The excerpts below are from a very lengthy article (that could have been a eBook) about the history of Social Security, written by G. William Domhoff, a research professor in psychology and sociology at the University of California, Santa Cruz. It's a very detailed and interesting account, leaving out nothing except for what all the players ate for breakfast.
In an attempt to share, I've just used passages that (IMHO) I thought were the most concise and relevant to the topic — without all the intricate details — to greatly shorten the article in an effort to make it more digestible for busy readers. The original article has about 39,225 words (excluding all his references), whereas my "condensed version" only has about 4,779 words. But for those of you who have the time, patience and curiosity, I would highly suggest that you read the entire article: How Corporate Moderates Created the Social Security Act — And then Tried to Undermine it Later.
I want to give credit to "John H.", who submitted this fascinating article in a comment he made on my post: Why do Republicans Hate Social Security?, which I recently posted at the Economic Populist (I reposted a slightly different version here at my blog: The Republican's Attempted Murder of Social Security).
Considering the current debate and the Republicans' renewed efforts with their new Congress in 2015 to gut Social Security, I thought it was important to put forth the history of the program.
* Note: My comments or edits are made in [square brackets], whereas the author's comments are in (parentheses). Excerpts below:
The issues surrounding just about anything to do with the Social Security Act of 1935 remain contentious. Ultraconservatives -- and especially the Libertarians among them, who positively deny that government should have any role in just about anything except fires and crimes -- are out to abolish old-age pensions, unemployment insurance, and other forms of government assistance.
Corporate leaders first thought about providing private corporate pensions, not government pensions, in the 1870s ... Old-age pensions were most often seen as a way to replace superannuated workers with more productive younger workers ... [and some were led] to think of old-age pensions for loyal employees as a potential way to quell labor unrest, at the least by creating new openings for younger workers.
During its nearly 40 years of existence the AALL [American Association for Labor Legislation] worked on a wide variety of labor legislation that ranged from old-age pensions to unemployment insurance to accident insurance to health insurance, with varying degrees of success. It had a strong impact on the health of workers through the legislation it helped write to combat industrial diseases, while failing on unemployment insurance.
However, there is one labor issue it did not include on its agenda, support for unions, which is a major reason why it could attract the financial support and participation of some corporate moderates as well as include reformers and socialists in its discussions. It is also noteworthy that the AALL's legislative approach did not attract much support from the American Federation of Labor (AFL) until the New Deal era because of the AFL's general wariness toward government, which its leaders assumed to be controlled by corporate interests. Put another way, there was no "liberal-labor alliance" in the United States until the 1930s.
Although the AALL did not have much success in most of its campaigns because of resistance from the corporate community, it did attract support on one key insurance issue, workmen's compensation, and that became the seed, by a circuitous and indirect route, for the Social Security Act.
Now we have finally arrived at the starting point for the old-age insurance provisions of the Social Security Act, the outcome of the legislative conflicts over workmen's comp convinced private insurance companies that they might be able to underwrite other forms of group social insurance, starting with group life insurance programs for corporations, and maybe old-age pensions as well. Two of the three largest insurance companies, Equitable Life and Metropolitan Life, which shared many directors in common with major banks and corporations, began making the analyses necessary to offer such packages to corporations as a way to head off government insurance programs. Both companies also came to believe they could do a better job with private pensions than individual corporations, but only if contributions were made by both the companies and their employees.
Despite the grassroots and leftist efforts, the major developments of the 1920s, the ones that impacted the Social Security Act, were being made by the individual corporations that had pension plans of their own, as well as by the insurance companies that made their group programs more sound and less expensive by having both employers and employees contribute.
