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Henry Morgenthau, Jr. Papers
Diaries of Henry Morgenthau, Jr.
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DIARY
Book 186
Social Security - Part III
Book
Page
Social Security
Conference of Treasury group, Viner, and Altmeyer -
3/21/39
186
1,25,34
a) Effects of Social Security Board plan and
Fiscal and Monetary Committee plan discussed
Foley memorandum, "Proposed changes concerning Old Age
Reserve Account" as prepared by representatives of
General Counsel's Office meeting with representatives
of Social Security Board - 3/22/39
47
Conference of Treasury group, Viner, Blough, Altmeyer,
and Dimock (Second Assistant Secretary of Labor) -
3/23/39
60,115
a) Memorandum on Titles II and VIII (see page 104)
discussed
b) Tate (General Counsel, Social Security Board)
memorandum on conference with representatives of
Treasury General Counsel's Office
174
c) Duffield resume of meetings
176
HMJr's actual statement before Ways and Means Committee -
3/24/39
180
a) Material used by HMJr while appearing before
Committee
192
b) Eccles' congratulations - 3/25/39
197
(See Upham's report, page 247)
c) Burgess' congratulations - 3/27/39
200
d) List of approving editorials and comment by
Democratic National Committeemen.
240
Dimock (Second Assistant Secretary of Labor) statement
before Committee - 3/27/39
204
Chamber of Commerce of United States: report of Special
Committee on Social Security Act - 3/29/39
213
Committee on Ways and Means adopts all of HMJr's
recommendations as to changes in Title II of Social
Security Act except suggestion that taxes be termed
"contributions" - See Book 187, page 384 - 5/3/39
Statements by HMJr
Before Committee on Ways and Means, on Social Security
Act amendments - 3/24/39
180
1
RE SOCIAL SECURITY RECOMMENDATIONS March 21, 1939.
3:00 p.m.
Present:
Mr. Gaston
Mr. Haas
Mr. Blough
Mr. Duffield
Mr. Viner
Mr. Altmeyer
Mr. Hanes
Mrs Klotz
a.M.Jr:
Have you got a set for Mr. Altmeyer?
Blough:
Yes.
H.M.Jr:
What I attempted to do was - for myself, first -
was to get what they call the Social Security
Board plan - may I read this out loud - the
existing, you see; then the boys took A.C. 14.
Altmeyer:
Yes.
H.M.Jr:
And then - let's see: gross receipts, less benefits,
administrative expenses; net cash receipts of
Government, 689; add interest accrued, and total
addition.
Well now, does that look fair?
Altmeyer:
That - your gross tax receipts - are you stepping
them up as high as that, 915 million?
H.M.Jr:
Well, the boys are here; they can account for
their own work.
Blough:
That's adding the administrative expenses on.
Your figures are all in terms of net.
Altmeyer:
Oh, I see.
Blough:
It's about 50 million dollars difference. We wanted
to show all out-payments and in-payments; that's
the only reason for putting it in.
Altmeyer:
I see. The reserve by the end of 1942
....
(Hanes comes in)
2
-2-
H.M.Jr:
Hello, John.
Are you fellows together on this, George?
Haas:
I haven't seen it yet.
H.M.Jr:
Christ, I thought - I mean I can't go chasing
around the building
....
Blough:
This is the one he had; same thing just set up
two different ways.
Altmeyer:
It looks reasonable.
H.M.Jr:
Well now, here's the point, if I can unburden
myself. First, we've got the request of Jere
Cooper to come up - for me.
Altmeyer:
Fine.
H.M."r:
And what I'd like to do, you see, is to go over to
the President and say, "Now here are these two
plans. I'm for the fiscal and monetary plan. I
can't go up and testify on this (Social Security
plan) because 1 don't believe in it. So what do
you want me to do?" I mean to the President. I
mean that's the - you see, I've never seen it just
in this form. And this is fair, isn't it?
Altmeyer:
Yes. Oh, it's fair - no, it isn't fair. + don't
think it is fair because I think looking at the
first three years is just looking at the elephant's
toe-nails and trying to figure out what the elephant
looks like.
H.M.Jr:
I mean the figures.
Altmeyer:
Oh yes, the figures
....
H.M.Jr:
I mean if I went, I wouldn't testify on this basis
unless we could get you to say that as far as the
subtraction, etc., etc.,
....
Altmeyer:
Oh sure, be no question about that. well, our people
have been working with your people, so there'd be no
question on the figures.
3
-3-
Blough:
These are based on your
....
Altmeyer:
... medium-high.
Blough:
... medium-high.
Altmeyer:
What we call medium-high.
H.M.Jr:
There's the plan; I wish I had had it yesterday.
Now, you got something on your mind?
Altmeyer:
Yes, but nothing as important as this.
H.M.Jr:
Oh, something that's different?
Altmeyer:
Oh no, it deals with the reserve, but I mean it
isn't as important as the
....
H.M.Jr:
I mean something you can't say?
Altmeyer:
Oh no, I'd be glad
....
H.M.Jr:
Well, this is
...
Altmeyer:
I think another thing you ought to have before you,
though, are three benchmarks - 1945, 1950, and 1955.
Now, that's within the range of our comprehension,
fifteen years; and let's see what the estimated
annual benefit payments are at those three signifi-
cant points, and the reserve at those three signifi-
cant points.
H.M.Jr:
What years?
Altmeyer:
'45, '50, and 155 - even taking '45, because, you
see, that curve of estimated expenditures goes
up very steeply, very steeply, and it gets up to
...
H.M.Jr:
There is no reason why they can't put on three more
years. Dut now, the only trouble is if we go beyond,
say, on the fiscal and monetary - what we going to
do, raise it one percent after '42?
Altmeyer:
Well, they can take any plan they ...
H.M.Jr:
What would you do? You'd raise it.
4
-4-
Altmeyer:
Well, there are two plans that I've been revolving
in my mind, if we were forced to it: either spread
out your tax schedule by five-year intervals instead
of three-year intervals, rewrite the schedule so
you'd have a new schedule in the law; or take out
the second bracket entirely and go from your one
percent each to your two percent each in 1943, and
all of your other increases would be your half
percent. In other words, I think there would be
an advantage, if we're going to touch the tax
schedule, in leaving some kind of a schedule in
effect, in stead of just freezing it at one percent
and wiping out all the other future tax provisions.
H.M.Jr:
What are you trying to do - what we say up in New
York - trying to haggle with me & little bit? Want
to split it, make it a quarter of - shelf of one
percent?
Altmeyer:
No, no, what I'm trying to say ...
H.M.Jr:
I thought we were going to get down and really
bargain. Old man Frederic Delano - this is just in
the family - very cutely said, "I've got the solu-
tion.' He said, "Instead of raising the tax on
January 1, we won't raise it until July 1, 1940."
He says, "Now there's the solution for you.' Going
to do it in the middle of the year.
^ltmeyer:
That would be even worse.
No, what I was getting at was some way in which you
could preserve some kind of stability, some kind of
certainty B.S. to the future tax increases, rather
than to leave it all in the field of conjecture
and bargaining, so to speak, at each session of
Congress. That's the thing I'm afraid of. I'm not
afraid of this one-half percent this next year. What
I'm afraid of is if we drop this increase this next
year then every Congress we're going to have this
haggling about these very low rates. If we're going
to haggle about this one and one-half percent thing,
when we get up to & cost of 9 to 10 percent of the
payroll then we've got something to bargain with.
Viner:
Except that then money will be going out. There is
5
-5-
that difference. Now that money is coming in,
not going out. That changes the psychology some-
what. This is the difficult stage, really.
Altmeyer:
That's right. So what I'm trying to say, Mr.
Secretary, is that I'd like to see a change made
in the tax schedule, if there is going to be
a change, that would preserve some kind of sched-
ule, either by stretching out your present step-ups
to five-year instead of three-year intervals, or
by dropping out entirely this step-up of one to
one and a half percent, and leave an additional
three years for your present one percent and go
to your two percent as you would anyway in 1943.
H.M.Jr:
You mean go to two and two, make it :..
Altmeyer:
Two and two. -hat's what you've got now; got two
and two in 143.
H.M.Jr:
And what year we going to double it?
Altmeyer:
'43. I mean I'd leave '43 just the way it is.
H.M.Jr:
What is '43 now?
Altmeyer:
Two and two.
Duffield:
*ake it in one step instead of two steps.
Viner:
Drop out the one and a half, one and a half stage.
H.M.Jr:
And in '43 go to two percent.
Altmeyer:
Just the way it is now.
H.M.Jr:
And then go up ...
Altmeyer:
...
in three years, just the way it is now.
H.M.Jr:
Let me get this thing. The reason I have to be so
careful - all of us, including myself, change every
15 minutes; I've been on the same position since
11:30 yesterday.
Gaston:
That's wonderful. That's wonderful.
6
-6-
H.M.Jr:
"nd Mr. Gaston sent me one last night. I made him
put his down in writing. After I came back - the
prize story of the Treasury - I told Gaston where
I stood and the President stood; his answer was,
"I think you're both right."
I said, "Would you mind putting it in writing?"
That was his answer.
Gaston:
Sure, I worked it out.
H.M.Jr:
Well now, what you're saying to me is you'll go
along with the Fiscal and Monetary Board.
Altmeyer:
I'll go along with anything that the Administration
decides.
H.M.Jr:
Then you'll go along with Mr. Accles?
Altmeyer:
You
....
Gaston:
de said Mr. A, not Mr. Eccles.
H.M.Jr:
You go along with Mr. X, leaving the tax at what it
is today, is that right, which is one percent, and
then jump it to two percent in '42. Is that right?
When did you think that one up? Is that what you
give all your time to?
Altmeyer:
No, no, but as I say if you're going to abandon
this tax schedule, which - I can see that it's
a problem, but think we'll have a worse problem
in future Congresses; so it's a question of when
we hit the problem.
H.M.Jr:
I think you know Jesse Jones was just here; but I'm
not the trader that he is.
Altmeyer:
The way I feel ...
H.M.Jr:
I see what you mean. Do I understand - to be
serious - I mean now the reason 1 have to joke
is because everybody around here, as I say,
including myself, is all over the lot on this;
it is difficult. Do I understand that you're
Regraded Unclassified
7
-7-
considering or have arrived at the point where
you say, "We'll skip the one percent and go to
two in 143"? Have you arrived at that?
Altmeyer:
No, no, but I say if it's decided, if the President
says, "Well, I've reconsidered, I think we'd better
postpone this thing, I think the Treasury and the
Social Security Board ought to work out a plan 80
that we still retain some element of certainty for
the future.
H.M.Jr:
What makes you think the President will reconsider?
Altmeyer:
From what you were going to show him - those two
sheets.
H.M.Jr:
You're good today, Altmeyer.
(On phone) Mr. Kannee, please.
Supposing I ask if the President will just see
the two of us first thing tomorrow morning, because
I'd like you to hear what I've got to say. I don't
want to say it alone. Have you hear it. I'll take
Lauchlin Currie with me if you want to.
(Hearty laughter)
Altmeyer:
It's O.K. I haven't seen the Currie-Cohen plan
though.
H.M.Jr:
"ill you (Duffield) give him a copy?
Duffield:
You bet.
H.M.Jr:
Why don't you give him a copy of the photostats
of everything that I took over? I think Altmeyer
ought to have that. AS a matter of fact, they're
right here.
Duffield:
Those are the negatives, if you don't mind reading
the negatives. I can give you positives.
H.M.Jr:
Anyway, see that he gets a complete set.
Duffield:
I will.
Altmeyer:
Now, I might mention the advantages from a fiscal
Regraded Unclassified
8
-8-
standpoint, as I see it, of the two alternatives,
if you're going to change on this tax schedule
thing. If you streten it out by five-year intervals
instead of three-year intervals, as near as I can
guess now - I haven't gotten the figures - it means
you have to come in with a government subsidy
earlier, by 1945, if you stretch it out. If you
take the other alternative, just dropping out this
half percent step-up but going to your two percent
in 1943, as now provided in the law, just skipping
this half percent, you won't have to come in with a
government subsidy so soon. 1 don't know just
exactly when it would come in.
So, skipping the nalf percent step-up, if you
thought there was & chance of Congress, when it
was meeting in 1943, letting this step-up occur
from & fiscal standpoint, there would be more
money coming in.
H.M.Jr:
well
(On phone) Hello. - Well, as soon as he comes
out, I want him, please.
Incidentally, Johnny, Miss LeHand said the President
promised to dictate that letter this afternoon,
and that's about the sixth time I've asked him.
They have not yet done it, but he promised to do
it this afternoon. I really think it's six times.
This is what I thought all by myself. Unless I
want to get involved in & highly technical dis-
cussion in which I'd be sunk, I thought that the
sincerest thing that I could do would be to say,
"Gentlemen, here are the two plans as I understand
them." I mean I'm going to call one the Pocial
Security Board plan, the other the Treasury plan.
"And I simply feel that in view of the situation
that 1 can't look forward for the Treasury more
than three years; that's a long time for the Trea-
sury. And I feel I can recommend what we call the
Treasury plan. And then we think that Congress in
the year 1942 should re-examine the whole thing and
see what would be good from the standpoint of the
person who is to be taken care of and within the
realms of financial sanity from the Treasury
standpoint."
Regraded Unclassified
9
-9-
Altmeyer:
And then in effect recommending that the rest of
the tax step-ups be obliterated at this time?
H.M.Jr:
Well, all I'm going to talk about is for three
years; I'm not going beyond three years.
Altmeyer:
You're suggesting the whole thing be re-examined.
H.M.Jr:
And if necessary, I mean, raise the tax in 143
half a percent, one percent, one and a half percent,
two percent, whatever is necessary.
Altmeyer:
But there is a tax schedule running up to 1949.
As I gather, the implication of your remarks would
be that - keep your one and one percent now.
H.M.Jr:
Oh well, I see. No, then I would - I'm willing to
say, "Just pass a law saying that we will not take
the step-up now, but leave it the way it is for the
rest of the time, and then take a look." I'll go
along with you on that.
Altmeyer:
1 see.
H.M.Jr:
Go to two percent for three years and then
...
Blough:
Two and a half.
Duffield:
Three percent.
Gaston:
Two, two and a half, three.
Duffield:
Talking about over-all or each one?
H.M.Jr:
I was talking about combined.
Duffield:
Then it would be two percent to '43 and then it
would be three percent.
Blough:
Four percent.
Duffield:
Four percent.
Get together, boys. what is it?
Altmeyer:
Two percent each, four percent, in '43.
H.M.Jr:
Four percent in '43.
Regraded Unclassified
10
-10-
Altmeyer:
Two percent each.
H.M.Jr:
And then that's good for another three years.
Altmeyer:
Yes.
H.M.Jr:
And then?
Altmeyer:
It's two and a half percent, all-over five.
H.M.Jr:
Yes. I wouldn't recommend making any changes.
The only thing I'm suggesting is
...
Altmeyer:
... skipping this half percent.
H.M.J.:
Is that all?
Altmeyer:
Yes.
H.M.Jr:
That's all. That's all. But as I say, I'd just
like to go over there with you and lay these two
things on his table and say, "Well now, Mr. Presi-
dent, I'm sorry, but we didn't have our stuff in
very good shape, and we've got it now, and as Mr.
Altmeyer says, this is as near correct as it can
be, and the Treasury says
Take it, George; take a look at it. Porry they
didn't show it to you. Should have showed it to
you. But I can't do it all.
Blough:
No intention - I'm sorry too, Mr. Secretary.
H.M.Jr:
Well, you have over-night anyway. "And do you
want this Social Security plan when you see it
like this?" And I'm not going to - I'm not going
to do any selling when I go over.
Altmeyer:
I do think
....
H.M.Jr:
I'm not going to - I'm just going to say, "here
it is."
Altmeyer:
I do wish you'd tack on '45 and '50 at any rate.
H.M.Jr:
All right, I tell you what you
.....
Regraded Unclassified
11
-11-
Altmeyer:
Because it's such a tremendous sweep-up of the
curve of benefits; you don't get a picture of that
in the f irst three years.
H.M.Jr:
Leave this with me, and by tomorrow morning when I
come in take the tax schedule as it is written
now and add them to both the Treasury plan and to
the Social Security plan through '45 and '48, see?
Viner:
That is, work it out to see what it will look like,
if we take this step, for another ten years, fifteen
years.
H.M.Jr:
He's saying six more years. You (>1tmeyer) say
run it up to '48.
Altmeyer:
1945, then skip to '50.
H.M.Jr:
Whatever Mr. Altmeyer suggests.
Gaston:
'45, '50, '55.
H.M.Jr:
And you could have that for me here in the morning.
Do you think it would be safe to call this "Fiscal
and Monetary"? I think better call it the Treasury
plan.
Duffield:
Everybody except Danny Bell on the Committee.
H.M.Jr:
Better call it Treasury plan. That should be
rewritten.
A ltmeyer:
Well now, Mr. Secretary ...
Viner:
I'd suggest you put no name on it, so you're still
free to choose the other one. You're committing
yourself if you ...
H.M.Jr:
Let's call it the Viner plan.
Viner:
That's just what I want to guard against.
H.M.Jri
Do you know this fellow very well?
Altmeyer:
I certainly do. He was for a fifteen billion dollar
reserve at one time.
Regraded Unclassified
12
-12-
Viner:
AS against forty-seven? I still am.
H.M.Jr:
We're glad you say that, because he was trying to
tell me he never was for a reserve.
Viner:
Not for a forty-seven. I'm still for a reserve.
I'm arguing for a reserve now.
H.M.Jr:
What size reserve?
Viner:
Oh, a contingent reserve to cover at least three
years.
H.M.Jr:
How big?
Viner:
I say it ought to be about four billion dollars;
most of them talk about two and a half or three.
H.M.Jr:
The discussion is whether we should change the name
of the Fiscal and Monetary plan to the Viner plan.
Viner's trying to get his name on it.
Viner:
I'm trying to protect the Treasury. I'm willing
to bear the rap for it as long as you don't put
the Treasury name on it. My only point is, why
give them labels?
Altmeyer:
So far as we are concerned, Mr. Secretary, we'll
go along with the Treasury. Really, there is no -
I wouldn't think of going on the Hill and saying
the Pocial Security Doard thinks this and the
Treasury thinks that. I think what's decided we
ought to all go along with. "e know the ins and
outs of this
Klotz:
He's changing too.
Altmeyer:
better than outsiders can possibly know, and if
we're licked - I mean in the sense that the arguments
on the other side seem to be stronger, we ought to go
along with it.
H.M.Jr:
You know me for six years - I mean not intimately,
but we've known each other - you know what I talk
is always in the office and it isn't a question
of my licking you or your licking me.
Altmeyer:
We both, I think, are very
....
13
-13-
H.M.Jr:
I mean there is nothing personal.
Blough:
Would you rather call these Plan A and Plan B?
H.M.Jr:
Yes, it's all right. And then do what Mr.
Altmeyer suggested and have it here by tomorrow,
by nine tomorrow morning. Is that possible?
Blough:
It's possible.
H.M.Jr:
And let Mr. Haas see it, please.
Blough:
I'm sorry, I should have done that.
H.M.Jr:
It's all right.
well, the way I feel is this. I can't be quite as
generous as you are, because unless I take another
somersault I don't think I can go up and testify
that the tax should go into effect, the increase
in the tax. But after a good night's rest I may
feel differently. It's an awful difficult problem.
It gets down to this, of course. What it boils
all down to is, does the President want to withdraw
a billion dollars of money from out of payrolls -
that's what it amounts to - in the next three years,
in round figures?
Altmeyer:
Of course, I didn't present the figures yesterday
on the other Social Security titles, but they're
going to run up next year, with the amendments
that we're recommending - the total disbursements
outside of old-age insurance under the Pocial
Security Act are going to run over 400 million
dollars.
H.M.Jr:
Yes. Now
...
Altmeyer:
So that
....
H.M.Jr:
Excuse me.
Altmeyer:
...
so far as the effect on purchasing power is
concerned
H.M.Jr:
Now, I'm not a very good politician; in fact, I'm
Regraded Unclassified
14
-14-
a lousy one. But from the temper of both the
Senate and the House, what would you say - what
are the betting odds as to getting this increase
in tax through?
