald Reagan establishes the bipartisan National Commission on Social Security Reform headed by Alan Greenspan.
- 1981: Chile adopts a new social security system based on personal accounts to replace its existing pay-as-you-go system.34 Over time the successful reforms encourage many other nations to follow suit in partly privatizing their government pension systems.
- 1983: President Reagan signs into law major amendments to Social Security. Scheduled tax rate increases are advanced, taxes are increased on the self-employed, and taxes are imposed on Social Security benefits above certain thresholds. The system is extended to cover federal employees and employees of nonprofit organizations, and the retirement age is raised over time from 65 to 67.35
- 1989: Despite the tax increases and other changes made in the 1983 amendments, the annual report of Social Security's trustees again shows a long-term imbalance in the program.36
- 1990: The Social Security payroll tax rate reaches its current level of 12.4 percent. The Medicare tax adds another 2.9 percent for a total federal payroll tax rate of 15.3 percent.37
- 1992: Australia begins implementing a system of mandatory private retirement savings accounts called "superannuation." The current contribution rate for the privatized retirement system is 9 percent of wages.
- 1999: Noble Laureate economist Milton Friedman calls Social Security the "Biggest Ponzi Scheme on Earth."38
- 2001: President George W. Bush enters office determined to reform Social Security. His first effort includes a bipartisan commission that produces a report in 2001 with various options for adding personal accounts to the system.
- 2004: The Cato Institute proposes a detailed plan to transition Social Security to a system based on personal retirement accounts financed by contributions of 6.2 percent of wages.39
- 2005: President Bush launches another effort to reform Social Security and create personal retirement accounts, but his proposals do not advance in Congress.
- 2011: In an effort to stimulate the economy, Congress temporarily reduces the payroll tax rate by 2 percentage points.
- 2013: Social Security is the largest program in the federal budget, accounting for 23 percent of all spending.40 Old Age and Survivors Insurance will cost $668 billion in 2013 and pay benefits to 47 million retirees and survivors, while Disability Insurance will cost $142 billion and pay benefits to 11 million disabled individuals.41
1 Claudia Linares, "The Civil War Pension Law," Center for Population Economics, University of Chicago, November 2001. See also Ivan Eland, "From War to Warfare," The American Conservative, February 27, 2013.
4 Mary Darby, "In Ponzi We Trust," Smithsonian, December 1998.
5 Milton Friedman, "The Biggest Ponzi Scheme on Earth," Hoover Digest, April 30, 1999.
9 Peter Ferrara and Michael Tanner, A New Deal For Social Security (Washington: Cato Institute, 1998).
10 Sylvester J. Schieber and John B. Shoven, The Real Deal: The History and Future of Social Security (New Haven: Yale University, 1999), p. 23.
12 Jim Powell, FDR's Folly: How Roosevelt and His New Deal Prolonged the Great Depression (New York: Crown Forum, 2003), p. 174.
14 Sylvester J. Schieber and John B. Shoven, The Real Deal: The History and Future of Social Security (New Haven: Yale University, 1999), p. 54.
19 Larry DeWitt, "The Civilian War Benefits Program: SSA's First Disability Program," Social Security Administration, Social Security Bulletin 60, no. 2 (1997).
26 Sylvester J. Schieber and John B. Shoven, The Real Deal: The History and Future of Social Security (New Haven: Yale University, 1999), p. 154.
27 Sylvester J. Schieber and John B. Shoven, The Real Deal: The History and Future of Social Security (New Haven: Yale University, 1999), p. 159.
28 Sylvester J. Schieber and John B. Shoven, The Real Deal: The History and Future of Social Security (New Haven: Yale University, 1999), p. 160.
29 Edward R. Tufte, Political Control of the Economy (Princeton, NJ: Princeton University, 1978), pp. 29-33.
31 Sylvester J. Schieber and John B. Shoven, The Real Deal: The History and Future of Social Security (New Haven: Yale University, 1999), pp. 176-182.
32 Quoted in Sylvester J. Schieber and John B. Shoven, The Real Deal: The History and Future of Social Security (New Haven: Yale University, 1999), p. 182.
33 Sylvester J. Schieber and John B. Shoven, The Real Deal: The History and Future of Social Security (New Haven: Yale University, 1999), p. 187.
38 Milton Friedman, "The Biggest Ponzi Scheme on Earth," Hoover Digest, April 30, 1999.
39 Michael Tanner, "The 6.2 Percent Solution: A Plan for Reforming Social Security," Cato Institute Social Security Paper no. 32, February 17, 2004.
40 Congressional Budget Office, "The Budget and Economic Outlook: Fiscal Years 2013 to 2023," February 2013.
41 Congressional Budget Office, "The Budget and Economic Outlook: Fiscal Years 2013 to 2023," February 2013. See the supplementary tables to the report.