By 1923, for example, Metropolitan Life was confident that it had a group pension plan that was better than anything any one corporation could offer on an equally sound basis. One of its main spokespersons therefore eagerly presented the new plan to the corporate executives that his company invited to a special conference. However, even though he presented evidence that most corporate plans were unsound, the biggest corporations of the era were not prepared to abandon their own plans. They liked to run their own show, and some of them still believed their pension plans were helpful in controlling their workforces and limiting strikes. (As a result, corporate plans sometimes had clauses saying a pension could be lost if the individual participated in a strike.) The corporate leaders present at the conference also liked the fact that they did not legally have to pay benefits if they decided not to do so.
It is not like these corporate executives are far seeing and immediately sensible in a big-picture sense. They like to hold on to their baronial power as long as their corporate fiefdoms make that possible. In this case, it took the crisis of the Great Depression to expand their horizons, as will soon become apparent.
[* Editor's Note: The Clark Amendment is then discussed and often mentioned throughout in the professor's original article. Skip to...]
[President] Roosevelt then made it clear that he would not sign legislation that included the Clark Amendment because it would create major actuarial and administrative problems, especially when companies -- or their pension plans -- went bankrupt, or when employees left companies that had private pension funds before their retirement age. The standoff led to a two-month delay while the Congressional conference committee argued about the issue and searched for a compromise. Congress finally agreed that the bill would be passed without the Clark Amendment, but with the provision that the Clark Amendment would be reconsidered in the next session of Congress after experts had a chance to see if "contracting out" could be made compatible with the overall system. Roosevelt signed the legislation on August 14, 1935.
As for the Southern Democrats [Dixiecrats], they were "The Disposers". They were the reason why agricultural and domestic workers were not covered by old-age insurance until 1950 ... the legislative battles in Congress strongly suggest that the Southern Democrats were the main reason why unemployment insurance was placed under the control of the states. Southern Democrats also eliminated the civil service requirements for the staff that administered the programs and any minimal federal standards for payment levels ... This allowed the representatives of the plantation owners to put their local cronies in charge of agencies and keep benefit payments low enough to maintain full control of their workforce. In the end, then, it was a battle between corporate moderates and the fledgling liberal-labor alliance on the one side and ultraconservative corporados and plantation owners on the other. The corporate moderates and their hired experts shaped the general act, but the Southern Democrats carved out the exceptions the plantation owners wanted.
No sooner did the Social Security Act pass than the corporate moderates and their experts began to make plans for the several changes that had to be made to make the legislation fully to their liking. (And a number of leading employers referenced a provision for "contracting-out" in the old age annuity sections of the Social Security law.)
In the case of insurance companies, five of the six had no enthusiasm for the Clark Amendment. However, they did favor the general idea of an employer being permitted to conduct [their] retirement plans independently of the government plan if a way can be found. At the same time, they did not see any practical way to improve upon the unsatisfactory Clark Amendment, so they were advising corporate employers to develop plans that supplemented the government plan. Most corporate executives caught on fast, although a few ultraconservatives used the passage of the Social Security Act as an opportunity to shrink their plans.
On the other side of the fence, liberals, social workers, and advocates from old-age groups wanted to raise pension payments and extend them to more occupational groups than were originally covered, including the self-employed, agricultural workers, and domestic workers. Most worrisome of all to the centrist social insurance experts and leaders of the Social Security Board, many social workers and liberals wanted to merge the old-age insurance program with the old-age assistance plan for those who had not earned enough money over the years to qualify for old-age insurance. The centrists rejected this option [because], as a form of welfare, that could be easily stigmatized and cut back by conservatives. Furthermore, the social workers still wanted to pay for this generous old-age benefit for everyone out of general tax funds.