Altmeyer:
Well, you know, the interesting thing is this.
Jere Cooper was really quite typical of the Ways
and Means committee on it. They've been exposed
to two months of testimony, and I think that they
are in - would be prepared to stay by the present
tax schedule; in fact, I don't think it's entered
their consciousness to think of changing the
present tax schedule - the Ways and Means Committee.
I don't think it's entered their consciousness and
this will come as a surprise to them: that the
Treasury recommends ...
H.M.Jr:
Well, he heard me yesterday.
Altmeyer:
Yes, but I mean other than Jere it will come as a
surprise that the Government is suggesting not going
up to a half percent next year, because there's been
no testimony taken by them of anybody objecting
except Rukeyser yesterday from Hearst, and there
may have been one other person. But ...
H.M.Jr:
+his makes it perfect. it puts Vandenberg, Lodge,
Hearst, and me in the same boat - and Accles.
Gaston:
And, I expect, John Flynn and ar. Coster-Musica.
(Hearty laughter)
If you will pardon my
....
H.M.Jr:
it's all right, young fellow; listen, after I read
your memorandum last night, you're in a class by
yourself.
Gaston:
I know it, but I - there's a little underground
support around here.
Viner:
Are you in communication with Coster-Musica?
Gaston:
No, I was suggesting names for these plans - Insull
and Coster-Musica.
Regraded Unclassified
15
-15-
Altmeyer:
That may be because they've got a little pride of
authorship in the Ways and Means Committee and
they're sold on the present thing; while they've
had a terrible fight on the reserve, nevertheless
they'd like to cling to some of the shreds of their
handiwork. Now, when it gets out on the floor of
the House, I think the Ways and Means Committee
would control the situation. I don't think there
is much danger in the House.
When it gets over in the Senate, that's a different
story. You've got Vandenberg, you've got Lodge, and
I think there are a number of the liberal Senators
too that would be quite concerned about this. And
so I think in the Senate it might be that you would
run into difficulty with a half percent step-up.
That's my thought.
H.M.Jr:
well, look, I'll ask the President to see us the
first time he can. In the meantime, do you (Duf-
field) think I ought to call up Cooper myself?
Duffield:
I just promised that somebody would call him this
afternoon.
H.M.Jr:
I'll call him.
Duffield:
This was the clerk of the Committee, it wasn't the
member. This was the clerk.
H.M.Jr:
Tennessee, isn't it? where's he from?
Puffield:
+his is the clerk of the Committee, not Jere Cooper.
H.M.Jr:
But I want to talk to him myself.
Duffield:
Just call the Ways and "eans Committee, clerk of
the Committee, mr. Cooper. Just the clerk of
the Committee.
H.M.Jr:
Well, you call him up and tell him that I just
got a - I need another twenty-four hours.
Puffield:
All right.
H.M.Jr:
Tell him I expect to see the President again; I
need another twenty-four hours.
Regraded Unclassified
16
-16-
Altmeyer:
Now, do you want me to mention the other thing I
have in mind?
H.M.Jr:
Anything.
Altmeyer:
Well, I think that a large part of the popular
misunderstanding of the nature of social insurance -
this contributory social insurance would be allayed
if something were done on the lines of what Brown
suggested on the handling of funds. You reacted
unfavorably on that. You say if they don't trust
the Treasury, they won't trust any Government pro-
position. But I think there is something to be said
for this sort of a thing: Change this word "taxes"
to "contributions" in the law; last year it was done
in the case of railroad unemployment insurance, and
they called it contributions, not taxes. Have it go
into a special fund. It doesn't make any difference
to the Treasury; that's where it goes eventually
anyway. And perhaps have a board of custodial trus-
tees, not investment trustees. And perhaps write
into the law, or the Committee report at any rate,
a declaration of policy relative to the size of
reserve: three times the
...
H.M.Jr:
Well now, let me ask you this. Det's do one thing
at a time. In the Post Office - Postal Savings have
three trustees, the Postmaster General, the Attorney
General, and myself. Now, do you want to - would
that plan help you any?
Altmeyer:
ies.
H.M.Jr:
What?
Altmeyer:
Yes, I mean you'd have Government people. Wouldn't
want to bring in outside people.
Viner:
Be ex-officio appointments.
Altmeyer:
Ex-officio, yes,
H.M.Jr:
On Government Life I'm exclusive. I'm exclusive on
practically all of them, but if making two other
Cabinet - making you and the Secretary of Labor
co-trustees with myself - I couldn't object to that.
-17-
17
Altmeyer:
You think so far as the Treasury is concerned, so
long as the Treasury has these two essential func-
tions, the collection and the investment, that the
way it's handled, the bookkeeping here, is merely
something to convince the public
....
Viner:
Aye-wash.
H.M.Jr:
I mean I can't - if you want to make yourself and
the Secretary of Labor - would that be the
....
Altmeyer:
I wasn't thinking of the trustees so much as this
whole
H.M.Jr'
Who besides yourself? I haven't - wouldn't it be
just Labor?
Altmeyer:
Yes.
H.M.Jr:
Secretary of Labor.
Altmeyer:
And maybe Commerce.
H.M.Jr'
No, three would be ...
But I wouldn't - what the President said about putting
a ceiling on this thing - I just couldn't follow him
at all. I didn't want to - I didn't want two things
at a time. He said when it gets to a certain height,
the reserve fund, then you do what?
Altmeyer:
"Just put it in escrow."
H.M.Jr:
I don't know what he meant by that.
Altmeyer:
I don't know what he meant.
H.M.*r:
"Let's use the figure five billion dollars. Anything
over and above you put in escrow." what do you do
with it?
Viner:
You'd have a board to nold - you'd hold to five
billion dollars, and above that a board would nold.
On that basis
...
H.M.Jr:
"hat would you do with the money in escrow?
18
-18-
Viner:
+hey'd hold it the same way you do; they'd be the
legal trustees for it.
Altmeyer:
But his idea of expressing a policy - I think there's
a lot to it. The policy might be expressed like this:
that if at any time the reserve exceeds three times
the annual benefit payments, then this board shall
make 8 recommendation to the Congress as to what
shall be done.
Hanes:
+he significance I got from his statement there
was - his idea was cutting off the reserve fund at
five billion dollars and then have Congress explore
the possibility of lowering the taxes back again to
keep it - in other words, to let that fund balance
itself all the time, not to go beyond thatamount; if
it was going beyond that amount, extending past the
benefit payments, that you'd cut the tax down. That
was the significence I got from what he said.
H.M.Jr:
I frankly didn't understand it.
Altmeyer:
or course, I think it's wrong expressing it in
absolute terms like five billion; it ought to be
in terms of the annual benefit costs.
aanes:
Contributions against the benefits.
H.M.Jr:
Well
Viner:
The mature benefits.
Altmeyer:
No, on that - do you know what the mature benefits
under this new proposal are likely to be?
Viner:
Two and a half?
Altmeyer:
No, I mean the maximum. First let me say that the
actuaries are now saying that our original cost
figures may have to be stepped up by as much as
50 percent.
Blough:
-nat's the '35 Act, present Act.
Altmeyer:
-he present Act. "ell, that means in eventual cost
perhaps as much as six billion dollars a year. Well
now, three times that would be an 18 billion dollar
reserve; you don't mean that.
13
-19-
Hanes:
Six billion dollars a year in what year?
Altmeyer:
1980 - this mystic year.
Hanes:
None of us will be alive then.
Gaston:
You don't know what you're looking at, John.
danes:
won't think I'll be alive then, so that
...
Altmeyer:
But we will be alive in 1945 and 1950, and meeting
here perhaps.
Viner:
No, somebody will.
Altmeyer:
Jur maximum cost assumptions may be as much as a
billion dollars by 1945 and two billion dollars
by 1950; that's what we're headed for in this thing.
Gaston:
Yes. I would have thought sooner than that.
Altmeyer:
That's a year, I mean.
Gaston:
Yes, yes. On a flat curve proposition it would be
up to two and a half or thereabouts at about '60.
But it will be more than that.
Altmeyer:
I don't know what it will be in 1960.
H.M.Jr:
(on phone) Thank you. -
"hursday?
-
Just
a minute, let me ask ar. Altmeyer.
If I'm going to go up there, I oughtn't to wait
until Thursday, ought I, huh?
Altmeyer:
Not to see the President.
H.M.Jr:
(On phone - to Kannee) No, I think if he could
work us in some time tomorrow. - If you please,
because - on account of the Congress and on account
of my going away Friday night. - thank you very
much.
"ell, let's go over - now, if it helps you to have
the thing, what you're talking about, the trustee
business, I'll go along with you on that.
Altmeyer:
That's just incidental to the other thing I mentioned.
20
-20-
H.M.Jr:
I know.
Viner:
And the change in the terms from "tax" to
"contribution."
H.M.Jr:
Well, I go along with you on that.
Duffield:
May I ask whether you have
....
H.M.Jr:
I go along with you on that.
Viner:
The two go together, because if it goes to trustees
it would be regarded as contributions.
H.M.Jr:
If that's what you came
....
Altmeyer:
I didn't know you'd be so receptive to that.
H.M.Jrt
Do you have something more? I'm trying to be
Altmeyer:
I thought you'd say it was just eye-wash.
Viner:
But it's needed eye-wash.
H.M.Jr
I want to be helpful.
Altmeyer:
I'd rather you survey your own people - I really
would - because it's a long-range Treasury proposi-
tion.
H.M.Jr:
Well, Johnny, you go along on that?
Hanes:
Sure.
Gaston:
It will save a lot of letter-writing.
H.M.Jr:
"hat?
Gaston:
It will save a lot of letter-writing
Duffield:
I've got one question I want to ask on this contri-
bution thing. I thought this got in under the
Constitution' under the taxing power. Is it threatened
in any way by calling it a contribution instead of a
tax?
Altmeyer:
There isn't a clear legal question about it. I think
the lawyers would say that now since we have had the
Regraded Unclassified
21
-21-
Cardozo decision and the Philippine coconut oil
decision and we've got a new appointment to the
Supreme Court, that probably there isn't much
danger of the Court overturning it, especially
if in the Committee report you said that while you
call it a contribution you're exercising the taxing
power, something like that, so you'd have a legal
basis in case it were questioned.
Duffield:
I just thought they were called taxes rather than
contributions in the first place to make it per-
fectly clear.
Altmeyer:
The titles were separated because of that. Inci-
dentally, Mr. Secretary, you've got to revise all
of your reserve language anyway, because Longress
has violated the reserve requirements already by
not appropriating the annual premium that your
actuaries estimate is necessary.
H.M.Jr:
I know.
Altmeyer:
50 we're violating the law now.
H.M.Jr:
What was the name of that man with gray hair from
Labor Department yesterday?
Altmeyer:
Dimock. D-1-m-o-c-k.
H.M.Jr:
What's his position?
Altmeyer:
He's Assistant Secretary.
H.M.Jr:
I mean where did he come from?
Viner:
Marshall Dimock?
Altmeyer:
Yes. Where did he come from?
H.M.Jr:
Yes.
Altmeyer:
University of Chicago.
Viner:
He's one of our
....
Blough:
... political scientists.
22
-22-
H.M.Jr:
I never met him before. Seemed like a very nice
man. How long has he been here?
Altmeyer: He was over there studying immigration for about
six months, and he's been Assistant Secretary for
about two or three months now.
H.M.Jr:
Well, you got anything else?
Altmeyer: No.
Regraded Unclassified
23
Harch a. 1939.
SOCIAL SHOUNITY BOARD TAX PLAN
Existing tax schedule through 1942 with insurance in rates from 1 to
1t percent taking effect January 1, 1940.
2.
Benefits under AC 14 (Jamary 21, 1939) in accordance with the
Board's nedium-high estimates, including disability benefits.
(Homap figures in millions)
I
Colonder year
8
1940
I
1941
-
1942
-
Total
I
I
3 years
fross tax receipts
$ 915
$ 928
$ 920
$2,753
Longs Denefit payments
175
400
555
1,130
Administrative expenses
51
52
51
153
Net cash receipts of Government
689
467
314
1,470
Md: Interest accrued
53
72
86
211
Total addition to fund
The
539
400
1,680
Fund at end of years
2,172
2,711
3,111
"Tund at end of year 1939 is estimated to be $1,430 millions
(Based OR Secial Security Board figures.)
24
Harch n. 1999
1. So increase is tax through 1942.
2. Benefite under 40 14 (Seasury 21, 1939) in accordance with Feetal
Security Beard's medium-bigh cetimates, including disability
benefits.
(Seecy figures in millions)
I
Colonder TMP
-
1940
:
1941
:
I
Total
1942
1 THATS
Green tax receipts
$ 610
. 618
$ 613
$1,835
lease Denofit payments
175
hoo
555
1,130
Administrative payments
51
52
51
153
Net each receipts of deverament
E
161
7
552
MAI Interest accread
$
%
63
170
Total addition to feel
433
229
TO
722
Pund at end of years
1,863
the
2,192
. Fund at and of year 1939 is estimated to be $1,430 millions.
(Pased on Social Security Deard's figures.)
RB:hhj
3/21/39
Regraded Unclassified
25
RE SOCIAL SECURITY RECOMMENDATIONS March 21, 1939.
11:55 a.m.
Present:
Mr. Hanes
Mr. Duffield
Mr. Blough
ars Klotz
Mr. Gaston
Mr. Viner
H.M.Jr:
Come in, Professor. I thought you'd like to meet
Messersmith.
Viner:
Yes, I did; thank you very much.
H.M.Jr:
Let's see what you (Blough) got on this.
Blough:
That's the Social Security, with regular increases,
following the Act.
H.M.Jr:
This is Docial Security Board.
Blough:
And this is the monetary.
H.M.Jr:
You got copies for Mr. danes?
Blough:
I have a few.
H.M.Jr:
riscal and monetary.
we'll take the Pocial Security thing first. Gross
tax receipts, 915; benefit payments, 175; administra-
tive expenses, 51; net withdrawals, 689.
Now, you add 175 to 51. For net withdrawal, how do
you get 689?
Blough:
915 minus 175 and 51 equals 689.
H.M.Jr:
Well, can't you get it so that that would be
You mean 915 minus 175 minus 51 equals
....
Blough:
... 689.
26
-2-
H.M.Jr:
All right. But is that the way - wouldn't there be
some line drawn by a bookkeeper, or something?
Blough:
If it were horizontal, yes.
H.M.Jr:
Well, now, could I draw a line between gross tax
receipts and benefit payments?
Blough:
Yes, it would be a ....
H.M.Jr:
Good idea? what?
Blough:
And also between administrative expenses and net
withdrawal from the economy.
H.M.Jr:
Now, why is it net withdrawal?
Duffield:
We didn't know what to call that column.
H.M.Jr:
Net withdrawal from economy, 689. Now before I draw
another line - interest accrued.
Viner:
I'd call it "net cash receipts of Government."
Duffield:
Call it "net cash receipts." That would be much
better.
H.M.Jr:
Net what?
Viner:
"Net cash receipts of Government."
H.M.Jr:
"Net cash receipts." "Net cash receipts."
Let's see, 915 is the tax, 175 benefit payments,
administrative 51; you subtract those two, you
get ....
Blough:
689.
H.M.Jr:
How do you mean, net cash receipts? To the Govern-
ment?
Duffield:
To the Government, yes.
H.M.Jr:
Well, that doesn't express it. I see "gross" here,
but you use the word "gross tax receipts" and then
you use "net cash receipts." You've got to use the
same word.
27
-3-
Duffield:
All right, "net tax receipts."
blough:
Not net tax receipts; receipts would be gross -
minus administrative expenses.
H.M.Jr:
Where does the 53 come in?
Blough:
53 is the interest accrued, which so long as we are
on a deficit is a bookkeeping item.
Hanes:
That's the interest we owe to the Pocial Decurity
fund on account of the three percent provision.
H.M.Jri
Is that plus or minus?
Blough:
That's plus and helps to build up the fund at the
end of the year. If you will take the fund at the
end of the previous year, the 1430, add to it the
689 and the 53, you'll get the 2172.
H.M.Jrl
Now look, you fellows make it just as hard as you
can for a very simple-minded farmer. Now you start
with 915
....
Blough:
Yes.
H.M.Jr:
Now, when I worked on the farm, I do either all my
pluses or minuses first.
Blough:
You're getting two things. You're trying to get net
cash receipts to the Government and you're trying to
get the fund.
Viner:
I think it would be simpler if you were to arrange
it in the other order, vertically instead of hori-
zontally.
Blough:
And put years across the top.
Klotz:
That's right.
H.M.Jrl
Yes, and then 689 is the net cash receipts that
were taken out.
Viner:
what the Government takes in over what it pays out.
H.M.Jr:
And the 53 - we pay that out again.
28
-4-
Viner:
That's a bookkeeping ....
Blough:
Just make a bookkeeping transfer.
H.M.Jr:
But you want another column here for the total that
you add to 1430 to get 2172. I want that figure.
Plough:
Total added to reserve.
H.M.Jr:
If you do that norizontally, you'd get that.
Klotz:
You can subtract, you see.
Blough:
Total added to reserve - that's 742 in the first
year.
H.M.Jr:
It would be 7- ...
Plough:
742.
H.M.Jr:
I get the thing now. +hen the next time we take
918, and the benefits are 400, expenses 51, net
withdrawal 467. In other words, the net withdrawal
in the next three years on Pocial Security is
one billion 470 million.
blough:
That's correct. That's beginning in 140. I've
left '39 out SQ you could concentrate on the three
years 140, '41, and 142,
H.M.Jr:
That's right. That's right. Now it begins to take
shape, doesn't it?
Now, on the other basis, on the so-called fiscal
and monetary thing, the net cash withdrawal is 552
or almost a billion dollars less.
Blough:
That's right. of course, after '42 the picture is
different.
H.M.Jr,
Well, I don't think we ought to go beyond '42.
Blough:
There will be rapid increase in rates, under the
fiscal and monetary committee tax plan.
H.M.Jr:
The way I'm thinking - we do this for three years
and in '41 we re-examine it again for three years.
Regraded Unclassifie
29
-5-
Blough:
we can tell in advance that if you're going ahead
with the schedules, the rates will have to go up
more rapidly after 142.
H.M.Jr'
Now, Mr. Altmeyer is coming here at three at his
request.
Now I'm getting this thing now so I understand it.
You got any suggestions, John?
Hanes:
No.
H.M.Jr:
What?
Hanes:
No.
H.M.Jr:
this is - it's the 1470 as against the 552, isn't
it?
Blough:
That's right.
H.M.Jr:
"hat?
Blough:
That's correct.
H.M.Jr:
And - well, we can fix it the other way very
easily.
Blough:
We can recast it in three-quarters of an hour.
H.M.Jr:
I can take a look at it again - can you be back
around two?
Blough:
Basily.
Puffield:
Be back before lunch if you want it.
H.M.Jr:
I wouldn't be ready. Is this the way it should be?
Hanes:
Yes. Very clear.
Duffield:
Mr. Secretary, I think there are one or two reserva-
tions that maybe you don't care whether we mention
or not. We've just arbitrarily taken one set of
their estimates of benefits. They've got Heaven
knows how many.
30
-6-
H.M.Jp:
well, you've got to take one.
Duffield:
That's right.
H.M.Jr:
You've got to take one.
Would you call Mr. Cooper's clerk and say that
I'll get in touch with him this afternoon.
Duffield:
Yes.
H.M.Jr:
And then if you gentlemen come back - not necessary
for you to be back at two, but if you (Viner) would
be here at three. I'll take a look at this at two,
and then if all of you could be here when Altmeyer
is here, we'll put this thing before him. Tell
Haas to be here, too.
But tell Cooper I've got the message. I just don't
know how to answer.
But if I could have those figures horizontally at
two, and then when Altmeyer is here we'll take
another look at it.
Duffield:
Fine.
H.M.Jr:
And I think if I could get that in to see the
President and simply say, "Here's the picture."
