The President's Commission to Strengthen Social Security meets again today (Aug. 22) to discuss ways of maintaining the system's solvency and viability. Its efforts would not be necessary if President Franklin Roosevelt had not torpedoed an amendment by Sen. Bennett Champ Clark, D-Mo., to the original Social Security legislation.
The key to selling Social Security in the first place was to characterize the program as "insurance," not welfare. Its benefits would not be financed by general revenues, but by "contributions" from both workers and employers. In short, the idea was to make Social Security look as much like a private pension plan as possible.
Clark simply took the rhetoric of the Social Security advocates at face value. If the goal was to provide retirement income for all workers, he said, then it really doesn't matter whether it is provided by government or the private sector. Seeing that everyone is covered and receives an adequate pension should be the goal, regardless of where it comes from.
Thus Clark proposed an amendment to the first Social Security bill in 1935, which simply said that if an employer provided his employees with a pension at least as good as they would get from Social Security, then that employer and those employees would not have to pay Social Security taxes. To ensure that there was no abuse, the Clark Amendment would have stipulated the following:
-- The annuity program had to be available to all employees, regardless of age.
-- Premiums had to at least equal the Social Security contribution rate and be deposited with an outside trustee, such as an insurance company.
-- If an employee's job were terminated, his contributions had to be refunded to the government with interest.
-- If the employee died, his estate receives benefits at least equal to what Social Security would have paid.
-- Employees would have the option of switching to Social Security at any time.
Although the Roosevelt administration put up a strenuous lobbying effort against the Clark Amendment, it passed the Senate overwhelmingly on June 19, 1935, by a vote of 51 to 35. It is worth noting that support for the amendment was very bipartisan, as there were only 19 Republicans in the entire Senate at the time.
There was no corresponding provision in the House version of the Social Security bill, so the critical legislative fight was in conference. There, Roosevelt pulled out all the stops to prevent the House conferees from accepting the Clark Amendment. Although the Senate conferees held firm, the intransigence of the House and the heavy weight of Roosevelt's pressure finally wore them down.
Eventually, the Senate conferees agreed that the Clark Amendment could use some tightening up to eliminate loopholes that administration lawyers had furiously labored overtime to invent. Clark agreed to drop his amendment in return for a promise that the Senate Finance Committee would form a special subcommittee to draft revised legislative language. The final Social Security bill was passed without the Clark Amendment, and Roosevelt made certain that it never came up again.
Economist Carolyn Weaver, writing in her book "The Crisis in Social Security: Economic and Political Origins" (Duke University Press), notes that the Clark Amendment exposed the true redistributionist underpinnings of Social Security. If the goal was to have retirement annuity system based on sound insurance principles, as Social Security's advocates said they favored, then there was simply no rational argument against the Clark Amendment. If, however, the goal was to have a redistributionist system, then the Clark Amendment was a dagger in its heart.
Says Weaver, "By subjecting the federal plan to competition, the government would have been forced, if only by default, to maintain a sound old-age insurance program. The voluntary flow of participants between competing suppliers would have dramatically reduced the potential monopolization of the old-age insurance industry. At the least, the (Clark) Amendment, like the private alternative, made the redistributive nature of the federal 'insurance' program very clear."
Of course, Roosevelt and the other Social Security advocates never had any intention of creating a funded system. They always wanted to use it for income redistribution, not just to provide old-age pensions. Perhaps the prime example is Ida May Fuller of Ludlow, Vt., the first person ever to receive a Social Security retirement check. During her working life, she paid exactly $24.75 into Social Security and eventually received $22,888.92 in benefits.
At a critical moment in time, the United States could have done the right thing and created a Social Security system that was soundly based and permanently funded. But then the government could not have used it to redistribute income, buy votes and make the nation's elderly wards of the state. That was the ultimate goal all along. Providing retirement income for the aged was just the way to sell it.