All parties agreed that the reserve fund should be whittled down to a "reasonable contingency" size by several means. They included raising benefits, providing higher benefits for married couples, extending benefits to widows at age sixty-five and to the dependent children of deceased recipients, and starting to pay out benefits in 1940 ... Furthermore, all concerned could agree to a payment schedule that gave a slight boost to low-income retirees while restraining benefits at the top. Liberals, social workers and labor favored these changes because of their concern that low-income people might not otherwise have enough money to live on. The changes suited Keynesian economists because they avoided the drag on the economy that a reserve fund might create and put money into the hands of those most likely to spend it. The insurance companies and other corporations were satisfied that payroll taxes would be kept as low as possible. The corporate moderates also appreciated the fact that the reserve fund would decline, although the issue of its continuing existence was purposely left ambiguous. Additionally, insurance companies liked the compromise because it left plenty of room for their profitable private plans for employees with higher incomes, especially for the corporate executive plans that were their biggest customer target. This became one basis for one of the historical institutionalists' biggest claims for a new insight -- there is a "divided welfare state" in the United States, part public, part private.
Congress accepted most of these recommendations, but no new occupational categories were added, which reflected the continuing desire of the Southern Democrats and ultraconservatives to exclude low-wage workers, especially agricultural workers. Very significantly in terms of future arguments over the solidity of Social Security reserves, the reduced fund was made into a trust fund with a strong unanimous statement from the advisory council, endorsed by Congress, which was meant "to put to rest claims that the Treasury bonds in which the Social Security funds were invested were somehow not real and in some way represented a misuse of funds...". The ultraconservatives had made such claims from the moment the Social Security Act passed, but the transformation of the reserves into a trust fund based on 1,000 years of Anglo-Saxon and American custom, precedents, and laws did not deter them from continuing their efforts to undermine public confidence in a government program they heartily despised as contrary to their deeply held values about the need for individual autonomy and the limited role of government in caring for citizens.
During the eight-year period following the enactment of the 1939 amendments, the conservative coalition froze Social Security pensions in order to stop the expansionary plans developed by the [progressive] Wisconsin reformers that staffed what was by then called the Social Security Administration.
The representatives of organized labor, by this point eager and forceful participants in the process, wanted to raise the level of income that could be taxed for Social Security purposes to $4,800, with most corporate leaders insisting on a much lower level, $3,000. In the end, the advisory council compromised at $4,200 ... The Advisory Council also recommended the inclusion of self-employed, agricultural, and domestic workers, but most agricultural workers in the South would still be excluded because they worked part-time or seasonally. A majority of the Advisory Council also advocated the addition of disability insurance, but the Chamber of Commerce [a business lobbing group] and the American Medical Association were opposed.
Congress once again accepted most of the recommendations, but pared down the number of occupations to be included. Disability insurance was supported in the Senate, but it lost to the conservative coalition in the House. In general, Social Security became somewhat more inclusive, but not more generous. More importantly from the liberal-labor perspective, the changes seemed to guarantee that old-age pensions, not means-tested old-age assistance, would be the way in which most of the elderly would receive benefits in the future.
When Republicans won control of both the White House and Congress in 1952, the first time that had happened since 1928, ultraconservatives in the corporate community and Congress made their usual pitch to limit old-age benefits to a single flat sum for anyone over age 65, whatever a person's work record or previous income levels. But at this point organized labor was poised to put up a major battle, and in any case President Dwight Eisenhower rejected the ultraconservative proposal. He thereby sided with the corporate moderates, who favored the strengthening of Social Security through raising the cap on the amount of a person's income subject to the Social Security tax and slight increases in benefit levels. Moderates also wanted to enlarge the Social Security pool by expanding coverage to include public employees, self-employed professionals, farmer owners, farm workers, and domestic workers, and to make payments slightly higher for some beneficiaries by only counting years in which the person could work enough months to contribute to the pension fund. The ultraconservatives and the American Medical Association (AMA) opposed all of these improvement when they were presented to Congress, but the new amendments to the Social Security Act passed in August 1954, after self-employed professionals were removed due to AMA lobbying.