(On white House phone) "ho is making appointments
for the Bresident, Watson or Kannee? - May I
please? - Thank you.
Have you (Blough) shown this to the Social Security
people?
Blough:
No. This comes - this is, I may say, worked up
from their tables.
H.M.Jr:
That's all right.
Blough:
But I haven't shown this to them, no.
H.M.Jp:
what it amounts to: does the President want this
thing to take a billion dollars out of...-what?
Duffield:
Mr. Currie's stream of spending.
31
-7-
Gaston:
Net Federal contribution.
H.M.Jr:
Does he want to take a billion dollars out of net
Federal contribution? what? I mean this gets it
down to, does he want to do it or doesn't he? And
my own feeling is that if he - I mean if he doesn't,
if he still wants to stick to this thing, I don't
think I better go up on the Hill, because - well,
we'll decide that.
You got any suggestions, John?
Hanes:
No, not a thing.
H.M.Jr:
Can you be back at three?
Hanes:
Yes. Herbert, we better make
....
Gaston:
We'll change that.
Hanes:
Tell him to make it 3:15. See, it will take ....
H.M.Jr:
Half an hour.
Hanes:
Make it 3:30.
H.M.Jr:
All right, people; I'll try to get an appointment to
see the President tomorrow.
32
March 21, 1939.
FISCAL AND MONETARY COMMITTEE TAX PLAN
1. No increase in tax through 1942.
2. Benefits under AO 24 (Jamuary 21, 1939) in accordance with Secial
Security Beard's medium-high estimates, including disability
benefits.
(In millions of dollars)
Celendar 10ross taxt Benefit :Administrative:Net Withdrawal:Interest: Fund at
year :Receipts (Payments I Expenses from economy Accread 13nd of Year
1939
-
-
-
-
I
1,430
1940
610
175
52
384
mg
1,863
1941
612
400
52
161
58
2,052
1942
613
585
51
7
63
2.152
Totals 1,835
1,130
153
552
170
-
(Based on Social Security heard figures).
22-39
Regraded Unclassified
33
March 21, 1939.
SOCIAL SECURITY BOARD PLAN
Existing tax schedule through 1942 with increase in rate taking
effect January 1. 1940.
P. Benefits under 1014 (Jamary 21, 1939) in accordance with the
Board's medium-high estimates, including disability benefits.
(In millions of dellare)
Calender
1Gross taxt Benefit :Administrative:Net vithdrawal:Interest: Fund at
year
1 reseipts! Payments # Insure I from connomy (Agerand : Zind of X
1939
-
-
-
-
-
1,430
1940
915
175
52
689
53
2,172
1941
918
400
52
467
72
2.712
1942
920
555
51
314
86
3,111
Totale
2,753
1,130
153
2,470
211
(Based on Social Security Beard figures).
Birth
-21-39
Regraded Unclassified
34
RE SOCIAL SECURITY RECOMMENDATIONS March 22, 1939.
12:20 p.m.
Present:
Mr. Hanes
Mr. Gaston
Mr. McReynolds
dr. Duffield
Ar. Foley
Mr. Bell
Mr. Blough
Mr. Viner
Mr. Altmeyer
Mrs Klotz
Mr. Reagh
H.M.Jr:
Hello, everybody.
Now gentlemen, Mr. Altmeyer and Mr. Hanes and I
have just been over to the White House, and we took
over what we have here. Now, I don't know whether
all of you have seen this or not. I hadn't until
I got there. But this is the work done during the
night, and supposing I start off by reading this,
because the President accepted this and agreed to
it.
And in reading this, would you (Bell) particularly -
he asked whether you've seen it; I don't know -
we'd like to make it as much like the Postal Savings
as possible, in connection with handling the Social
Security fund, you see. I don't know how near it
approaches the Fostal Savings plan. Do you (Foley)
know?
Foley:
Well, I don't know off-hand. I can give it to you.
H.M.Jr:
Well, both Mr. Altmeyer and Mr. Hanes and I thought
if we could say, "This is practically the method of
handling Postal Savings," it would be helpful. But
I'll read it; you'll see.
Foley:
This is what our people and Social Security worked
out last night.
H.M.Jr:
What you did last night. What we want to do is
get something for me - Mr. Altmeyer will assign
people - I want something - if we can meet here
again at 9:15 tomorrow morning. Can you (41tmeyer)
Altmeyer:
Sure.
Regraded Unclassified
35
-2-
H.M.Jr:
Now I'll read this thing here.
"Proposed changes concerning old age reserve
account.
"We were in agreement that a statement, such as
the following, would be appropriate:
"1. The taxes under Title VIII should be desig-
nated as 'contributions.
"2. It is further suggested that there be created
and established 8 fund to be known as the 'Social
Insurance Trust Fund' to be held in trust by the
Board of Trustees of the Social Insurance Trust
Fund and to be deposited in a special deposit
account with the Treasurer of the United States.
The monies in the Social Insurance Trust Fund shall
not be covered into the Treasury of the United
States.
"The Social Insurance Trust Fund shall be made up
of (1) monies appropriated thereto out of the Treasury
by Congress (including the monies now carried in the
ola age reserve account) ; (2) monies collected by
way of 'contributions' under Title VIII of the Social
Security Act; it is contemplated that the 'contribu-
tions' will be paid directly into the Trust Fund and
will not be covered into the Treasury and then
appropriated out; (3) all interest, increment, or
profit realized in operating the Trust Fund shall
accrue to the Fund."
I just want to stop. I think if we could draw in
this man from the University of Chicago, the man
from Labor - what's nis name?
Viner:
Pimock.
H.M.Jr:
What?
Viner:
Dimock.
H.M.Jr:
Wouldn't that be good, 50 they might be familier
with it? Wouldn't he be the man?
Altmeyer:
I don't think anybody over there really has been
working on this; but it's all right to have somebody
in.
Regraded Unclassified
35
-3-
H.M.Jr:
Don't you think it would be helpful?
Altmeyer:
O.K.
H.M.Jr:
At least he can't do any harm. what?
Altmeyer:
That's right.
H.M.Jr:
Send word to Douglas Brown I want him to be here
Thursday and Friday, please. Huh?
Duffield:
He isn't going to like that.
H.M.Jr:
why?
Duffield:
He had some commitments in New York which he put
off a week anyway when you called.
H.M.Jr:
Well
....
Duffield:
That's all right.
H.M.Jr:
"The Secretary of the Treasury shall be the managing
trustee of the Board of Trustees of the Social
Insurance Trust Fund. The Pocial Insurance Trust
Fund shall be deposited in the special deposit
account and withdrawn therefrom by the Secretary
of the Treasury, and as managing trustee the
Secretary of the Treasury shall exercise all
fiscal control over the Social Insurance Trust
Fund. In that capacity shall have exclusive
authority to invest or reinvest the monies in the
Fund. it shall be the duty of the Secretary of
the Treasury to invest such portion of the monies
in the Fund as are not, in his judgment, required
to meet current needs. The Secretary of the Treasury
shall invest only in interest-beering obligations
of the United States, or in obligations guaranteed
as to both principal and interest by the United
States.
"For purposes of investment, such obligations may
be acquired by the Secretary (1) on original issue
at par, or (2) by purchase of outstanding obligations
at the market price. The interest yield on obliga-
tions in which the Secretary may invest shall be not
less than the average rate of interest provided for
37
-4-
in Section 904 (b) of the Social Security Act.
"3. The Board of Trustees shall be composed of the
Secretary of the Treasury, Chairman of the Social
Security Doard, and the Secretary of Labor, whose
duties shall be to report annually to Congress as
to the operations and status of the Social Insurance
Trust Fund during the preceding fiscal year and
during the next five fiscal years."
Why "during the next five fiscal years"?
Altmeyer:
You have to project your planning for five years.
H.M.Jr:
"With regard to (a) income from whatever source,
including contributions and interest; (b) disburse-
ments of every character pursuant to payments under
Title II of the Social Security Act; (c) the assets
of the Trust Fund, including cash and securities
and their yield.
"The Board shall also, from time to time, include
special actuarial estimates having a bearing on the
general fiscal condition of the Fund.
"The Board of Trustees shall make a special report
to Congress, whenever it shall appear to the Board
of Trustees that during the ensuing five years there
will be a balance in the Social Insurance Trust Fund
greater than three times the highest annual expendi-
ture anticipated during such period."
Now, the President's approved this in toto. In toto,
a hundred percent. And the thing that Altmeyer
pointed out to me - that this doesn't mean we any
longer have to issue three percents.
Viner:
You're taking that out, then?
Altmeyer:
If you're going to have a wovernment subsidy, no
need to have a fixed rate of interest.
H.M.Jr:
Now we presented to the President what we call
Plan A,
Viner:
You make your actuaries' job more difficult.
38
-5-
Bell:
Your liability can be figured on whatever rate you
want.
H.M.Jr:
Well, we presented to him Table I and Table II,
and when we first presented it to him - and we
showed Table I went through with the present
increases as in the law and Table II skipped the
present increase for the next three years and then
had the increases thereafter. Well, again he said
he didn't like it, and so we argued. So he said,
"Well, let's have four plans."
And he says, "We'll call Table I Plan A, and we'll
have Plan B..." - which is here in his own hand-
writing: 1940, go to 18 percent; '41, 1; 1942, 1.75;
and '43 and thereafter, 2 percent. Then on Plan C
ne said 1.16 2/3, 1.33 1/3, then 12, and then 2.
He said that I should go up and say, "Here, gentle-
men, are four plans. We think they're all good, and
we'd like Congress to study these."
But as to the Trust Fund - I mean the money - this
would be a definite recommendation of the Adminis-
tration. Is that right, Altmeyer?
Altmeyer:
Yes.
H.M.Jr:
Am I saying it about right?
Altmeyer:
That's right.
H.M.Jr:
Johnny, is that about right?
Hanes:
(Nods yes)
H.M.Jr:
And as far as I'm concerned, considering the
position of the Pocial Security Poard - and the
President and Mr. Altmeyer rubbed my nose in the
fact this morning that it was I who had the - what
do you call this fund - reserve? - ...
Altmeyer:
Reserve.
H.M.Jr:
increased; that I wasn't satisfied. Incidentally,
Herbert or somebody look up my testimony. He said
I'm the fellow that had it increased, publicly.
Regraded Unclassified
-6-
39
Gaston:
Yes, I think that's right.
H.M.Jr:
So I'm satisfied to go before Congress in this way,
Now, what Mr. Altmeyer said he'd do to help me out,
because he realizes how sketchy my knowledge is -
that he will assign people to work with our people
so that they can have the thing in writing for me by
9:15 tomorrow morning.
And while we were there the President coined a new
word on the present situation. He said he calls this
an "easement." He says, "We'll ease our way into
this thing."
bell:
It's a mortgage.
H.M.Jr:
What?
Bell:
It's a mortgage.
H.M.Jr:
I don't hear you.
Bell:
It's a mortgage on future generations.
Viner:
An easement is the right of somebody to walk over
you.
H.M.Jr:
Well, we've passed that stage, haven't we?
Well, anyway, I personally feel that - 1 want to say
here in my own group that Mr. Altmeyer couldn't have
been more cooperative if he had been with the Trea-
sury; I've tried to meet him on the same basis.
Pecond place, I think in view of the President's
public stand on this and his real interest in the
Social Security, also in view of the fact that
everybody in the Treasury has wobbled all over the
lot - they never stand put on this thing one minute -
and I being the worst offender, why, I can't go up
and say that Plan II is the only plan, and I'm will-
ing to present all four.
So I - after all, it's democracy and it's give and
take, trial and error.
40
-7-
Now, who will you (Altmeyer) designate to head
this thing up, to work with our people?
And another thing - if I could say, Ad, that this
is almost the same as Postal Savings, or where it
differs; and as to the handling of the Trust Fund
and all that, if Mr. Bell will take E look at that.
Pell:
+he Board is practically the same - composition of
it.
H.M.Jr:
How busy are you, Dan, the next 24 hours?
Bell:
Well, I'm pretty busy. I'd have to stop some of
my hearings for this.
I'd like to raise this question. I suppose the
lawyers have considered the constitutionality of
the contribution features.
McR:
I was going to raise the same question.
H.M.Jr:
Well, that's something else.
McR:
Getting back to the AAA principle there.
Bell:
What would be the harm in still calling them taxes
and having Congress appropriate them for the benefit
of the Fund, and as they come in just deposit them
in the Fund? We've got several funds that way.
Altmeyer:
Well, I think, Danny, that the whole - one of our
big troubles so far is we've been calling them taxes
and everybody gets to talking about them as if they
were general taxes.
Bell:
Well, you called them taxes for constitutional
reasons. Now have you jumped that hurdle?
Altmeyer:
Yes, I think SO.
Viner:
I would suggest you might get there this way. Still
call them taxes and always put in brackets after
the word "taxes, If "contributions to the Social
Insurance Fund. In time, after a few years, you
may drop out the "taxes."
41
-8-
Altmeyer:
You know, that word "tax" was dropped out last
year under that Hailroad Unemployment Insurance
Act. That uses the word "contributions." And the
way they undertook to get over the hurdle was that
in the Committee report they said that "these
contributions were being levied under the taxing
powers of the Federal Government." And so if they
had to test it out they could always go back to the
Committee report and use that.
H.M.Jr:
"ell, if they can meet - what's the room they meet
in, Mac?
McR:
296.
H.M.Jr:
296, at 2:30. And George, you ought to give it all
your time, and "lough and Reagh. And Foley, have
somebody on it, but watch it; and Bell, could you
take your end. And then if you - is it all ight
to send your people here?
Altmeyer:
Fine.
H.M.Jr:
And if the rest of you would sort of give this
thing a - watch it go along. And I think you
(Duffield) better sit in, definitely, with these
boys, you see. And Mac and Herbert, if you'd
kind of watch it also; but these other fellows -
could you (Viner) watch it this afternoon, or you
got something else?
Viner:
Not unless there is more work on that letter.
H.M.Jr:
"ell, immediately when I come back from wallace,
if you come in I'll go over the letter with you.
But if this thing could be rolling and then if
you could have something for me at 9:15.
Would you (Altmeyer) ask that man to come over
from Labor? Would you do that?
Altmeyer:
Yes, be glad to do that.
H.M.Jr:
Now, do you mind if for the record I keep this,
because I've written on it - is that all right? -
and then this thing in the President's own hand-
writing - you can have that photostated and sub-
stitute the photostats.
Regraded Unclassified
42
-9-
Altmeyer:
I'd like & copy of that so our actuaries can
be
....
H.M.Jr:
"e'll do it right away and send it over to your
office.
Foley:
Well, our memorandum to you is practically the same
as that. I followed it. "ight there - the one on
top. You see, we worked this out together and this
is practically what you read. That's my memorandum
to you, see? So if you want to give the other back
to him, it's all in this.
H.M.Jr:
No, I've written on the back of it.
(10 Klotz) I'd have a dozen photostats made.
Klotz:
A dozen?
H.M.Jr:
Yes. And a copy to go to Mr. Altmeyer.
Now, what I wanted, because I'm so - as I say, I
want a definite statement. Here's one - I don't
know what - Blough gave me a statement.
Blough:
That's pretty bad now, because the situation has
changed since I started that.
H.M.Jr:
Well, if I again may say it, as to the question of
the Trust Fund and that, that we feel we can
agree definitely on. Right? As to the other, I'm
to go up and say, "Now, gentlemen, here are four
plans, and we think all four are worthy of your
consideration."
Viner:
They'll ask you for a preference, I'm sure.
H.M.Jr:
Well, I'll simply say, "At this time I am not ready
to indicate a preference."
Duffield:
May I ask the significance of the reference in that
Trust Fund business to a three-year reserve?
H.M.Jr:
Yes.
Altmeyer:
That's what everybody's been talking about: three
times.
Regraded Unclassified
43
-10-
Duffield: This puts it definitely on record, then. that says
there shall be a special report to Congress whenever
the reserve gets so high. Do we understand we're
endorsing a contingent reserve instead of a full
reserve?
41tmeyer:
Uf not more than three times the highest annual
benefit cost in the next five years.
Duffield:
It's all right to say so in the statement?
H.M.Jrt
Yes. And that's what you (Viner) believe in.
Viner:
(Nods yes)
H.M.Jr:
Am I right?
Viner:
That's right.
Altmeyer:
Put notice it doesn't say "endorsing....
Viner:
I myself haven't got much judgment as to whether
two or four years, or so, but I think three years
sounds reasonable to me.
H.M.Jr:
You vary between two and four, as against ....
Viner:
I'd ask the experts there as to what period.
But it's a contingent reserve to take care of
a short period of stress, special strain or
emergency, rather than E. full reserve.
H.M.Jr:
The Administration and the President have O.K.'d
it.
Hanes:
That's right.
H.M.Jr:
That he's for a contingent reserve. he read the thing
very, very carefully, said, "This is fine. This is
grand. This is what I suggested." Isn't that prac-
tically what he said? what?
Altmeyer:
Yes. Notice it says "not greater than."
Duffield:
That's right.
Altmeyer:
It shouldn't be three times, because that would
bring the Government in to subsidize perhaps sooner
44
-11-
than we want to subsidize; so it's sreserve
not greater than three times.
Viner:
It sets a maximum limit, doesn't set any
minimum. I approve of the minimum, too.
H.M.Jr:
And, to let politics raise its ugly head for a
moment, you (Altmeyer) think this is good politics,
don't you?
Altmeyer:
I do. Excellent.
H.M.Jr;
This takes care of the things you've been worrying
about for months, doesn't it?
Altmeyer:
Put I think in your statement before the Committee
you ought to point out what the significance of this
change is: that they're going to be confronted with
the necessity of either ultimately increasing payroll
taxes or subsidizing out of other than payroll taxes
H.M.Jr:
We'll take a look at it.
The point, gentlemen, why I'm willing to go along
with this thing - I want to see - I always try to
be honest. What's happened to me recently in the
last couple of days makes me as afraid as a lot
of other people are that if we get this fund up to
the size they're talking about, that somebody will
raid it and use it for purposes for which it was
never created. And I think that to have a fund the
size that I originally advocated, in view of the
trend of governments all over the world at this
time - I think that that's dangerous. Now, I'm
willing to - I've got to explain why I've changed,
and I think that's what's going on. After all,
there isn't a government in the world that isn't
on & deficit financing basis, due to armaments and
unemployed. And to build up a fund like this, of
this size, and have it there - it would never stay
there.
Duffield:
You're willing to say that in a statement?
H.M.Jr:
Yes, and I'm talking out loud and you people can
think about it. I mean look the world over: what
government, due to either armaments or unemployed,
45
-12-
isn't on a deficit basis? And in times like this
1 think it's unnecessary and unwise to build up a
fund larger than a con- - a contingent fund larger
than three years. I mean that's - and it would
worry me to have a bigger one.
Duffield:
I just wanted to get in mind what you wanted in the
statement.
H.M.Jr:
I'm talking out loud. I mean that's why I've
changed. what? I mean in 135 Danny Bell and I,
a couple of innocents, thought we might have a
balanced budget. Since then - we're like the
kittens - we've got our eyes open. Right, Danny?
Bell:
On the balanced budget, yes, our eyes are open.
H.M.Jr:
Well, we can't expect to see everything.
dow are you on this contingent fund as against the
Bell:
Oh, I don't know; I'm a little bit confused. I think
1 would like to see it go on as it is going at the
present time. I'm
H.M.Jr:
Well, if - as I say, 296 is the focal point. Any-
body else got any questions? are you perfectly
satisfied, Johnny?
Hanes:
Yes.
H.M.Jr:
What?
danes:
Yes.
H.M.Jr:
And then at 9:15 tomorrow. And please, everybody,
when you come in don't tell me that the Treasury
is in disagreement with Pocial Security on the
rate schedule, and so forth and so on. Now, Mr.
Altmeyer - I'm speaking for him and myself - during
the night rub off the edges, so when we see it
tomorrow morning they're in agreement. "ight?
We don't want to start at 9:15 trying to adjust
the rates. And you actuaries just have to get
together, that's all.