A year later, the liberal-labor alliance won its first victory on a Social Security initiative with an amendment to include disability benefits. Based on concerted Congressional lobbying and a compromise with insurance companies and Southern Democrats, an amendment covering all disabled workers passed in the House in spite of the fact that the Eisenhower Administration and the AMA opposed it. Then the bill was delayed by the conservative coalition in the Senate Finance Committee. When the committee finally voted, and ended up in a 6-6 deadlock, the bill went to the floor for a vote by the full Senate. At this point liberal and labor lobbyists made two key concessions that opened the way for partial success. They supported an amendment that would give states control of the program, which met the key demand by Southern Democrats, and they agreed to exclude employees under 50 years of age, which neutralized opposition from insurance companies. In exchange, a majority of Southern Democrats in the Senate voted for the compromise, and the insurance industry did not lobby against the bill. In 1958, Congress extended the disability program to include benefits for the families of disabled workers, and in 1960 it was extended to include employees under age 50.
Little attention was given to Social Security during the tumultuous Kennedy and Johnson administrations, but the program was significantly improved during the presidency of Richard M. Nixon. The president was supportive of Social Security in the context of a general concern on the part of moderate Republicans to improve social insurance and welfare benefits as a way to reduce inner-city tensions and gain more support for their party among the elderly.
In 1972 Congress legislated automatic cost-of-living increases [COLAs] that would begin in 1975. In connection with the significant increase in benefits between 1969 and 1972, the automatic cost-of-living adjustments ensured that most elderly Americans could live the remainder of their lives above the poverty line, a dramatic change from just a few years earlier. In addition, Congress put benefits for low-income, blind, disabled, and elderly people into a new program, Supplement Security Income [SSI], which was funded out of general revenues and administered by the Social Security Administration.
Although liberals in Congress enthusiastically supported all of these changes and additions to Social Security, they were in air measure due to the initiative of Nixon and Congressional Republicans. Their sudden solicitude for Social Security beneficiaries provides a genuine example of how the competition for voters in the electoral arena can allow average citizens to have an impact on government. At the same time, these changes were acceptable to corporate moderates.
More generally, the contrast between the corporate moderates' support for government insurance programs and their campaign against unions [union-busting and "right to work laws"] at the time could not be more dramatic, continuing a pattern that began in 1935.
Ultraconservatives inside and outside the government thought that changes in the political climate, along with the Republican gains in the 1978 elections, made it possible to define the new problem [the large increase in inflation in and after 1973] as a major crisis, not the temporary shortfall projected by centrist and liberal experts. Moreover, they could take advantage of the fact that Social Security was also becoming a more noticeable portion of the federal budget because it was included as part of the unified federal budget, which was adopted during the Nixon Administration at the urging of a blue-ribbon presidential commission appointed by President Johnson. Now it could be claimed that Social Security was both a big part of the budget and another reason to worry about future government debt, even though it was funded by payroll taxes, not federal income and excise taxes. [Editor's Note: See my YouTube video of President Ronald Reagan admitting that Social Security has NOTHING to do with the deficit.]
It was in these altered circumstances that the ultraconservative think tanks used the actuarial assessments from 1977 to claim that experts were either covering up the deep problems in the system or else did not know what they were talking about. The ultraconservatives published reports that readily gained dramatic coverage in the media, in part because any "crisis" attracts readers and viewers, in part because the media tries to report all sides of an issue. For example, the ultraconservative reports talked of "bankruptcy," even though the worst-case scenario involved shortfalls of 4% to 10% without any increases in payroll taxes, and even though bankruptcy was impossible because payroll taxes always would continue to flow into the Social Security Trust Fund. Taking advantage of the ultraconservative media campaign, Congressional conservatives made a further change in Social Security in 1980 by reducing disability benefits on the grounds that they were overly generous.
Then came a right turn on Social Security by the corporate moderates [who up to now, once supported the program], which became fully apparent during the Reagan Administration. It is this right turn that created the atmosphere in which the historical institutionalists wrongly concluded that the vocal opposition to Social Security by all members of the corporate community in the 1980s meant that the entire corporate community had always opposed it.