Haas:
I think they are now.
Regraded Unclassified
46
-13-
Reagh:
I think we're in complete agreement right now,
this minute.
H.M.Jr:
Wonderful. Put it in writing, will you please?
47
TREASURY DEPARTMENT
Regraded Uncla
INTER OFFICE COMMUNICATION
DATE March 22, 1939
TO
Secretary Morgenthau
FROM
Mr. Foley, Acting General Counsel
Re: Proposed changes concerning
Old Age Reserve Account.
At your suggestion, Mr. Tietjens and Mr. Feidler met with Mr. Tate,
Mr. Calhoun, Mr. Bingham and Mr. Stavisky from the Social Security Board
last night in order to prepare & statement of the proposed changes con-
cerning the Old Age Reserve Account.
The agreement was reached that a statement, such as the following,
would be appropriate:
(1) The taxes under Title 8 shall be designated as "contributions".
(2) It 1a further suggested that there be created and established
a fund to be known as the "Social Insurance Trust Fund", to be held in
trust by the Board of Trustees of the Social Insurance Trust Fund and to
be deposited in 8. special deposit account with the Treasurer of the United
States. The monies in the Social Insurance Trust Fund shall not be COV-
ered into the Treasury of the United States.
The Social Insurance Trust Fund shall be made up (1) of monies sp-
propriated thereto out of the Treasury by Congress (including the monies
now carried in the Old Age Reserve Account) (2) monies collected by way
of "contributions" under Title 8 of the Social Security Act. It 1a con-
templated that the "contributions" will be paid directly into the trust
fund and will not be covered into the Treasury and then appropriated out.
All interest, increment, or profit realized in operating the trust fund
shall accrue to the fund.
The Secretary of the Treasury shall be the managing trustee of the
Board of Trustees of the Social Insurance Trust Fund. The Fund shall be
deposited in the special deposit account and withdrawn therefrom by the
Secretary of the Treasury and as managing trustee be shall exercise all
fiscal control over the Fund. As such managing trustee he shall have ex-
clusive authority to invest or reinvest the monies in the Fund. It shall
be the duty of the Secretary of the Treasury to invest such portion of
the monies in the Fund as are not, in his judgment, required to meet cur-
rent needs. The Secretary of the Treasury shall invest only in interest
bearing obligations of the United States or in obligations guaranteed as
to both principal and interest by the United States.
- 2 -
48
For purposes of investment, such obligations may be acquired by
the Secretary (1) on original issue at par, or (2) by purchase of out-
standing obligations at the market price. The interest yield on obli-
gations in which the Secretary may invest shall be not less than the
average rate of interest provided for in section 904(b) of the Social
Security Act.
The Board of Trustees shall be composed of the Secretary of the
Treasury, Chairman of the Social Security Board, and the Secretary of
Labor, whose duties shall be to report annually to Congress as to the
operations and status of the Social Insurance Trust Fund during the pre-
ceding fiscal year and during the next five fiscal years with regard to:
(a) income from whatever source, including "contributions"
and interest;
(b) disbursements of every character pursuant to payments
under Title II of the Social Security Act; and
(c) the assets of the Trust Fund, including cash and secur-
ities and their yield.
The Board shall also, from time to time, include special actuarial
estimates having a bearing on the general fiscal condition of the Fund.
The Board of Trustees shall make a special report to Congress, when-
ever it shall appear to the Board of Trustees that at any time during the
ensuing five years there will be a balance in the Social Insurance Trust
Fund greater than three times the highest annual expenditure anticipated
during such period.
49
March 21, 1939
FISCAL AND MONETARY COMMITTEE TAX PLAN
1. No increase in tax through 1942.
2. Benefits under AC 14 (January 21, 1939) in accordance with Social
Security Board's medium-high estimates, including disability
benefits.
(Money figures in millions)
:
Calendar year
:
:
:
:
Total
1940
:
1941
:
1942
:
3 years
Gross tax receipts
$ 610
$ 612
$ 613
$1,835
Less: Benefit payments
175
400
555
1,130
Administrative payments
51
51
51
153
Net cash receipts of Government
384
161
7
552
Addr Interest accrued
49
58
63
170
Total addition to fund
433
219
70
722
Fund at end of year*
1,863
2,082
2,152
a Fund at end of year 1939 is estimated to be $1,430 millions.
(Based on Social Security Board's figures.)
Regraded Unclassified
50
March 21, 1939.
SOCIAL SECURITY BOARD TAX PLAN
1. Existing tax schedule through 1942 with increase in rates from 1 to
12 percent taking effect January 1, 1940.
2. Benefits under AC 14 (January 21, 1939) in accordance with the
Board's medium-high estimates, including disability benefits.
(Money figures in millions)
:
Calendar year
:
1940
:
1941
:
1942
:
Total
:
:
:
:
3 years
ross tax receipts
$ 915
$ 918
$ 920
$2,753
Less:
Benefit payments
175
400
555
1,130
Administrative expenses
51
51
51
153
Tet cash receipts of Government
689
467
314
1,470
idd:
Interest accrued
53
72
86
211
Total addition to fund
742
539
400
1,680
fund at end of year*
2,172
2,711
3,111
Fund at end of year 1939 is estimated to be $1,430 millions
Based on Social Security Board figures.)
51
March 22, 1939.
Table 1.
PLAN "Д"
1. Tax schedule of present law (1 percent on employee and 1 percent on employer
through 1939, increasing to 1) percent in 1940, 2 percent in 1943, 2%
percent in 1946, and 3 percent in 1949).
2. Benefits in accordance with Social Security Board's medium-high estimates
(including disability benefits) of March 7. 1939.
(Money figures in millions)
:
Calendar year
: : 1940 : 1941 : 1942 : 1945 : : 1950 : 1955
Gross Tax receipts
$ 915
$ 918
$ 920
$1,257
$2,011
$2,126
Less: Benefit payments
175
400
555
914
1,697
2,320
Administrative payments
51
51
51
63
101
106
Net cash receipts of Government
689
467
314
280
213
- 300
Add: Interest accrued
53
72
86
132
199
222
Total addition to fund
742
539
400
412
412
-
78
Fund at end of year*
2,172
2,711
3,111
4,657
6,943
7,465
*Fund at end of year 1939 is estimated to be $1,430 millions.
(Based on Social Security Board's figures).
NOTE: The above tax receipts estimates are based on calculations of the
Committee on Economic Security in 1935. Preliminary Treasury
calculations indicate that such figures are too high. Revised
figures are being prepared.
Regraded Unclassified
J
52
940
41
42
1.50
1,33's 1.163 u/o % 1/3,
43 it
2
Q.
53
940,
1.25%
941
1.50 %
042
1.75 %
143-45 2. %
54
March 22, 1939.
Table 2.
PLAN
1. No increase in tax through 1942; thereafter tax schedule of present law.
2. Benefits in accordance with Social Security Board's medium-high estimates
(including disability benefits) of March 7, 1939.
(Money figures in millions)
:
Calendar year
:
1940
:
1941
:
--
1942
:
:
1945
:
1950
1955
Gross Tax receipts
$ 610
$ 612
$ 613
$1,257
$2,011
$2,126
Less: Benefit payments
175
400
555
914
1,697
2,320
Administrative payments
51
51
51
63
101
106
Net cash receipts of Government
384
161
7
280
213
- 300
Add: Interest accrued
49
58
63
101
164
181
Total addition to fund
433
219
70
381
377
- 119
Fund at end of year*
1,863
2,082
2,152
3,608
5.728
6,057
*Fund at end of year 1939 is estimated to be $1,430 millions.
(Based on Social Security Board's figures).
NOTE: The above tax receipts estimates are based on calculations of the
Committee on Economic Security in 1935. Preliminary Treasury
calculations indicate that such figures are too high. Revised
figures are being prepared.
March 22, 1939,
Table 1.
PLAN "Д"
fax schedule of present law (1 percent on employee and 1 percent on employer
through 1939, increasing to 1) percent in 1940, 2 percent in 1943. 2)
parcent in 1946, and 3 percent in 1949).
Benefits in accordance with Social Security Board's medium-high estimates
(including disability benefits) of March 7, 1939.
(Money figures in millions)
:
Calendar year
:
1940
:
1941
:
1942
:
1945
:
1950
1955
:
:
:
Gross Tax receipts
$ 915
$ 918
$ 920
$1,257
$2,011
$2,126
Less:
Benefit payments
175
400
555
914
1,697
2,320
Administrative payments
51
51
51
63
101
106
Bet cash receipts of Government
639
467
314
280
213
- 300
Md:
Interest accrued
53
72
86
132
199
222
Total addition to fund
742
539
400
412
412
- 78
Fund at end of year
2,172
2,711
3,111
4,657
6,943
7,465
"Fund at end of year 1939 is estimated to be $1,430 millions.
Based on Social Security Board's figures).
NOTE: The above tax receipts estimates are based on calculations of the
Committee on Economic Security in 1935, Preliminary Treasury
calculations indicate that such figures are too high. Revised
figures are being prepared.
Regraded Unclassified
March 22, 1939.
Table 2.
PLAN
1. No increase in tax through 1942; thereafter tax schedule of present law.
2. Benefits in accordance with Social Security Board's medium-high estimates
(including disability benefits) of March 7. 1939.
(Money figures in millions)
:
Calendar year
:
1940
:
1941
:
:
1942
:
1945
:
1950
:
1955
:
Gross Tax receipts
$ 610
$ 612
$ 613
$1,257
$2,011
$2,126
Less: Benefit payments
175
400
555
914
1,697
2,320
Administrative payments
51
51
51
63
101
106
Net cash receipts of Government
384
161
7
280
213
- 300
Add: Interest accrued
49
58
63
101
164
181
Total addition to fund
433
219
70
381
377
- 119
Fund at end of year*
1,863
2,082
2,152
3,608
5.728
6,057
*Fund at end of year 1939 1a estimated to be $1,430 millions.
(Based on Social Security Board's figures).
NOTE: The above tax receipts estimates are based on calculations of the
Committee on Economic Security in 1935. Preliminary Treasury
calculations indicate that such figures are too high. Revised
figures are being prepared.
Regraded Unclassified
557
March 22, 1939
My dear Mr. Altmeyer:
Herewith are the photo-
state I promised to send you.
Sincerely,
H. S. Klotz,
Private Secretary
Mr. A. J. Altmeyer,
Chairman, Social Security Board,
1712 G Street,
Washington, D.G
58
March 22, 1939
My dear Mr. Altmeyer:
Herewith are the photo-
state I promised to send you.
Sincerely,
H. s. Klots,
Private Secretary
Mr. A. J. Altmayer,
Chairman, Social Security Board,
1712 G street,
Washington, D.C.
59
March 22, 1939
My dear Mr. Altmeyer:
Herewith are the photo-
state I promised to send you.
Sincerely,
H. S. Klotz,
Private Secretary
Mr. A. J. Altmeyer,
Chairman, Social Security Board,
1712 G Street,
Washington, Do 6
60
RE SOCIAL SECURITY RECOMMENDATIONS
March 23, 1939.
9:15 a.m.
Present:
Mr. danes'
Mr. Bell
Mr. Haas
Mr. Gaston
Mr. McReynolds
Mr. Duffield
Mr. Blough.
ar. Viner
Mr. brown
Mr. Dimock (Labor)
ar. Altmeyer
H.M.Jr:
"Titles II and VIII of the Social Security Act of
1935 charged the Treasury with responsibility for
collecting the taxes for old age insurance, for
maintaining the old age reserve account, and for
making the benefit disbursements certified to it
by the Social Security Board. I would like to dis-
cuss with you today some aspects of the old age
reserve account and the tax rates.
"Four years ago when the Act was under considera-
tion, I strongly urged adoption of a self-supporting
contributory old age insurance system in which the
future tax burdens on the beneficiaries of the system
would be lightened by interest earned on a reserve
fund accumulated by an excess of taxes over benefits
during the early years of the system. I still believe
that a contributory old age insurance system is the
soundest system financially."
Well - "I still believe that a contributory old age
insurance system is the soundest system financially"?
Do I?
Haas:
That sentence needs a little
H.M.Jr:
What?
61
-2-
Brown:
I wonder, sir, if the word "still" is necessary.
Duffield:
the thought was that we're changing on the reserve;
however, let's make clear that we're not changing
on the contributory idea, not going to a free pen-
sion idea, for instance.
Viner:
why not say then, "I believed then as I believe
now...."?
H.M.Jr:
All right.
Duffield:
"ho's correcting?
Dlough:
You haven't a copy.
Duffield:
No.
H.M.Jr:
Will this still - if it's only - I thought what
you call a contingent - if you only have it for
three years
...
Viner:
It's still contributory.
Gaston:
It's still in the main contributory.
H.M.Jr:
"ould you say, "I believed then, as I believe now..."?
Now, you see, you've earned your carfare, Brown, see?
Washington can't get along without you. New York
can.
Prown:
Still to be proven.
H.M.Jr:
Any other suggestions?
Duffield:
I want to point out here the reason the dotted
line is in there - there's an alternative version
for El ways here, but this is the one agreed on
last night.
H.M.Jr'
Have you seen this, Dan?
Bell:
No.
H.M.Jr:
All right so far, everybody?
"Four years ago our expectation was that the Act
as then under discussion would provide old age
62
-3-
security for a fairly distinct group in the
community. We realized, of course, that there
was considerable shifting of workers between
employments proposed to be covered by the Act
and those not proposed to be covered."
I don't think that's quiteclear. "... there was
considerable shifting of workers between employ-
ments proposed to be covered by the Act and those
n
Don't you mean
"uffield:
Industries.
H.M.Jrt
Yes, but I don't think that sentence is clear. Put
a question mark. I've got one. Somebody can clear
that.
Gaston:
It's an effort to be precise. Briefly, it's saying
that there was expected to be a considerable shifting
between the covered employments and the employments
that were outside the coverage.
H.M.Jr
I don't think - I know what you mean, but I don't
think it's simple enough, that sentence.
O.K.?
Duffield:
Yes.
H.M.Jr:
"However, it was generally considered that the
shifting group was small compared with the great
mass of workers who remained throughout their
working lifetimes in either the covered or the
uncovered groups of industry."
Now, I may want to come back to that. I don't know
why that's necessary for me to say; it seems so
obvious.
Duffield:
This is the burden of the argument.
H.M.Jr:
Oh, this is why we're doing it?
Duffield:
This is why we're doing it.
Gaston:
That's one of two reasons.
63
-4-
H.M.Jr:
"Because the group of employments chosen for
initial coverage had been selected primarily
upon the basis of administrative feasibility,
it did not seem fair that persons in other and
probably more needy portions of our population should
be taxed in order to provide old age benefits
as-of-right for the covered group. I therefore
urged to your Committee in 1935 that the old age
insurance system be made self supporting. By 30
doing I believed that we would avoid the anomaly
of the poorer groups in our country contributing
to the support of more prosperous groups."
Well, that's all right, what?
MCR:
It's a good statement right there. what we were
trying to do was just make sure that you weren't
taking funds from general taxes to support somebody
better off than the people paying the general taxes.
H.M.Jr:
That takes part of - one part of Caston's theory.
1 can understand that if we are to increase it,
we should increase the taxes, say, in the income
tax group and take it from there and pay rather
than any place else.
McR:
Take it from general taxes.
Paston:
ies, that's along that same line.
Altmeyer:
I don't think I'd point it up like that - poorer
groups taking care of more prosperous. I think
that just sets up a class idea there.
Paston:
I'm inclined to agree with you, Mr. Altmeyer. I
don't think you need to say that.
Altmeyer:
Because the reason for social insurance is that
the people covered are not really prosperous enough
to
Haas:
You can leave out the distinction as between
well-being and
Gaston:
That can easily be fixed.
Viner:
You say that uncovered persons shouldn't be taxed.
64
-5-
Altmeyer:
General population shouldn't be taxed to pay only
for a group.
Gaston:
Just the word "all"
....
Altmeyer:
I just picked it up: that you didn't pass that.
Brown:
"Poor and prosperous."
H.M.Jr:
What did you decide? Did Altmeyer kick this beauti-
ful theory in the pants?
Gaston:
Just changing a word.
Altmeyer:
Just didn't want you preaching socialistic doctrine,
that's all - class conflicts.
Blough:
The statement that is on this sheet now is: "it did
not seem fair that uncovered persons should be taxed
in order to provide old age benefits as-of-right
for the covered group."
H.M.Jr:
on ....
Duffield:
That gets off
H.M.Jr:
Oh no.
Duffield:
No headline in that.
Altmeyer:
Not fair that the general population should be taxed
for a relatively small group, or something like that.
a.M.Jr:
You don't like the word "masses"?
Viner:
You mustn't say "general population," because this
isn't part of the general taxes on the public, it's
a special group toat's being taxed; it's the payroll
group.
Gaston:
Particular references to the whole population
blough:
We didn't want any other taxes because we didn't
want the whole population to pay.
Gaston:
Might simply say "all citizens."
Duffield:
we can take care of the whole phraseology.
65
-6-
McR:
I think the point is a perfectly sound one you're
trying to get at, Mr. Altmeyer.
Duffield:
We can state the point correctly.
Blough:
You want a sentence that will get the headlines.
Duffield:
Oh boy!
H.M.Jr:
No.
Gaston:
No.
H.M.Jr.
I mean the President again and again inferred it was
the lower one-third.
Bell:
Not the ones in the insured group - old age.
Altmeyer:
Just the reverse of what you're saying here.
H.M.Jr:
Jake Viner says some of the poorest aren't in the
lower third.
Viner:
Aren't in the covered group at all; they're uncovered.
H.M.Jr:
I don't like the word "covered" and "uncovered."
It isn't a terminology
....
Altmeyer:
"Insured" - we can use that.
Banes:
"hy not put a period after your word "supporting"?
Just stop there.
Duffield:
Leaving off the last sentence.
Hanes:
That's a strong sentence if you close it there.
H.M.Jr:
Mr. Dimock, now live up to your reputation from
the University of Chicago and say what you have in
your mind. This is a free discussion. won't let
Jake Viner carry the ball entirely.
Pimock:
ne never influences me.
McR:
Dimock was in with us last night.
Viner:
It's never necessary.
66
-7-
McR:
He was in at the discussion.
H.M.Jr'
I just wanted to let him know that he shouldn't
be ...
Brown:
Mr. Secretary, is the decision to cut that last
sentence? The sense of the last sentence is up
in the body, and it's true that it's a stronger
close.
Gaston:
Yes, it's repetitive.
Altmeyer:
And just change the word "covered" to "insured,"
H.M.Jrl
You say here "... should be taxed in order to
provide old age benefits as-of-right for the
covered group." You say it right there. I think
do what Mr. danes said, leave the last sentence
out.
Can't you - I don't like the word "covered group."
Altmeyer:
"Insured group.'
Bell:
"Insured" and "uninsured."
H.M.Jp:
"Insured" and "uninsured." "By so doing - we
leave that off. If I leave the last sentence off,
John, will you please change your mind? (Hands
Hanes clipping about rumor of resignation)
McR:
why, you son of a gun.
H.M.Jrt
I'll leave the last sentence off if you'll change
your mind.
Men:
If he doesn't change nis mind, I'm not going to
speak to him.
Bell:
Johnny resigning again?
H.M.Jr:
He can't now. I've changed the sentence.
Hanes:
Don't have a chance to make up one's own mind.
McR:
Getting in the boss's class; they have him resigning
twice a year.
67
-8-
H.M.Jr:
Well, we're all right except I still don't like that
sentence up near the top - I don't think it's quite
clear -: "nowever, it was generally considered that
the shifting group was small compared with the great
mass... That part there - I don't think that
that's - can't that be improved?
Gaston:
That can be said in simpler language.
H.H.Jr:
Professor Brown, you can improve that, can't you?
Brown:
I can cooperate in such improvement if you wish.
a.M.Jr:
Righto. O.K.
Viner:
Nicely said.
H.M.Jrt
He comes down nice and fresh; these boys worked all
night.
"Our experience under the Act has shown our initial
expectation to be in part correct."
Duffield:
"Incorrect."
H.M.Jr:
#
incorrect. Migration of workers between covered
and uncovered... - that would be "insured" and
"uninsured" - employments has been far greater
than was allowed for by the Committee on Economic
Security. In my last annual report, I directed
attention to one of the consequences of this migra-
tion, stating that a substantial increase in tax
rates would be necessary to maintain the Act on an
actuarial reserve basis as provided by law."
well now, somebody who follows this very minutely
would know what that means, but 999 people out of a
thousand wouldn't know what that meant.
Beas:
Could put more detail in it. "e had it and cut it
out.
H.M.Jrl
I mean they just don't know. I bet there isn't one
man on the Committee knows that Danny Bell said we
were short a couple of hundred million dollars, or
knows about the law that we have to report, and the
rest of it. I mean if I was going to leave it in,
I'd quote from the annual report, and so forth, or
68
-9-
I'd leave it out. I think either it ought to be
more or nothing.
Duffield:
It will have to be more.
H.M.Jr:
"hat do you think, gentlemen? I mean nobody, reading
it, will know what the hell it is. I'm not sure I
know what it is myself. What?
Pell:
"ell, it sort of follows what you said before.
H.M.Jr:
Put they don't know what I said in my annual report.
Duffield:
We can spell out what he said in the annual report.
McR:
I think it's important, because after all people
are going to go back to that and check it with what
you're saying here. Just as well
H.M.Jr:
make it easy for them.
McR:
make it easy for them.
Viner:
Put it in the record.
H.M.Jr:
"I should like also, however, to draw your attention
to another and more cheerful corollary of this
migration. AS a consequence of the migration, a
much larger proportion of the total population of
the United States is qualifying under the contribu-
tory system to receive old age benefits than had earlier
been expected. I estimated in my annual report that
without extension of the coverage under present law,
80 per cent of the population of the United States
ultimately will have qualified during their working
lifetimes for at least the minimum annuity under
Title II of the Act.
"This experience throws new light on our original
belief that the Act ought to be self-supporting. We
now see that the benefits of the Act will be so
widely diffused that supplemental funds from general
tax revenues may be substituted without substantial
inequity for the expected interest earning upon the
large reserve contemplated by the present law. There-
fore, the argument for a large reserve loses much of
the validity which four years ago it seemed to
possess."
69
-10-
Gee whiz! (Degins to read over last paragraph)
well now, here you say that so many people have
joined that the supplemental funds from g eneral
taxes may be substituted for the interest on the
reserve fund; but here earlier you said that we
shouldn't tax the poor in order to help the insured.
Now, are those two things compatible?
Viner:
Now you'll find the bulk of the population is under
the scheme, whereas when the scheme was initiated
you thought the scheme would cover a relatively
small minority.
ACR:
Your first statement is of what the original con-
ception was.
Gaston:
Your original attitude was that you shouldn't take
from general taxes because a limited class was to
benefit. Now you find it isn't so limited, it's
more of the whole population; so now there's a
justification for taxing everybody for supplemental
assistance.
McR:
At least there isn't the same inequity in contributing
from general taxes as was first conceived to be.
H.M.Jr:
Then I say at the bottom of page three - where we
say, "We now see," we should say in order to
emphasize it, "Four years later we see that the
benefits of the Act...."
Men:
wood idea; that brings that point out.
H.M.Jr:
Four years later. All right?
Caston:
Yes.
H.M.Jr:
Altmeyer?
Altmeyer:
Yes.
H.M.Jr:
Jake?
Viner:
les, I'd bring out more clearly that it isn't because
we overlooked something four years ago, but the
scheme itself produced information ....
70
-11-
H.M.Jr:
"Four years later we see
11
Gaston:
"Four years of experience under the Act have
shown..."
H.M.Jp:
That all right, gentlemen?
Duffield:
Yes.
H.M.Jr:
well now, Herbert, you who have been arguing against
drawing on the general tax funds - do you go along
with this?
Gaston:
oh, I don't go along with any of the scheme. 1 think
this is as good an argument as you can make in
support of the change.
H.M.Jr:
Oh. Oh, you're a die-hard, huh?
Waston:
I think there is weight to this, but there isn't
enough weight to change me.
n.M.Jr:
1ough guy.
Altmeyer:
Say, I'm going to take him on and buy nim a feed.
h.m.Jr:
4. fee or feed?
Altmeyer:
Both.
Baas:
More inducement.
Altmeyer:
Home on over and work for us.
H.M.Jr:
+his is the kind of fellow that I want to work for
me. That's the advantage. 'hat's the kind of guys
we've got around here.
Viner:
the last of the reactionaries.
H.M.Jr:
All right.
"We now see that the benefits of the Ret will be so
widely diffused that supplemental funds from g eneral
tax revenues may be substituted without substantial
inequity for the expected interest earning upon the
large reserve contemplated by the present law. There-
fore, the argument for a large reserve loses much of
71
-12-
the validity which four years ago it seemed to
possess. "
That's all right.
"I do not believe, however, that there is need
at the present time or that there will be need
in the near future for supplementing payroll
taxes from be eneral revenue. For all classes
of beneficiaries payroll taxes now are and for
some time will be less than the actuarial value
of the benefits which the taxes purchase."
I just take it that's SO.
Duffield:
The actuaries tell us SO.
H.M.Jr:
I mean both Social Security and Treasury actuaries
are together?
daas:
They were there last night, made no question about
it.
Gaston:
Yes.
H.M.Jr:
"Another reason for questioning the reserve system
set up in 1935 is that our studies in the past three
or four years have led us to the conclusion that
the progress of business and of our national economy
in general is more important in providing a source
of old age benefit payments than is the accumulation
of 8 large interest bearing reserve."
"Another reason for questioning the reserve system
set up in 1935 is that our studies in the past three
or four years have led us to the conclusion that the
progress of business and of our national economy in
general is more important in providing a source of
old age benefit payments than is the accumulation
of a large interest bearing reserve."
Well, does that mean that four years ago we didn't
feel that way?
Duffield:
That's what it says.
deas:
No, the next - this is a middle-of-the-road
proposition - the next paragraph should be read
72
-13-
with that.
Duffield:
Next sentence.
daas:
or the next sentence.
H.M.Jri
Well, if you want to be strictly honest you'd say
"in the past three or four years have led us to the
conclusion that the lack of progress of business and
of our national economy in general. 11 - now, I know
you can't say that, but it is due to the lack of
progress.
Brown:
It's a long-run argument as well.
Haas:
And the paragraph that has
....
McR:
we had lots of conversation about that last night.
It was generally agreed we put it in.
H.M.Jr:
I believe it, but I just wondered
don:
I think it's necessary.
haas:
You're not so inconsistent when you read the next
thing, compared with what you said in '35.
H.M.Jr:
"The reason that a gradual step-up in the tax rate was
adopted in 1935 was to permit industry to accustom
itself to the new taxes and so avoid any undue re-
strictive effects. We could not, of course, foresee
business conditions in specific future years at the
time that the schedule of rates now in the Act was
adopted. In periods of business recovery like the
present, the financing of the old age insurance
system should have the least possible deterring
effect on business."
Hear, hear! Huh, Johnny?
Viner:
I'd say "incomplete business recovery If - "in periods
of incomplete business recovery or of depression.
=
H.M.Jr:
"In periods of - what do you say?
Viner:
",, incomplete business recovery."
73
-14-
H.M.Jr:
I don't like the word "incomplete." Could you put
it "lack of full recovery"?
Viner:
All right - "absence of full recovery."
H.M.Jr:
If absence of full recovery." I like that. Huh?
Viner:
Otherwise the point is just the reverse.
H.M.Jr:
Well, that's what I was afraid of. "In the absence
of a full business recovery..."
Duffield:
Depends on whether you regard recovery as a
static or dynamic thing.
Gaston:
You're thinking of two different concepts of
recovery. One is of business health and the other
of convalescence. +he sense it's used in here is
business convalescence.
Viner:
Still more in periods of sickness.
Waston:
we admit only the convalescence.
Dimock:
I think the whole medical analogy is very
unfortunate.
H.M.Jr:
How would you put it?
Dimock:
I would talk in terms of national income.
H.M.Jr:
"ny don't you think we should use the word
"recovery"?
Dimock:
You say "recovery" - from what? If you say from
1929, why, then you're in an embarrassing position
unless you talk in terms of national income.
you
H.M.Jr:
well, how would you put it? How would, state it?
Puffield:
"In periods of
Il
H.M.Jr:
Give him 8 chance.
Blough:
Page five.
H.M.Jr:
Top of page five. It says "In periods of business
recovery like the present
74
-15-
bell:
"In periods of improving business.. "?
Dimock:
I don't know; I think it's all right as it is.
H.M.Jr:
well, do you want to say this: "In periods of
economic read justment
Bell:
that could be downward.
d.M.Jr:
Hun?
Blough:
when you say "the present stage of business recovery,"
it gives an idea that you're just about in the other
stages following.
Brown:
"ould it help to say "in a stage of business recovery
such as the present"? "oulo you say the idea of a
stage gives the idea of dynamic movement?
Viner:
The use of the term "incomplete" or "the absence of
full recovery
"
Gaston:
"In a depression period, when full recovery has
not beenattained
It
Dimock:
n appearance of economic improvement Il
"Improvement" is a dynamic term.
Drown:
"ell, "in the absence of
Il
H.M.Jp:
May I make a suggestion? This may not be the exact
phraseology. I'd say, "In periods of world economic
upset, as at the present time, the financing of the
old age insurance system should have the least
possible deterring effect on business at home, with-
in the United States." I mean I want to get in that
thought. I want to get in that thought, you see?
Dell:
"orld uncertainty?
H.M.Jr:
The upset is the worldwide upset, and we want to
do the least - because this happens to be my
philosophy of the moment; that's why I'm doing
this. "orldwide upset; we want to do the least to
deter economic recovery within the United States.
75
-16-
Now, if you can put that into good language,
I want to very definitely get that. Don't you
think so, Johnny?
Hanes:
That's all right.
H.M.Jr:
what?
Hanes:
Yes.
H.M.Jr:
I mean that's what I'm trying to say, and to intro-
duce that thought: it's the world upset. And I
don't want to do - I want to be positive in my action
to help recovery at home. Can you get that in some-
where, Jake? See?
Plough:
Sure.
Dell:
Present state of world uncertainty.
H.M.Jr:
"omething like that. + want to get in the world
picture, because - I mean if Altmeyer, for instance
which he hasn't - pushed me very hard, I'd say, "Now
with things the way they are in the world now If -
and when the President pushes me very hard and says
I'm an opportunist, I say, "Yes, sir, I am, because
all I want to do is to get through two years. "hen
we get through the next two years with world condi-
tions as theyare, I'm willing to do anything. I've
kept saying this over and over. "it's honorable to
get the United States through the next two years.
This is one of the things - I want to introduce the
world picture. This is the place to do it, isn't
it, herbert?
Gaston:
Yes.
H.M.Jrl
I want to say it. But there's the place to intro-
duce it. What?
vaston:
Yes, yes, yes.
H.M.Jr:
I mean that explains why - one of the principal
reasons why I'm changing is on account of world
conditions.
Gaston:
We can afford to use a few more words there, because
76
-17-
that's an Important point.
R.M.Jr:
Well, it's what is motivating me.
waston:
Yes, yes.
H.M.Jr:
it's the principal thing that's motivating me. I
want to get by the next two or three years.
waston:
if there is any justification for this change, it's
there.
H.M.Jr:
And this is the place to put it. Check, John?
Hanes:
Yes.
H.M.Jr:
"It, therefore, seems to me that one of the most
pertinent questions is whether it is desirable to
permit a substantial increase in the tax rate to
occur during the present stage of business recovery.
Over against these factors affecting business, your
committee must take into account the possible effects
on the public understanding of contributory old age
insurance if the tax rates are not increased at this
time, especially if increased benefits are approved."
That's all right.
Altmeyer:
I wonder whether they don't really mean "if the tax
rates are not increased at this time, but increased
benefits are approved."
Duffield:
No, we don't want - we've tried here all the time
to keep from committing the Secretary to anything
which seems to say, "Don't raise the tax rates
unless you increase the benefits,' or anything
else, because he has four plans here not predicated
on benefits; that is, leave the taxes or do these
other three things. "e thought it was very important
not to conclude that paragraph unless we had this
last sentence in there which said
....
H.M.Jr:
This keeps me in tune with the President.
Duffield:
That's right. That's the point of that sentence.
McR:
That was the purpose of it.
77
-18-
Altmeyer:
1 don't think you got my point there.
Duffield: But I don't think we want to tie it up with benefits.
1 think we want to leave him saying to the Committee,
"Regardless of what you want to do with benefits,
you want to consider what may be the effect on the
public mind in its understanding of contributory
social insurance if you don't raise taxes - regard-
less of what you do with benefits."
Altmeyer:
Yes, but I think it's a little meaningless here
to have the Secretary saying that he's worried about
the possible effects on the public understanding of
contributory old age insurance if the tax rates are
not increased at this time. Now, why is he worried?
what's the failure to step up the tax rates at this
time got to do with public understanding? The
point is that the thing - the point we've been
discussing all this time is that if you increase
benefits and don't increase tax rates, then they'll
say, "Well, you can get the increased benefits out
of thin air." Hasn't that been the thing we've
been talking about?
Blough:
well, I think we misunderstood your position on that
then, because we thought
Altmeyer:
I mean both
...
Plough:
I thought you had the feeling and that Dr. Brown
had the feeling that to fail to go up in the tax
rates would give the wrong impression to the public.
"ltmeyer:
I mean both; 1 mean particularly if you increase
benefits.
Blough:
That's what we say.
Brown:
Don't you think that this says that?
Altmeyer:
Maybe I'm wrong.
Bass:
That's what it was put in there for.
H.M.Jr:
This reads at the end here like a New York Times
editorial. "I'm afraid of it, but on the other
hand "
78
-19-
Gaston:
Wall Street Journal.
#cR:
wall Street Journal. Poor Vene worked all night.
Duffield:
That hurts.
a.M.Jr:
it hurts, you say?
Duffield:
That New York Times thing.
H.M.Jr:
You don't like that?
Duffield:
No.
H.M.Jr:
Well, unless there is something under the surface
nere, what I'm going to do is - if I'm not taking
too much of Mr. Altmeyer's time, I thought we'd
give them a chance to make these suggestions; if
you would come back again this afternoon and take
a look at the final draft - can you do that? Is
that asking too much of you?
Altmeyer:
No.
H.M.Jr:
ar. Dimock too, could you?
Altmeyer:
Yes, sir.
H.M.Jr:
That would be fine, because I think it's important.
After all, as I understand it, Altmeyer is taking the
position that what I'm saying you're going to say;
this is the Administration and you're going along
with it. So I'd like to make it as near as possible -
what?
Altmeyer:
(Nods yes)
H.M.Jr:
"With these factors in mind, I recommend the follow-
ing changes in the Act:
"1. We should not accumulate a reserve fund any
larger than is necessary
Now let's just see, what am I saying here? Let's
see if I've got it. I'm saying that four years
ago I thought we ought to have a large reserve and
the interest on that should contribute towards
79
-20-
paying for the old age insurance, but during the
past four years I've changed. "hy?
Duffield:
Because of the larger migration shift back and
forth, so that the reserve doesn't play the part
it was thought it would. Second, the effect on
business of trying to accumulate that reserve
during this period.
H.M.Jr:
And third, the worldwide situation is so upset
that I don't want to do anything to be a depressent
on domestic affairs.
Duffield:
That's part of the second point.
Viner:
I'd make it a third point.
Haas:
It's pretty hard to do that. Isn't that very
difficult?
Viner:
Say in the uncertainties that you don't want to
Haes:
Oh, distinguish them.
Viner:
Or that two is particularly urgent in light of
the disturbed condition
Brown:
Puild out from the two to your three.
Duffield:
That's all right.
H.M.Jr:
Now, you don't want to use the language which the
President used somewhere, that if they do this
thing - that we want to ease into this tax increase?
I mean that's the word he used, rather than - just
keep that in mind, you see?
Viner:
That's all right. Any step-up should be made as
gradual
H.M.Jr:
He used the word "easement policy" - ease into it.
I mean that's what ne said, Altmeyer, didn't he,
yesterday?
Altmeyer:
Yes - easement.
H.M.Jr:
I mean you might, if you could, introduce that; that
would be his language and his present philosophy.
80
-21-
nanes:
Mr. Altmeyer's suggestion there 8 moment ago on
that last sentence - is that put in there as a
warning note? It seems to carry & warning note
to the Congress: "While you're doing this thing,
bear in mind that you might be destroying the
contributory insurance system." Is that a warning
note? Seems to me there's some substance in what
ar. Altmeyer said.
Duffield:
Without some such qualification as that, you leave
the Pecretary virtually in the position of saying,
"Don't do anything which would deter business."
And they'll just say, "Well, that means don't
raise taxes or even lower taxes." And so you want
to say, "Now, while you're considering these effects
on business in adjusting your tax rates, you must
also consider the effect on the understanding of the
public of the contributory system when changing the
tax rates."
Viner:
I think that sentence will have to be framed so
it is more clear what sort of effect on the public
understanding.
Duffield:
But that is definitely the answer to Mr. danes.
There is a point - this statement throughout tries
to say, "un this hand there is this, and on the
other hand there is this." It never puts the
Secretary in the position either of saying, "Lower
taxes" or "Raise taxes."
H.M.Jr:
I can't do that.
Puffield:
That's right.
H.M.Jr:
You're right, and I don't want to be put in that
position.
Viner:
That sentence there should state more explicitly,
warn Congress that after all, there is no way of
paying benefits without money; that's the point.
H.M.Jr:
No, but what Gene Duffield says is perfectly
correct. We've got to do it - that's why I said
about the New York Times: "On the one hand, and
on the other." I can make the one hand a little
bit stronger than the other, but we've got to have
both.
81
-22-
daas:
Otherwise you couldn't put in the four tables.
H.M.Jr:
"With these factors in mind, I recommend the
following changes in the Act:
"1. We should not accumulate a reserve fund any
larger than is necessary to protect the system
against unforeseen declines in revenues or increases
in the volume of benefit payments. Specifically, I
would suggest to Congress that it plan the financing
of the old age insurance system with a view to main-
taining for use in contingencies a reserve which,
within a few years, will amount to approximately
three years prospective benefits."
Hanes:
Wouldn't you like to take the negative there and
say that no amount more than three years' reserve ...
Duffield:
No, the trouble with that is that if you do these
things - the actuaries tell us that in the immediate
future we're going to have a reserve greater than
that, and if you say "no more than," they're going
to say, "Shouldn't we cut the rate to half a percent?"
in the next few years.
Altmeyer:
That isn't SO. The actuaries didn't understand you
and you didn't understand them, because if you take
the standard that's laid down later in this memoran-
dum,
Duffield:
Yes.
Altmeyer:
... - well, that ...
Duffield: that's what I tried to argue with them last night,
but Russ Reagh wouldn't see it that way.
Altmeyer:
If you take the standard of three times the highest
annual benefit payments in the next five years, you
don't have to worry about it, and you can take Mr.
"anes' language of not greater than three times,
I'm sure.
nanes:
If you take that standard
....
Brown:
Isn't it safer, rather than to have a precise rule
of thumb, to use such language as "would amount to
82
-23-
approximately"? I mean all these sort of rules
of thumb have to be adjusted into the system;
they're a guiding principle rather than an exact
mechanistic limit.
Altmeyer:
Well, that's what Mr. Hanes is suggesting: not
more than such and such an amount.
Duffield:
If I can get tne actuaries to go along, I'd be
happy to put it that way.
a.M.Jr:
If Mr. Altmeyer says it, let's just take it that
way.
Puffield:
All right. Check.
H.M.Jr:
And somebody, I think, has been making that point
right along, saying "not more than."
Duffield:
I thought so too.
Dimock:
There are four possibilities. Either you can say
"three years" or "not more than" or "a minimum of"
or else the statement "approximately." +he first
three are objectionable because they're too specific,
whereas the fourth one, I think, says what you want
to, without creating a rule.