The Reagan Administration's original attempt to cut Social Security, which backfired, revealed that the corporate moderates were now ready to join with ultraconservatives in limiting it. However, the liberal-labor alliance was able to hold on to most of the basic features of the Social Security program because it made concessions and played its cards well. Moreover, Social Security had some built-in advantages due to the structure of the program, such as its inclusiveness, the fact that higher earnings lead to higher payroll taxes and higher pensions, and the sheer number of people already receiving benefits due to its long history.
The [ultraconservative's] opening shots occurred in a context in which the small Social Security Trust Fund was dwindling due to the continuing high inflation in the early 1980s. As was the case just two years earlier, relatively easy adjustments could have been made, but the corporate-conservative alliance mounted another large-scale scare campaign. Although national surveys soon reported that most people, and especially those under 35, believed that the system would be bankrupt by the time they were eligible to receive benefits, the respondents also made clear they wanted to preserve the system through tax increases. Their fears were encouraging to those who wanted to privatize Social Security, but the fact that most people wanted to preserve the current system was encouraging for the program's supporters.
[This section is very notable...]
The Committee for Economic Development [a business lobbying group, later referred to and now called CED] contributed to the crisis atmosphere with a report entitled Reforming Retirement Policies, which claimed "a retirement disaster is on the way early in the twenty-first century." Using projections that assumed a declining birth rate and an increasing number of retired workers, the CED warned that the rate of growth in the labor force might decline and that older workers would become a "burden" on "future generations." In addition, the presumed shrinkage in the growth of the workforce, which was in fact being countered by millions of Latin American and Asian immigrants in the 1970s, supposedly meant that older workers who remained productive might have to continue working for the sake of the economy. The CED report therefore concluded that the retirement age should be gradually raised two months a year until it reached age 68 in the year 2000. After all, people were living longer, although in fact it was only people in the upper half of the income distribution that were living longer among those who made it to age 65. The CED also called for changes in the formula used to determine cost of living increases, which were said to "overcompensate" for inflation.
As with other issues, the seemingly nonpartisan nonpolitical CED did extensive non-lobbying lobbying in relation to its report. [* Editor's note: To me, this sounded like a very carefully and well-constructed sentence by Professor G. William Domhoff to mean "a pro-businesses lobbying group who lied by calling itself nonpartisan to spread economic propaganda". But as an academic, I suppose he has to remain nonpartisan and nonpolitical when writing. But as a blogger, I don't hold myself to such standards — and don't sugar-coat my observations. Just saying...]
Although CED's chief lobbyist of the previous few years, Kenneth Duberstein, was by then on the [Reagan Administration's] White House staff as a Deputy Assistant for the President for Legislative Affairs, and he encouraged the distribution of the CED report, saying that "the report will come in handy" — and in the process, urged that if one of CED's employees "would only hurry with the retirement statement, we might be able to do something positive about Social Security (while assuring the integrity of the program, of course)".
At this point, the Reagan Administration overplayed its hand. In doing so it drew on suggestions from a Social Security Task Force set up during the 1980 presidential campaign, which was chaired by an economist at the ultraconservative and libertarian Hoover Institution. More generally, the task force consisted primarily of free-market economists at several universities. Starting with this report, the director of the Office of Management and Budget, David Stockman, a former Republican member of the House from Michigan, created a draconian plan in early May 1981, which would produce twice as much savings as were actually needed through a variety of benefit cuts, with a special -- and politically shortsighted -- focus on solving the administrations immediate deficit problems with large immediate cuts.
The result was a barrage of criticism aimed at the [Reagan] White House, including from some Republicans, who feared that such drastic changes might put them in danger of losing their Congressional seats in 1982. The proposed policies also solidified and energized Save Our Security, a liberal-labor-elderly leadership group formed in 1979, which spoke for a coalition of nearly 100 liberal, labor and senior citizens organizations. A well-known liberal of that era, Wilbur Cohen, whose involvement in Social Security stretched back to a minor role in helping Witte on the original Social Security Act, and included a strategic role in the passage of Medicare, served as the Save Our Security chair.