H.M.Jr:
"Not more than"?
Dimock:
"Approximately."
H.M.Jr:
Altmeyer, what do you want on this? I mean you
ought to
...
Altmeyer:
Well, you don't want "approximately" because you
don't want more than that. You want to put a top
limit to the reserve. you don't want actually three
times that much, because in the early years it will
be a small figure and in the later years it will be
a tremendously larger figure.
Duffield: U.K.
Brown:
Will not exceed ...
^ltmeyer:
That's right; but you're looking for a ceiling here.
83
-24-
wuffield:
That's what I thought.
Brown:
"Will not exceed approximately n
Viner:
the thing is that you shall "plan" for one which
shall not exceed; the plan may have errors which
produce somewhat more or less.
Brown:
This says "plan" - that Congress plan the financing
so it will not exceed.
Viner:
That is, the aim of the plan is for a reserve which
shall not exceed three years, but the actuarial
calculations may produce one of three and a half
years.
H.M.Jr:
Can't you still say "will not exceed" and leave
in the word "approximately three years"? What?
O.K., John?
danes:
Yes.
H.M.Jr:
"Not to exceed approximately three years.
Hanes:
woesn't tie you down to a recommendation that you
have a specific reserve of three years.
H.M.Jr:
Is everybody happy on that?
Bell:
I Just wonder if this doesn't mean tax reduction
then.
Duffield:
Altmeyer assures us that it doesn't.
Bell:
He's talking about five years, but in the next three
years you're going to have a reserve greater than
the ....
Viner:
Yes, but it's the maximum three years' prospective
benefits in the five years.
Duffield:
"e'll spell that out again. It's an awfully clumsy
phrase to handle, but if we've got to put it in
that way, we'll put it in.
Blough:
You're safe if you say "within a few years." That
clearly means
...
84
-25-
McR:
ns long as you hang it on the "plan," I think
you're perfectly safe.
H.M.Jr:
You say "within 8 few years.'
#CA:
I know you've got it in there, and I've got no
objection to saying "not to exceed, because ...
H.M.Jr:
Are we all right on this? It's pretty important.
This is almost the guts of the thing.
Altmeyer:
well now, BS I understand it, you're not committing
yourself as to the size of the reserve; you are
committing yourself 8.8 to the maximum amount.
H.M.Jr:
That's right.
Altmeyer:
And you're saying that in your opinion the maximum
amount need not exceed three times the highest annual
benefit payments during the next five years.
Now, the point that several people have raised is,
does the Treasury want to commit itself further
on this reserve and say that - use language where
you're committing yourself to a minimum? You see,
now this language only commits you to a maximum;
you're not committed to and you haven't urged
Congress to maintain a minimum.
Duffield:
There is some language a little later on ...
Viner:
You can say "which in a few years will approximate
but will not exceed - will reach but not exceed ..."
Blough:
o you still want to keep the three years, because
in the distant future it becomes too large.
Haas:
vene, that's spelled out a little later in the
document.
"uffield:
I think it comes out a little later.
H.M.Jr:
Let's go on.
"The system of handling the old age insurance
reserve should be changed so that everyone will
understand clearly that it is & trust fund
85
-26-
established for the benefit of employees who
have contributed to it. To clarify the status
of the old age insurance trust fund
"
well, do you want to say "employees and employers
who have contributed to it"?
Duffield:
No question whether they benefit. We had it that
way.
H.M.Jr:
Well, they benefit in that they don't have to have
their own systems.
Viner:
They contribute to it directly and also indirectly.
The payroll tax falls on them. Nobody has any
illusions as to that.
Duffield:
-he question is whether it is set up for the benefit
of the employers who contribute. Set up for the
benefit of the employees, certainly.
Bell:
Takes in both.
Duffield:
Last night in the meeting there was serious question
whether you should say this does benefit the employer.
Viner:
Say it this way: "This is a trust fund established
for the benefit of the insured."
brown:
" of the insured persons."
Viner:
Insured - whether they're contributors or not.
Gaston:
Well, under the plan the insured are all to be
contributors; we re still holding to that feature.
Viner:
Yes, but, you see, the employers are contributors
under the law.
Gaston:
out they're not insured contributors.
Altmeyer:
If you want to be precise about it, you can say
"for the benefit of employees by whom and for whom
contributions have been made."
H.M.Jr:
If established for the benefit of the insured."
What's the matter with that?
86
-27-
Duffield:
It's all right.
H.M.Jr:
"... for the benefit of the insured." Period.
waston:
Yes. of course, that loses the idea that they are
themselves contributing to it.
H.M.Jr:
well, we've used the word "contributed" so long,
I just don't think it's important to bring it in.
bell:
"oesn't hurt it to say "who contribute to it."
H.M.Jp:
No - "... established for the benefit of the
insured.' The thought here - we're going to talk -
we're now talking about the reserve, we're not
talking about who contributed, for the moment.
Aren't we? This paragraph is on the reserve.
Brown:
well, doesn't it fit people's minds that a trust
fund is for the benefit of the insured persons who -
I don't see where there is the objection - who
have contributed to it?
H.M.Jr:
I don't care.
Viner:
Just substitute "insured" for "employees" and leave
the rest the same.
H.M.Jr:
That's all right.
Blough:
"Insured persons."
H.M.Jr:
That's all right.
"To clarify the status of the old age insurance
trust fund, I am recommending a change in its
management. The system of trusteeship which I am
proposing is similar to that used in the Postal
Savings System under which the Government for many
years has been acting as custodian of private
savings.
"I recommend the establishment of an 'old age
insurance trust fund' to be held in trust by a
board of trustees of the fund and to be deposited
in a special deposit account with the Treasurer
of the United States. The old age insurance trust
87
-28-
fund would be made up of (a) money appropriated
thereto by Congress, including the balance now
carried in the old age reserve account, (b) con-
tributions collected under Title VIII of the Pocial
Security Act, and (c) income accruing to the trust
fund.
"I recommend that the board of trustees for the
fund be composed of the Chairman of the Social
Security Board, the Secretary of Labor, and the
Secretary of the Treasury. the Secretary of the
Treasury should be the managing trustee for the
fund."
Professor Brown, do you like those three trustees?
Brown:
Sounds all right, sir.
H.M.Jr:
what?
Brown:
Sounds all right to me.
H.M.Jr:
Would you make any other suggestions?
Brown:
No.
H.M.Jr:
What?
Brown:
No.
H.M.Jr:
Like the logic of the trustees?
Brown:
Very much SO.
H.M.Jr:
Last night the President sort of raised his eyebrows.
I wonder if he thought the President of the United
States should be a trustee.
Altmeyer:
Pardon?
H.M.Jr:
When you and I were talking to him. You don't think
so?
Altmeyer:
No.
H.M.Jr:
What? Is he a trustee of anything other than the
United States?
88
-29-
Altheyer: ne merely said, "Why the Secretary of wabor?"
well;
de's President of the ded Cross. No, I don't
think he's a trustee of anything.
d.A.Jr:
O.K.
"Tue board of trustees should report annually
to Congress on the operation and status of the
old uge insurance trust fund during the preceding
fiscal year and during the next five fiscal years
setting forth and estimating the income of the fund,
its disbursements, and its assets. +he board of
trustees should report from time to time to Congress
on the actuarial position of the fund. It should
also make a special report to Congress whenever the
trustees believe that during the ensuing five years
the trust fund will exceed three times the highest
annual expenditures enticipated during that five-year
period. The trustees should also report to Congress
when they believe the reserve is falling dangerously
low."
-hat's your minimum, Altmeyer.
Duffield:
Leaves the minimum to the discretion of the trustees.
H.U.Jr:
"To improve public understanding of the purposes
for which the funds are collected, I recommend that
the taxes under Title VIII be termed 'contributions'
even though they are levied under the Government's
taxing Dower."
I take it that's what the lawyers
Duffield:
(Noda affirmatively)
H.N.Jr:
"This terminology would conform with that in the
Railroad Unemployment Insurance Act.
"The change to la contingent reserve system of old
age insurance necessarily has repercussions upon
the rates at which the Government should collect
contributions. I must advise wongress
"Repercussions upon the rates"? +hat's a pretty
strong word.
89
-30-
Dimock:
"Direct effects"?
H.M.Jr:
"
influences the rates Et
Duffield: That's good.
Brown:
n
must necessarily influence n
H.M.Jr:
Something like that. "Repercussions" is pretty -
then you've got to explain that the repercussions
will be favorable. "Influences" all right, gen-
tlemen?
"I must advise Congress that acceptance of a con-
tingency reserve basis means that at some future
date either payroll taxes will have to be higher
than the present Act provides or the Government
will have to make up the deficiency from other
tax sources.
"On the other hand, if E contingent reserve system
is adopted and if the schedule of tax rates provided
in the Social Security Act remains unchanged, we
may have for a few years, unless benefits are
increased unreasonably, a reserve fund somewhat
larger than would be necessary under the standards
I have laid down."
Altmeyer:
That isn't SO.
H.M.Jr:
It isn't?
Altmeyer:
You haven't laid down any minimum, and the maximum
Duffield:
well, it's higher than the maximum.
Altmeyer:
No, it isn't.
Duffield:
All right; this has got to be changed in view of
this
....
H.M.Jr:
All right. Evidently there is 8 difference between
your actuaries and theirs.
Duffield:
Russ Reagh is pretty tough on this one.
McR:
I thought Russ and your actuaries got together
90
-31-
pretty well on this stuff last night. I asked
him
Duffield:
nuss kept insisting that if we said this we'd
have to lower taxes.
Haas:
That's if ne takes the actual years, and Arthur
is talking about the highest in the five.
H.M.Jr:
Well, this gives Altmeyer a chance between now
and this afternoon to get together.
Pimock:
How about the use of the word "unreasonably"
followed immediately by.the statement "somewhat
larger"?
Duffield:
That's unfortunate. What I mean to say - increased
outside of anything contemplated by the Board is
what I'm trying to say.
Dimock:
I mean that word "unreasonably" is a red herring to
the Townsendites.
Duffield:
Very unhappy.
H.M.Jr:
"... unless benefits are increased If - what do
you say, "substantially"?
Bell:
"Considerably."
H.M.Jr:
Something like that. I wouldn't use the word
"unreasonably."
well:
Say "beyond any If - well, of course, there is
none now contemplated.
H.M.Jr:
And I don't like - I'm not Mr. Goering - "the
standard 1 have laid down.¹ If
Duffield:
"
1 have suggested n
H.M.Jr:
Something like that.
Gaston:
ft
I have suggested It
H.M.Jr:
"There are reasons why Congress may decide that a
somewhat larger contingency reserve is desirable
91
-32-
during the early years of benefit payments. For
instance, the early annual disbursements of benefits
are not representative and may not give clear indi-
cation of the proper size of a contingency fund. In
addition, the contributory old age insurance principle
would be jeopardized if, solely for the purpose of
reducing the reserve, the rate of contributions
was reduced or inadequately increased during the
period "
Puffield:
All this will come out if what Mr. Altmeyer says
is
Altmeyer:
1 think that one sentence there is wrong. The
other can stand.
H.M.Jr:
B If, solely for the purpose of reducing the
reserve, the rate of contributions was reduced
or inadequately increased during the period when
the public had not yet come to understand completely
the essential relationship between contributions
and benefits."
men.
pee, there's your argument on the danger of somebody
wanting to reduce the tax rates because of the lack
of immediate necessity to create this small reserve.
d.M.Jr:
That's "on the other hand."
Duffield:
ies, that's "on the other hand."
H.M.Jr:
"I am offering for your consideration four rate
schedules for old age insurance contributions. They
differ only as to the rates which they would apply
over the next three years. Assuming that the
Congress selects any one of the benefit schedules
now being considered by the Social Security Board,
any one of these four contribution rate schedules
would, in the opinion of the President and myself...
Un-uh - "in the opinion of the President and
myself fl - uh-uh.
Duffield:
are we not to mention the President? I thought
We were.
H.M.Jr:
Have we, Herbert? Never.
92
-33-
Gaston:
No, I think not.
Duffield:
I thought last night we were supposed to.
Waston:
No, no.
H.M.Jp:
Just leave out "in the opinion of the President
and myself. Just leave that out.
Duffield:
That's all right; 1 thought it was supposed to
be in. I wouldn't nave put it in otherwise.
Altmeyer:
I'd just suggest you change that word "considered,"
because Congress is the one to consider.
Duffield:
What's that?
Altmeyer:
That word "considered." You might say "now being
developed."
Brown:
"..studied.."
H.M.Jr:
1 want to read this. 11 any one of these
four contribution rate schedules would If - just
leave out "in the opinion of the President and
myself."
Viner:
Leave out the "now being considered by the Social
security Board."
Duffield:
No, because ....
Heas:
We don't want to attach those to the Treasury, to
the Secretary.
Viner:
pay up above "I am offering for your consideration
four rate schedules for old age insurance contri-
butions which have been considered by" or "examined
by" or "prepared by the Social Security Board."
Altmeyer:
You're confusing - this is the benefit pattern
here that we're talking about, not the rates.
Brown:
n
the benefit schedules now being studied by the
Social Security ..."
Viner:
Oh, oh; I see.
93
-34-
H.M.Jr:
"The rate schedule which will be most Il - well,
here I say " assure the continued financial
soundness of the old age insurance program." Just
like that, I say that flat.
Viner:
I say that's claiming more than is justified.
That would be true for a given period of years.
H.M.Jr:
way "for the next three years"?
Duffield:
"...during the next three years" is all right.
Brown:
"..in the immediate future.'
Duffield:
This is all predicated on short-time ....
H.M.Jr:
How you going to say, "for the next three years"?
Duffield:
I'd say "for the immediate future."
Viner:
I'd say "would assure for at lesst the next five
years the continued soundness
"
H.M.Jr:
Supposing they didn't increase the tax in 142.
Would you still say that?
Duffield:
All these schedules assume the continuation of
the present tax.
H.M.Jr:
I nate to put 8 yearage on it. I hate to say
either three years or five years.
Dimock:
You might find the headline in the newspapers:
"Social Security Doomed in Five Years."
prown:
You might say "assured for the immediate future."
Duffield:
" ..discernible future."
H.N.Jr:
Well, If assure the continued financial soundness
of the old age insurance program..."
Hanes:
"...for the immediate future."
H.M.Jr:
"...for the immediate future."
Brown:
Or you could put "assure for the immediate future..."
94
-35-
H.M.Jr:
That's all right; but get in the word "the
immediate future," will you please?
Duffield:
Yes.
H.M.Jr:
O.K., John?
Dell:
Can't you put on a reserve and say it will produce
an adequate contingency reserve?
Puffield:
Want to watch out on that one; you'll get into an
argument with the actuaries.
Viner:
I think you're (Bell) right. "nat it ought to say -
it oughtn't to say anything about the financial sound-
ness. Ought to say it would produce E contingent
fund on the standard laid down here; in other words,
E three years' contingent fund. That's all you can
guarantee - that it will do that.
Blough:
It won't, though, on any one of the benefit sched-
ules now being studied by the Social Security
Board. There's one of those benefit schedules in
which the rates would have to go up in 1942 - am
I right? - so that the plan not to raise the rates
before '43 wouldn't produce the contingency reserve
of this size.
Viner:
Nevertheless, I'd still say that all you ought to
promise or assure is you'll do what you now require
it to do, namely, keep a contingent reserve of that
size.
Dimock:
I'd cut out that sentence. You wouldn't be sub-
mitting four plans if you didn't think they have
merits, and you go on in the next sentence to ...
H.M.Jr:
You mean cut out the "financial soundness," cut out
the whole sentence?
Dimock:
I'd cut it.
Bell:
You say below If depend on the scale of benefits
finally adopted by Congress."
H.M.Jr:
Supposing, gentlemen, we consider leaving that
sentence out. All right? 1 think that's - I mean
95
-36-
just take that under consideration.
+hen I say "The rate schedule will be most in
harmony If
Duffield:
Il which will be ..."
H.M.Jr:
".. " which will be most in narmony with the maintenance
of a contingent reserve on the basis previously men-
tioned will depend on the scale of benefits finally
adopted by Congress."
Well, now the nell can I say previously that the
soundness
Duffield:
No, that's not right.
H.M.Jr:
1 think Mr. Dimock's quite right. I'd leave that
out.
"The alternatives which I am laying before you are
ES follows:
"1. Leave the present rate schedule unchanged.
"2. Increase the tax rates from 1 percent to 1t
It
He said one and a sixteenth; that isn't & quarter.
Haas:
That's the next one.
Duffield:
dr. Secretary, the numbering here is in accordance
with the A, B, C which the President wrote on the
tables.
H.M.Jr:
No, I would do it as they go up, in the order which
they go up.
Bell:
well, they come down, Mr. Decretary. If you left
the present schedule 88 is, it would be 12; then
it comes down to li.
Viner:
I'd put what the present rate schedule is. Don't
tax their memories.
H.M.Jr:
" present rate schedule, which is...." - Jake's
right.
96
-37-
"3, Increase the tax rates from 1 percent to
1-1/6 Is & sixteenth a sixth?
Bell:
16 2/3 is a sixth.
H.W.Jr:
" 1-1/6 percent in 1940, to 1-1/3 percent in
1941, 13 percent in 1942, following the present
schedule theresfter,
"4. Omit the increase in tax rates from 1 to
1§ percent scheduled to take place in 1940, but
step up the rates in 1943 and follow the present
schedule thereafter.
"You will observe that all of these plans provide
for the existing schedule in 1943 and thereafter."
I think - taking Viner's thing, I think you ought to
state what the existing schedule is.
Duffield:
well, I think we ought to spell that out.
H.M.Jr:
"I want to emphasize that our experience under
the Social Security Act has been very brief. We
have been collecting taxes under the Act for only
slightly more than two years.'
Now here, I think, would be a place, gentlemen, for
me to say unequivocally that 1 believe in a Social
Security Act. I haven't said that anywhere, and I'd
like to say it. I'd like to give it hearty endorse-
ment, say something about the Herculean task which
nas been performed in getting the thing started.
See, I'd like to say something nice and endorse it
unequivocally here, right here.
Altmeyer:
There is one thing that I think would make it a
ten strike, where the Government might say about
this contributory insurance thing that it's 8.
protection against paternalism in government. You
see, it's a self-earned proposition and to the
extent that you can get self-earned security, to
that extent you protect
....
McR:
(walking toward door) I've got to go over and see
Ickes.
H.M.Jr:
what time?
97
-38-
AcR:
Don't have to go over there until 11 o'clock, but ...
H.M.Jr:
What's going on over at Ickes'? I'm going to stop
at 10:30. See me through this. Pit down and be a
good boy.
McR:
It isn't important.
H.M.Jr:
Well, you can get over there at 11. 11 o'clock?
McR:
I don't have to get there until 11, but I have
somebody else in there.
H.M.Jr:
If you please - no, this is terribly important.
(McReynolds sits down)
40 ahead, Mr. Altmeyer.
Altmeyer:
Anyway, my thought is that the essence of this kind
of social insurance we're working for is that it's
self-earned.
H.M.Jr:
I'd like to say that.
Altmeyer:
I don't know now it should be expressed. I suppose
Brown can work it out better in a sentence or SO.
H.M.Jr:
Well, try it. And also I want to endorse Social
Security and I want to say that I think the job the
people have done so far is wonderful. bee? 1 mean
this is the place - there is no place that I say,
"Well, I believe in Social Security."
"We have had no experience at all with the payment
of monthly benefits." Haven't we?
McR:
No.
a.M.Jr:
"Therefore, I believe that periodic re-examination
of the Act is essential. For this reason, I have
discussed the reserve contribution problems which
will arise in the next few years. I suggest that
prior to 1943 Congress again examine the financial
mechanism of the Act. Pending that re-examination,
however, I believe that the tax rates for 1943 and
thereafter which are now in the Act should be
98
-39-
retained SQ that in the absence of further
Congressional action a definite program for
financing old age insurance will be on the
statute books."
Viner:
I'd leave out "in the absence of further Con-
gressional action."
H.M.Jr:
Well, you can - I mean you can discuss it
further; I don't care.
"I should like also to place before you four
tables which snow annual contribution collections,
annual benefit payments and the size of the old
age reserve account over the next few years under
each of the four contribution schedules + have
outlined above. This material, I believe, will
assist you in determining how rapidly you believe
contributions should be collected and how large you
believe the contingency fund should be. In compiling
these tables, the Treasury has used intermediate
estimates of benefit payments which were supplied to
it by the Social Security Board. Inclusion of these
estimates in the Treasury's tables does not imply
either approval or disapproval of the benefit plans
which underlie the estimate. recommendations about
the size and type of benefit to be paid under the
social insurance system is not the Treasury's
business."
Now, all I can say is that this last, from 10 down -
the middle of 10 and 11, I think, is a little bit
dictatorial again. I don't know why - it's & little
bit of the "I - I - I" stuff, little bit too much
laying it down to Congress; and I think you can say
the same thing and say it more politely. From the
middle of 10 on it's too dictatorial.
Bell:
Instead of saying, "1 believe" - or say, "We hope."
n.s.Jr:
Now, Altmeyer, what time this afternoon could you
come back and see this revised thing?
Altmeyer:
Come back any time.
H.M.Jr:
what time you (Viner) leaving town?
99
-40-
Viner:
I'm still elastic; I'll work on this this morning.
H.M.Jr:
Should I say 2:30?
Viner:
Do you want me here this afternoon too?
H.M.Jr:
I don't know what your plans are.
Viner:
I can - it's - I can make it.
H.M.Jr:
Dimock, could you come back at 2:30?
Pimock:
Yes.
H.M.Jr:
are you (Hanes) free at 2:30?
Banes:
Yes.
H.M.Jr:
Supposing we say - you're (Brown) here for us today,
aren't you?
Brown:
Yes.
H.M.Jr:
Puppose we say these people work on it some more
and we be here, work on it, 2:30.
Hanes:
May I suggest we leave off the last sentence?
Duffield:
well, nowhere in here do we say we don't want to
get in on the benefit side. I thought we ought to
say it; thought you'd always want to take the posi-
tion you didn't want to say what aged people should
get.
H.M.Jr:
But I think I could say that if I'm asked. I think
Ar. Hanes is right. I'd leave off that last sentence.
Can you (Bell) be back at 2:30?
Bell:
Yes.
McR:
Are you still trying to keep Johnny from not resign-
ing?
H.M.Jr:
well, I think it's good. aren't you (Altmeyer)
fairly happy over this?
100
-41-
Altmeyer:
ies.
H.M.Jr:
Brown, how do you feel?
brown:
All right.
H.M.Jr:
I mean do you think that - let's just take a sort
of - do you think from the standpoint of the 130
million people what I'm saying nere is construc-
tive?
Brown:
ies, sir.
n.M.Jr:
What?
Brown:
Yes, sir.
H.M.Jp:
It is constructive?
Brown:
ies, sir.
B.M.Jr;
anything that any economist or sociologist can
take and say, "Well now, this is just
"
Brown:
1 won't speak for the sociologists, but 1 should
think the economists would
...
H.M.Jr:
Yes, but I mean I'm trying - is anything the matter
with this?
Brown:
I don't see anything.
H.M.Jr:
I mean I've still got time to withdraw. See what
1 mean? I can still say I won't say this.
Brown:
ies. Well, fine. And I would like to in the course
of our revision - that point that's brought up
about this maximum three years business - I think
there is a little work to be done on that still,
as you suggest, as to how it can be best phrased.
H.M.Jr:
But nothing has jelled yet, see, 30 don't
Viner:
I think we can do E good deal of work yet on the
phrase.
H.M.Jr:
1 want Brown to know that. I mean is there any-
thing in here which you think is - I mean that I
shouldn't say?
101
-42-
Brown:
No, sir.
H.M.Jr:
Mr. Dimock, now about you?
Dimock:
I beg pardon?
H.M.Jr:
is there anything in here that bothers you as an
individual, that you think from the standpoint of
130 million people is unsound?
Dimock:
You mean the general statement?
H.M.Jr:
Yes.
Dimock:
I think the general statement's good. I'm inclined
to cut out the sentence at the bottom of page 10,
where you seem to intimate that Congress is going to
do something radical before 1943 - invite them to,
the way it's worded now.
H.M.Jr:
well, I didn't
Dimock:
+ne general statement, I think, is excellent,
a.M.Jr:
AS E whole. Here we are coming along, completely
changing my position from '35, saying we should not
have more than a three-year reserve and that Congress
snould consider raising the taxes .... Now, is
this thing that I'm saying in your opinion intellec-
tually - I mean the thing that's good for me to do
for the Administration? That's what 1 want to know.
Dimock:
I think it's very good.
H.M.Jr:
What?
Dimock:
I think it's very good.
Viner:
"hat about this trust fund board?
Dimock:
I think that's one of the best features of it.
Isn't it tne understanding that before you go into
the summary of recommendations, you're going to have
two or three sentences summarizing the three points
you've made, because I think that would be a good
thing.
102
-43-
H.V.Jr:
+ think it should be at the end. "I would sum up
by saying 1 think there should be a summary.
Yes, + think there should be a summery.
Brown:
Mr. Secretary, you know my position about the
step-up to 11. I certainly feel that number one
nere is the soundest.
8.8.Jr:
I understand.
brown:
Dut 1 can understand your position of the four alter-
natives.
H.M.Jr:
"ell, the President - you see, Mr. Altmeyer and
Mr. nanes and I went over and he agreed that we
should go up there and get four alternatives and
lay it on the table to the Committee.
But what I want to satisfy myself - I mean I knew
your position was - you studied this thing - you
say, Now wait a minute, Morgenthau, I think you're
making a terrible mistake saying this or any part of
this.' That's what - want to snow. I want enybody
here that feels I'm making a terrible mistake - I'd
like them to say so; there's still time.
Altheyer:
I think time alone can tell whether we've made Et
mistake.
Brown:
Not the New York Times, but time.
Viner:
-ven then it may not be uefinitive.
Altmeyer:
-here LS one thing, ar. Decretary, though, that
these men ought to have in mind when they re working
on this reserve standard, and I'd like to check with
you and ár. danes on that. wasn't it this: that
the President wanted something s810 that will scotch
this 47 billion dollar reserve thing? So he was
talking in terms of a maximum. de suggested a
maximum in terms of money, you see - 1 forget whether
ne said five billion or whatever he said - that
could be pointed to to scotch that 47 billion. Now,
this language we've got in here is - this three
times thing is intended to meet the President's
point on that, but it's only a statement of the
103
-44-
maximum; now, if you want other language in as to
what the minimum or actual standard is going to be,
then you've got to put in other language. But so
far as this three times is concerned, that's
intended to indicate the maximum.
Viner:
"an't have a minimum.
Altmeyer:
Put I just wanted you to ....
McR:
No, the way you've got it phrased and the way
you've got it set up ES to mechanics for handling
this fund - I think you've got enough there.
Viner:
They may not be able to put a figure on the three
years, and you may have to indicate what that means
to them in figures.
Duffield:
The tables will snow that.
H.M.Jr:
I think it's a good job.
104
Titles II and VIII of the Social Security
Act of 1935 charged the Treasury with responsibility
for collecting the taxes for old age insurance, for
maintaining the old age reserve account, and for mak-
ing the benefit disbursements certified to it by the
Social Security Board. I would like to discuss with
you today some aspects of the old age reserve account
and the tax rates.
Four years age when the Act was under con-
sideration, I strongly urged adoption of a self-
supporting contributory old age insurance system in
which the future tax burdens on the beneficiaries of
the system would be lightened by interest earned on
& reserve fund accumulated by an excess of taxes over
benefits during the early years of the system. I still
believe that a contributory old age insurance system
is the coundest system financially. However, our
experience in these four years leads me to recomend
to you an alteration in the role which a reserve fund
account should play in a contributory insurance system.
Four years age our expestation was that the
Act as then under discussion would provide old age
105
(2)
security for a fairly distinct group in the community.
We realized, of course, that there was considerable
shifting of workers between employments proposed to
be covered by the Act and those not proposed to be
covered. However, it was generally considered that
the shifting group vas small compared with the great
mass of workers who remained throughout their working
lifetimes in either the covered or the uncovered
groups of industry.
Because the group of employments chosen
for initial coverage had been selected primarily upon
the basis of administrative feasibility, it did not
seem fair that persone in other and probably more
needy portions of our population should be taxed in
order to provide old age benefits as-of-right for
the covered group. I therefore urged to your
Committee in 1935 that the old age insurance system
be made self supporting. By so doing I believed
that we would avoid the anomaly of the peorer groups
in our country contributing to the support of more
prosperous groups.
Our experience under the Act has shown
our initial expectation to be in part incorrect.
Migration of workers between covered and uncovered
Regraded Unclassified
106
(8)
employments has been far greater than vas allowed
for by the Committee on Economic Security. In my
last annual report, I directed attention to one of
the consequences of this migration, stating that a
substantial increase in tax rates would be necessary
to maintain the Act on an actuarial recerve basis
as provided by law.
I should like also, however, to draw your
attention to another and pere cheerful corollary of
this migration. As & consequense of the migration,
a much larger propertion of the total population of
the United States is qualifying under the contributory
system to receive old age benefits than had earlier
been expected. I estimated in my annual report that
without extension of the coverage under present law,
so per cent of the pepulation of the United States
ultimately will have qualified during their working
lifetimes for at least the minimum annuity under
Title II of the Act.
This experience throws new light on our
original belief that the Act ought to be self-
supporting. We new see that the benefits of the
Act will be so videly diffused that supplemental
funds from general tax revenues may be substituted
Doaraded i
107
(4)
without substantial inequity for the expected
interest earning upon the large recerve contemplated
by the present law. Therefore, the argument for
a large reserve loses much of the validity which four
years ago it seemed to possess.
I do not believe, however, that there is
need at the present time or that there will be need
in the near future for supplementing payroll taxes
from general revenue, For all classes of beneficiaries
payroll taxes now are and for some time will be 1000
then the actuarial value of the benefits which the
taxes purchase.
Another reason oroquestioning the reserve
system set up in 1936 is that our studies in the past
three or four years have led us to the conclusion
that the progress program of business and of our national
economy in general is more important in providing
a source of old age benefit payments than 10 the
accumulation of a large interest bearing reserve.
The reason that a gradual step up in the
tax rate was adopted in 1935 was to permit industry
to accuston itself to the new taxes and so avoid
any undue restrictive effects. We could not, of
course, foresse business conditions in specific
108
Regraded Unclassified
(8)
future years at the time that the schedule of rates
now in the not was adopted. In periods of business
recovery like the present, the financing of the old
age insurance system should have the least possible
deterring effect on business. It, therefore, coomo
to me that one of the most pertinent questions is
whether it is desirable to permit a substantial in-
orease in the tax rate to occur during the present
stage of business recovery. Over against these
factors affecting business, your consittee must take
into account the possible effects on the public
understanding of contributory old age insurance
if the tax rates are not increased at this time,
especially if increased benefits are approved.
with these factors in mind, I recommend
the following changes in the Act:
1. We should not accumulate a reserve
fund any larger than is necessary to protect the
system against unforescen declines in revenues or
109
increases in the volume of benefit payments. Specif-
ioally, I would suggest to Congress that it plan the
financing of the old age insurance system with a view
to maintaining for use in contingencies a reserve
which, within a few years, will amount to approximately
three years prospective benefits.
2. The system of handling the old age
insurance reserve should be changed 80 that everyone
will understand clearly that it is a trust fund
established for the benefit of employees who have
contributed to it. To clarify the status of the
old age insurance trust fund, I an recommending
a change in its management. The system of trustee-
ship which I an proposing is similar to that used
in the Postal Savings System under which the
Government for many years has been acting as custodian
of private savings. I recommend the establishment
of an "old age insurance trust fund" to be held in
trust by a board of trustees of the fund and to be
deposited in a special deposit account with the
Treasurer of the United States. The old age insurance
trust fund would be made up of (a) money appropriated
thereto by Congress, including the balance now
earried in the old age reserve account, (b) contribu-
tions collected under Title VIII of the Social
Security Act, and (e) income accruing to the trust fund.
Regraded Unclassified
-1-
110
I recommend that the beard of trustees
for the fund be composed of the Chairman of the
Social Security Board, the Secretary of Labor, and
the Secretary of the Treasury. The Secretary of the
Treasury should be the managing trustee for the fund.
The board of trustees should report annually
to Congress on the operation and status of the old age
insurance trust fund during the preceding fiscal year
and during the next five fiscal years setting forth
and estimating the income of the fund, its disburse-
ments, and its assets. The board of trustees should
report from time to time to Congress on the
actuarial position of the fund. It should also make
a special report to Congress whenever the trustees
believe that during the ensuing five years the trust
fund will exceed three times the highest annual
expenditures anticipated during that five-year
period. The trustees should also report to Congress
when they believe the recerve is falling dangerously
low.
3. To improve public understanding of the
purposes for which the funds are collected, I recon-
mend that the takes under Title VIII be termed
"contributions" even though they are levied under the
q
111
dovernment's taxing power. This terminology would
conform with that in the Railroad Unemployment
Insurance Act.
The change to a contingent reserve system
of old age insurance necessarily has repercussions
upon the rates at which the Government should collect
contributions. I must advise Congress that acceptance
of a contingeney reserve basis means that attsome
future date either payroll taxes will have to be
higher than the present Act provides OF the Govern-
ment will have to make up the deficiency from other
tax sources.
On the other hand, if a contingent reserve
system is adopted and if the schedule of tax rates
provided in the Social Security Act remains unchanged,
we may have for a few years, unless benefits are
increased unreasonably, a reserve fund somewhat larger
than would be necessary under the standards I have
laid down. There are reasons why Congress may decide
that a somewhat larger contingency reserve is desirable
during the early years of benefit payments, For instance,
the early annual disbursements of benefits are not
ative
represented and say not give clear indication of the
proper size of a contingency fund, In addition, the
contributory old age insurance principal would be
Regraded Unclassified
212
9
jeopardized if, solely for the purpose of reducing the
reserve, the rate of contributions was reduced or in-
adequately increased during the period when the public
had not yet come to understand completely the essential
relationship between contributions and benefits.
I am offering for your consideration four
rate schedules for old age insurance contributions,
They differ only 9.8 to the rates which they would
apply over the next three years. Assuming that the
Congress selects any one of the benefit schedules
now being considered by the Social Security Act, any
one of these four contribution rate schedules would,
in the opinion of the President and myself, assure the
continued financial soundness of the old age insurance
program. The rate schedule which will be most in
harmony with the maintenance of 6 contingent reserve
on the basis previously mentioned will depend on the
scale of benefits finally adopted by Congress. The
alternatives which I am laying before you are as
follows:
1. Leave the present rate schedule
unchanged.
2. Increase the tax rates from 1 per cent
to 11 per cent in 1940, to It per cent in 1941, to
1-3/4 per cent in 1942 and following the present'
schedule thoreafter.
Regraded Unclassified
113
10
Regraded Uncla
3. Increase the tax rates from 1 per cent
to 1-1/6 per cent in 1940, to 1-1/3 per cent in 1941,
11 per cent in 1942, following the present schedule
thereafter.
4. Omit the increase in tax rates from
1 to 1t per cent scheduled to take place in 1940, but
step up the rates in 1943 and follow the present
schedule thereafter.
You will observe that all of these plans
provide for the existing schedule in 1943 and there-
after.
I want to emphasise that our experience
under the Social Security Act has been very brief.
We have been collecting taxes under the Act for only
slightly more than two years. We have had no
experience at all with the payment of monthly benefits.
Therefore, I believe that periodic re-examination of
the Act is essential. For this reason, I have dis-
cussed the reserve contribution problems which will
arise in the next few years. I suggest that prior to
1943 Congress again examine the financial mechanism
of the Act. Pending that re-examination, however,
I believe that the tax rates for 1943 and thereafter
which are now in the Ast should be retained so that
in the absence of further Congressional action a definite
program for financing old age insurance will be on the
statute books.
114
I should like also to place before you
four tables which show annual contribution collections,
annual benefit payments and the size of the old age
reserve account over the next few years under each of
the four contribution schedules I have outlined above.
This material, I believe, will assist you in determin-
ing how rapidly you believe contributions should be
collected and how large you believe the contingency
fund should be. In compiling these tables, the Treasury
has used intermediate estimates of benefit payments
which were supplied to it by the Social Security Board.
Inclusion of these estimates in the Treasury's tables
does not imply either approval or disapproval of the
benefit plans which underlie the estimate. Recommends-
tions about the size and type of benefit to be paid
under the social insurance system is not the Treasury's
business.
115
RE SOCIAL SECURITY RECOMMENDATIONS
March 23, 1939.
2:30 p.m.
Present: Mr. Hanes
Mr. Tietjens
Mr. Gaston
Mr. Reagh
Mr. Bell
Mr. Viner
Mr. Haas
Mr. Altmeyer
Mr. White
Mr. Gilbert Cohen (Social Security)
Mr. McReynolds
Mr. Dimock (Labor)
Mrs. Klotz
Mr. Brown
Mr. Blough
H.M.Jr:
Now, Mr. Chairman.
Altmeyer:
Mr. Secretary, I haven't had the chance to read
this new modern opus.
H.M.Jr:
You and I both. So we will start
Bell:
......at scratch.
H.M.Jr:
Did Dr. Magill -- what was his comment, Jake?
Viner:
He liked it all right.
H.M.Jr:
What?
Viner:
My impression was he liked it. He had & suggestion
on this word "contributions," that the Bill should
define "contributions" to mean taxes.
H.M.Jr:
Should?
Viner:
There should be a definition at the end of the bill
that "wherever used in this bill, contributions in
this Act should be understood to mean taxes."
H.M.Jr:
For legal reasons, shouldn't be considered charitable.
Well, I'll start, I won't wait for Mr. Hanes.
You (Altmeyer) have a copy?
Altmeyer:
(Node yes)
Regraded Unclassifi
116
- 2 -
H.M.Jr:
"Titles II and VIII of the Social Security Act of
1935
(Hanes comes in)
H.M.Jr:
Hello, John. We're Just getting started.
charged the Treasury with responsibility for
collecting the taxes for old age insurance, for
administering the old age reserve account, and for
making the benefit disbursements certified to it by
the Social Security Board. I should like to submit
to you today some considerations bearing on these
aspects of the old age insurance program."
"Considerations"7 Is that best? All right. You might
put a question mark there. But I guess we had better
not make any more changes; I think this had better be
the final draft, don't you think 80?
Where 18 Herbert?
Gaston:
I think that's all right.
H.M.Jr:
"In 1935 when the Act was under consideration, I urged
adoption of a self-supporting contributory
I don't like those two "considerations."
Haas:
We Just saw them the same time.
Duffield:
We just saw them the same time. He Just told me about
them. We'll take care of them, Mr. Secretary.
H.M.Jr:
All right, take care of it, will you?
Duffield:
Yes.
H.M.Jr:
#
I urged adoption of a self-supporting contribu-
tory old age insurance system in which the future tax
burdens on the beneficiaries would be lightened by
interest earned on & reserve fund accumulated by an
excess of taxes over benefits during the early years
of the eystem. I believe now as I believed then that
B sound old age insurance system must be on a con-
tributory basis. Our experience in these four years
leads me, however, to recommend to you an important
alteration in the role which a reserve fund should
play in this contributory insurance system.
- 3 -
117
"Four years ago when the old age insurance program
was being planned, we expected that the Act as passed
would provide old age security for a fairly limited
group in the community. We realized, of course, that
many workers who might not be insured under the Act
at any one time would later obtain protection by shift-
ing into insured occupations. It was generally supposed,
however, that the group BO shifting would be small com-
pared with the great mass of workers, who throughout
their working life would remain continuously either in
the insured category or in the uninsured category."
So far all right, Mr. Altmeyer?
Altmeyer:
Sure.
H.M.Jr:
I'll stop here, because I think we ought to do this
the last time. Anybody, up to here?