The ambitious White House plan was withdrawn before it was formally presented to Congress. But the bad publicity it received short-circuited the efforts to cut Social Security that were moving forward quietly in the House under the direction of Southern Democrat Jake Pickle of Texas, the chair of the Social Security Subcommittee of the Ways and Means Committee. Pickle's plan would have dealt with the short-term budgeting problems by means of a six-month delay in the next cost of living adjustment (COLA) and with the elimination of long-term shortfalls by increasing the retirement age to 68 between 1990 and 2000, both of which were consistent with the CED's recommendations. His plan also would have eliminated minimum benefits and payments to college children of deceased beneficiaries. Due to the outcry caused by the Reagan plan, Pickle had to settle in 1981 for a cutback in payments.
[Editor's Note: In the original article, politics, lobbying and corporate influence is discussed in great detail about the changes made to Social Security during the Reagan years — and about the tax policies and retirement ages. It's suggested reading, but for length, I'll skip to...]
The corporate community and the Reagan Administration did not win all that they hoped to on Social Security in the early 1980s. True, benefits were trimmed significantly through delaying the cost-of-living adjustments and increasing the retirement age, and the money collected for the trust fund was used to pay for part of the large budget deficits over the next 30 years. But the liberal-labor alliance was able to restore public confidence in the system and give it legitimacy for the next 20-25 years in the face of a predominantly conservative Congress eager to make larger reductions or privatize the whole system.
The story of the years between 1984 and 2012 is quickly told because very little changed even though the battle continued and two Democratic presidents, Bill Clinton and Barack Obama, were ready to accept long-term cuts in Social Security in an attempt to placate the corporate community and the conservatives in Congress. This attack began shortly after the compromise and has continued ever since. Ultraconservatives and libertarians, whose think tanks are funded by some of the richest families in the country, took the lead, but corporate leaders (at the very least) wanted to limit the program severely.
Although the fact was soon forgotten, President Clinton was on the verge of making a debt-reduction compromise with the Republican congress in the late 1990s, but this possible deal was pushed aside when he faced impeachment charges over a lack of candidness (called lies by liberals and perjury by ultraconservatives) about sexual escapades with a young White House intern.
President George W. Bush then tried to push a semi-privatization plan in 2005 in the aftermath of his 2004 election victory, but the pushback was strong enough that he quietly abandoned the plan (Baker 2007).
President Barack Obama appointed a debt-reduction commission in 2010 whose centrist members, Democrat and Republican, wanted to cut the inflation adjustment built into Social Security pensions by a "mere" .03% a year, which would have added up to a 3% cut over ten years and 6% after 20 years. Although liberal and ultraconservative members of the commission scuttled the recommendation for very different reasons, the co-chairs of the commission continued to push debt reduction through Social Security cuts for the next two years as if the whole commission had agreed with them. Obama continued to speak approvingly of the co-chairs' recommendation, indicating he was still open to such a compromise. He even declined to rule out Social Security cuts during the presidential campaign in 2012, in which he was fighting for his political life. Only a strong push by the liberal-labor alliance kept Social Security cuts out of the deal that averted the fiscal cliff at the turn of 2013.
The Republican attack on Social Security, with full backing from the corporate community through its "Fix-The-Debt" committee and various think tanks, is likely to continue for many years to come. The moderate conservatives do not want to pay the taxes that will be needed to make sure that the Treasury Department can pay its bills to Social Security, and the ultraconservatives dislike the very concept of Social Security because of their fear of government power and their beliefs about the needed for rugged individualism, not "handouts." [* Editor's Note: Ask Rep. Paul Ryan about Ayn Rand.]
[* Editor's final note: So as it is, and as I've said many times before, besides just the Republicans, not even all Democrats (aka Blue Dog / Third Way / Moderate / New Democrats — such as Obama or any Clinton) can be trusted to protect workers rights and their vital social programs. It is, and always has been, "progressive" Democrats (like FDR) who could always be trusted.]