All right.
"Because the limited group of employments for which
insurance was provided had been selected primarily
upon the basis of administrative feasibility, it did
not seem fair that uninsured persons should be taxed
in order to provide old age benefits as-of-right for
the insured group."
That's a new word, isn't it?
Duffield: Well, it's to distinguish from free pension.
H.M.Jr:
"I therefore recommended to your Committee in 1935
that the old age insurance eystem be made self-
supporting from payroll taxes in insured employments."
Duffield:
I guess that should be probably "on insured employees"?
Brown:
No, "employer and employee."
McReynolds: I think you're right as it 18.
Altmeyer:
Why don't you stop with "taxes"?
H.M.Jr:
Pardon?
Altmeyer:
Just stop with the word "taxes."
118
4.
H.M.Jr:
"I therefore recommended to your Committee in 1935
that the old age insurance system be made self-
supporting from payroll taxes"?
McR:
No, I don't think 80.
Duffield:
I think you've got to tie it up with the insured.
McR:
It was an exclusive group at that time. That's what
you're trying to say. That was your idea at that time.
Bell:
"Self-supporting" carries that.
Viner:
"Employers and employees in insured occupations."
H.M.Jr:
How?
Viner:
"Employers and employees in insured occupations."
H.M.Jr:
How should I say it, leave "in insured employments"?
Duffield:
The suggestion 1a that we make it read "from payroll
taxes on employees and employers in insured occupations.
H.M.Jr:
I think they'll change it. Is that all right with
Mr. Altmeyer?
Altmeyer:
Yes, it's all right,
H.M.Jr:
Read it again. Read it again.
Duffield:
"......from payroll taxes on employers and employees
in insured occupations."
H.M.Jr:
Anybody not like it? All right.
"Operation of the Act has provided significant informa-
tion bearing on this issue. This information shows
that the extent of migration, temporary or permanent,
from uninsured to insured employments 18 far greater
than was anticipated by the President's Committee on
Economic Security in 1935. In my last annual report,
I pointed out that the consequence of this migration
was that the scheduled tax rates were insufficient to
maintain the system on the actuarial reserve basis
provided by the law."
Altmeyer:
You've got to decide whether you're going to use
"occupations" or "employments,"
119
- 5 -
Duffield: "Occupations," I think, is 8. better word.
Altmeyer:
You've switched.
H.M.Jr:
Which do you prefer?
Altmeyer:
I prefer the word "employment" rather than using the
plural of either "occupation" or "employment" to speak
of the system throughout - "insured and uninsured
employment."
H.M.Jr:
Let's use that then. We'll change it all the way
through. What?
Brown:
Yes.
H.M.Jr:
All right, Brown?
Brown:
Yes.
Dimock:
A question about the first sentence in this paragraph.
Wouldn't it be better to substitute the word "question"
for the word "issue"?
Duffield:
I think 80.
H.M.Jr:
Where 18 that?
Dimock:
Bottom of page two.
H.M.Jr:
"This information shows that the extent....."
Duffield:
No, the sentence preceding that.
H.M.Jr:
"Operation of the Act has provided significant informa-
tion bearing on this
Dimock:
".....question."
H.M.Jr:
Much better. Yes. Yes,
All right, gentlemen?
"There 18, however, another and more cheerful corollary
of this migration. As a consequence of the migration,
a much larger proportion of the total population of
the United States is qualifying under the contributory
system to receive old age benefits than had been
120
- 6 -
expected. My latest annual report presented the
estimate that, without extension of the coverage
under the present law, 80 per cent of the population
of the United States ultimately will have qualified
during their working life for at least the minimum
annuity under Title II of the Act."
What I like about the way this thing reads now - I
really think the language is the language of a person
who 1s not familiar with this Act - can understand it
pretty well. I think we've gotten down now to really
good English, which is simple English. Don't you
think Bo?
Dimock:
Oh yes.
H.M.Jr:
Huh?
Dimock:
I have another point here, but I'm beginning to fear
that I'm behaving too much like a college professor.
H.M.Jr:
Wonderful. We like them around here.
Dimock:
How about the use of the word "corollary" with "of
this migration"?
H.M.Jr:
Can you give me an easier word? That's what you call
a non-radio word for me.
Viner:
"Consequence."
Dimock:
consequence of this migration."
Duffield:
"Consequence" is in the next sentence.
Dimock:
"Outgrowth" - "result."
Gaston:
"Result" is better.
H.M.Jr:
"Result." Yes, that "corollary" - I couldn't use that
if I were broadcasting.
Duffield:
"Result."
H.M.Jr:
I was ashamed to ask for an easier word. Thank you.
Now, where are we?
121
- 7 -
Duffield:
"This experience
H.M.Jr:
"This experience throws new light on our original
belief that the Act ought to be self-supporting.
Four years of experience have shown that the benefits
of the Act will be 80 widely diffused that supplemental
funds from general tax revenues may be substituted --
without substantial inequity -- for the expected
interest earnings from the large reserve contemplated
by the present law. Therefore, it becomes apparent
that the argument for & large reserve does not have
the validity
Altmeyer:
Just 8. second. That's an important policy decision
that's being made. Now, that means that you're saying
that eventually the Government should pay 40 per cent
of the cost out of general taxes.
Duffield:
You think it's not qualified by the next paragraph on
page four, Mr. Altmeyer?
Altmeyer:
I hadn't read that.
McR:
Do you think it will pay less than 40 per cent out of
general taxes if you go ahead with this program?
Altmeyer:
I hope BO, We only suggested paying no more than a
third.
H.M.Jr:
Let's read the next paragraph, then go back.
"There 1s no need at the present time and, I believe,
there will be no need in the near future, for supple-
menting payroll taxes from general revenue. For all
classes of beneficiaries, the values of the benefits
which the Act provides are, and for 8 long time will
be, substantially in excess of the contributions under
the schedule provided in the law."
Now, do you want to go back?
Altmeyer:
That doesn't qualify this thing at all.
Duffield:
Doesn't?
Altmeyer:
No.
H.M.Jr;
What would you suggest, Altmeyer?
- 8 -
122
Altmeyer:
I would drop off that last part "for the expected
interest earnings" or qualify it by saying "for a
considerable proportion of the expected interest
earnings."
Gaston:
Yes, I think that's better.
MoR:
I'm willing to do that.
Haas:
You don't get & measure then.
H.M.Jr:
Now how would it read?
Duffield:
The sentence beginning at the bottom of page three
would read "Four years of experience have shown that
the benefits of the Act will be so widely diffused
that supplemental funds from general tax revenues
may be substituted -- without substantial inequity --
Blough:
.
for a considerable proportion of
.
Duffield:
If
for a considerable portion of the expected
interest earnings from the large reserve contemplated by
the present law.'
H.M.Jr:
Do you think that does 1t?
Altmeyer:
Yes.
H.M.Jr:
What?
Gaston:
That doesn't commit you as to the amount of subsidy.
This other would commit you to 8. 40 per cent subsidy
in the peak years.
Blough:
It leaves a play, a wide play.
Gaston:
Almost.
Blough:
Well, it does leave you in this position: that this
happens to be the strongest argument that is left in
here for getting rid of the big reserve, and it means
that if you follow this logically you ought to have
a half-big reserve.
H.M.Jr:
A half what?
Blough:
I'm sorry - a half-sized reserve. If you're going to
pay part of it from interest and part of it from general
tax revenues, then you need a partial reserve.
Regraded Unclassified
123
- 9 -
Hase:
or raise the payroll taxes.
Dimock:
Or raise the payroll taxes.
Gaston:
Yes. We just aren't committing ourselves,
Blough:
Well, except that you could have said that in 1935:
only have & partial reserve and raise the payroll
taxes.
Gaston:
Didn't have the same reason for it ae you see here,
H.M.Jr:
What do you say?
Altmeyer:
I'd leave it with the play in there.
McR:
I think you can prove it, but I don't see how you can
leave it out. That's the crux of the argument.
Altmeyer:
I agree with you. Hammer that: that that means taxes
from some other source in place of the interest. Of
course, that goes without saying, but it's well to
bring it out every time you can.
McR:
What you're saying now is that it's in place of a large
share of the interest.
Altmeyer:
Yes.
H.M.Jr:
Well, you people have been trying to commit me to a
three-way plan anyway.
Brown:
This leaves & very definite play, Mr. Secretary.
H.M.Jr:
Without committing me.
McR:
No, you're committed to a three-way plan.
Brown:
This leaves 8 play as to proportions.
H.M.Jr:
Yes, but it's going to happen anyway, isn't 1t, Mac?
What?
McR:
Sure.
H.M.Jr:
Well, I want this statement to be what was it
Mr. Dimock said? He used - (to Dimock) I say I want
to continue the policy - you said this was honest,
and what else did you say, Mr. Dimock?
24
- 10 -
Dimock:
Yes, "sound."
H.M.Jr:
"Sound."
Altmeyer:
a
and attractive.
H.M.Jr:
II
and attractive." Just as long as somebody
doesn't Bay "good politics.
Bell:
That goes without saying.
H.M.Jr:
Dan says it goes without saying.
"There 18 no need at the present time
-
- I said
that, didn't I?
Duffield:
Next paragraph.
H.M.Jr:
"There is another reason for questioning the schedule
of tax rates and the resultant reserve set up in 1935.
We adopted a gradual step-up in the tax rate in 1935
in order to give industry an opportunity to accustom
itself to the new taxes and 80 avoid any undue re-
strictive effects. The trend of business conditions
in specific future years could not, of course, then
be accurately foreseen. In periods of incomplete
business recovery like the present
"Like the present" - that's good.
W
the contributory old age insurance eystem
should be 80 financed as to have the least possible
deterring effect on business. It 1s, therefore, a
pertinent question whether & substantial increase in
the tax rate should be allowed to occur at the present
stage of business recovery.' I like that very much.
"The depressing effect on the American economy of the
present disturbed state of world affairs makes it
especially urgent that at this time we do not place
any avoidable burdens on American productive enter-
prise.
Couldn't that be put the other way around? Couldn't M
you say "the disturbed state of world affaire
-
bring that up and start the sentence that way? I
mean instead of "The depressing effect on
125
- 11 -
Bell:
You can say "The depressing effect of the present
disturbed state of world affairs on the American
economy
Duffield:
We can say "The disturbed state of world affairs and
its depressing effect on American economy makes it
especially urgent......"
H.M.Jr:
If you could bring the world thing first and rephrase
it - I mean make it flow. Could you do that?
".....at this time we do not place any avoidable
burdens on American productive enterprise." I like
that very much, particularly the "productive enter-
prise." Don't you like that, Harry?
White:
Sorry, I'm 8. page behind you.
Gaston:
Is it a page or a day?
White:
A page a day.
H.M.Jr:
Harry, it's the first time it's happened; don't let it
happen again. I'm usually & week behind you.
Brown:
It's my fault, sir; I'm giving him the pages after
you read them.
H.M.Jr:
Brown, that isn't - you haven't thought that out, have
you?
MoR:
It's the first time you've had Harry on the defensive,
Haas:
As you approve it, he gets it.
H.M.Jr:
In defense of Harry, he's just recovering from a day
before Carter Glass.
All right.
"But, gentlemen, that is only one side of the picture."
Bell:
I suggest "gentlemen" come out.
Gaston:
How do we get the "gentlemen" out?
H.M.Jr:
Mr. Dimock wants to keep this honest.
Dimock:
How can you Joke about such a serious matter?
Regraded Unclassified
126
- 12 -
H.M.Jr:
All right. I think you'd Just say "that 1s only one
side of the picture. Over against these factors
affecting business, your Committee will, of course,
take into account the possible undesirable effects
on the public understanding of contributory old age
insurance which may result if the tax rates are not
increased at this time, especially if increased
benefits are approved."
Altmeyer:
Well, I don't think it's if the tax rates are not
increased at this time, but if the tax schedule is
disturbed at this time; that's the thing. If we
didn't have
Gaston:
Yes.
Altmeyer:
& tax schedule, why
H.M.Jr:
All right?
MoR:
Swell.
H.M.Jr:
O.K.?
Bell:
"Tax schedule.
Altmeyer:
"Tax schedule.
H.M.Jr:
All right?
Altmeyer:
(Nods yes)
H.M.Jr:
"With these factors in mind, I recommend the following
changes in the Act:
1. We should not accumulate a reserve fund any larger
than 1s necessary to protect the system against un-
foreseen declines in revenues or increases in the
volume of benefit payments. Specifically, I would
suggest to Congress that it plan the financing of the
old age insurance system with a view to maintaining
for use in contingencies an eventual reserve amount-
ing to not more than three times the highest prospec-
tive annual benefits in the ensuing five years.
2. The method of administering the old age
All right, everybody?
127
- 13 -
Duffield:
Does that meet your suggestion of this morning,
Mr. Altmeyer?
Altmeyer:
Yes.
H.M.Jr:
"The method of administering the old age insurance
reserve fund should be changed 80 that it will be
made clearer to everyone that it is & trust fund
established for the benefit of the insured who have
contributed to it, I recommend the creation of a
board of trustees
Now, this 16 a suggestion that I just want - it isn't
8 suggestion, I want to raise a question right here.
It's on my mind, and it may be entirely improper to
put it in, but I want to raise it - that in connection
with creating this trust fund - I mean, to use the
vernacular, that I want to protect it against possible
raids from over-zealous people.
Duffield:
We had some language like that written, Mr. Secretary,
and it was taken out because there was & good deal of
discussion about the possibility of somebody coming
back from the other side and saying that we had raided
it to finance general expenditures in the last few
years.
H.M.Jr:
We might be accused of being the raidees.
Viner:
The raiders.
H.M.Jr:
What?
Viner:
The raiders.
H.M.Jr:
The raiders. I pass that suggestion.
MoR:
Well, we all voted against it last night.
H.M.Jr:
All right.
Altmeyer:
On account of a guilty conscience, Mac?
McR:
No, no, it wasn't on account of a guilty conscience.
As far as I was concerned, it was largely on account
of the fact that we would have been ticketed as on
Vandenberg's bandwagon if we had done that.
H.M.Jr:
But you did think about It?
28
- 14 -
MoR:
Discussed it at great length. The boys had it in
because they understood they were instructed to put
it in. Herbert Gaston took the responsibility for
taking it out.
H.M.Jr:
I 800.
"The method of administering the old age insurance re-
serve fund should be changed 80 that it will be made
clearer to everyone that it 16 a trust fund established
for the benefit of the insured who have contributed to
it. I recommend the creation of a board of trustees
for the fund to be composed of the Chairman of the
Social Security Board, the Secretary of Labor, and the
Secretary of the Treasury. The Secretary of the Trea-
sury whould be the managing trustee for the fund. This
eystem of trusteeship 18 similar to that used in the
Postal Savings System under which the Government for
many years has been acting 8.8 custodian of private
savings."
Altmeyer:
Just B. point of information there, Mr. Secretary. Is
this identical with Postal Savings?
Duffield:
The trusteeship is not identical; the trustees for
Postal Savings are the Attorney General and the
Postmaster General and the Secretary of the Treasury.
And all this says 18 that the trusteeship ie similar.
Altmeyer:
But I mean the mechanics are identical?
Dimock:
Wouldn't it be better to say "somewhat analogoue*?
Duffield:
The trusteeship 18 the same.
Haas:
Similar in that there are three in both instances.
Duffield:
And they are Cabinet officers.
Bell:
And one 1s managing director - Postmaster General.
McR:
I don't think it ought to be changed. I think it's
entirely justified - what we've said about it 18
entirely justified by the tax.
H.M.Jr:
You don't think it ought to say "1a somewhat similar
to that used in Postal Savings"?
Duffield:
I think we have legal authority for doing this. You
(Tietjens) asked Ed to look into it.
129
- 15 -
Tietjens:
I think "similar" 1s a better word.
H.M.Jr:
Are you (Dimock) satisfied?
Dimock:
but I don't think it 1s similar. I think it is analogous,
H.M.Jr:
Would you feel happier if you said "somewhat similar"?
Duffield:
You might as well not say it.
Brown:
The word "similar" doesn't mean a facsimile, absolutely
identical, does it?
Duffield:
We would have said "identical" if we meant it.
Altmeyer:
You can say "1s like" if you want to use a nickel word.
H.M.Jr:
"Analogous" 18
Altmeyer:
That's too good a word.
H.M.Jr:
What?
Bell:
Two-dollar word.
Altmeyer:
Two-dollar word.
H.M.Jr:
That's all right.
Altmeyer:
"Analogous" - that seems to indicate a hedging on the
thing; that, I think, weakens it very much. I'd like
to use "similar" or "like," because then it's language
that a working man can use for himself.
Viner:
But there 1e the important difference that the Postal
Savings people are trustees for each individual
depositor, and he can get his funds back, whereas
Duffield:
This doesn't discuss the eystem; it's the trusteeship.
Viner:
You say "This system of trusteeship."
Duffield:
Let's say "this trusteeship."
Viner:
This setup 18 similar.
Duffield:
No, 1t's not.
Regraded Unclassified
- 16 -
130
Altmeyer:
I 800 the point. You might be jumped on,
H.M.Jr:
Come on, lawyer. We've got one lawyer. Talk.
Tietjens:
I'd say "similar" is perfectly all right.
H.M.Jr:
What?
Viner:
Say that "insofar as the circumstances are alike,
this follows the model of the Postal Savings System.
Duffield:
I have a somewhat similar suggestion; I'd say "this
board of trustees 18 similar to that which has been
used in the Postal Savings System." "This board of
trustees" - that's all we mean to say.
Bell:
I think that's better. You've got to take out "System. #
The two systems are not analogous or similar.
Viner:
But have functions similar.
Haas:
The functions are different.
Duffield:
"This board of trustees
M
H.M.Jr:
How would this be: "The idea of a trusteeship 1s similar
to that used in the Postal Savings.'
Altmeyer:
well, of course, Viner makes the point that that 18 a
trusteeship for the individual depositors and this is
8. trusteeship for the beneficiaries collectively.
H.M.Jr:
I'm satisfied to use the word "analogous."
Viner:
The proprietor of the deposite 1s still the depositor.
H.M.Jr:
I'm willing to use the word "analogous." Would
"analogous" satisfy everybody? What? Let's use -
that was your suggestion, wasn't it?
Dimock:
Yes.
H.M.Jr:
Put it in. Instead of "similar," use the word "analogous.
All right, Jake?
Viner:
I'd say "somewhat analogous."
H.M.Jr:
Get together, Chicago, back there.
131
- 17 -
Dimock:
That was my original suggestion. I agree with Viner.
Viner:
Or I'd leave out the reference to Postal Savings,
avoid an unnecessary issue.
H.M.Jr:
I'd like to say that.
Viner:
You can raise the same sort of issue that was started
on the other trust fund; say "it's similar but it's
different" - start raising all the differences.
H.M.Jr:
What do you say, gentlemen?
Brown:
Rather than lose it, I'd say "somewhat analogous."
Duffield:
That's pretty weak.
Gaston:
Could you say "this follows the precedent established
in the case of the Postal Savings"?
Viner:
Or "insofar as circumstances are similar, it adopts
the model of the Postal Savings."
Haas:
Under this one, the Secretary manages the fund himself.
White:
"Similar in principle "?
Tietjens:
Aren't you describing just the mechanics of how the
fund is set up and not what you can do with it or who
it goes to afterwards? It doesn't seem to me that it
carries all those implications with it.
Gaston:
I think Harry's suggestion, "similar in principle,"
is pretty good,
Brown:
That saves it, doesn't 1t? "Similar in principle.'
Viner:
I think it's better certainly than claiming similarity
without qualification.
H.M.Jr:
Is "similar in principle"
Viner:
Yes, then that gives you an out.
H.M.Jr:
What do you think?
Altmeyer:
I'm disturbed about Viner's question. I wish he hadn't
raised it: that in one case it's for the account of
the individual recipients, and in this case it's for
those collectively, In other words, we're not
132
- 18 -
creating individual rights here, and we don't want to
ever get ourselves in the position of creating in-
dividual rights, because that licks us for all time
to come to change the system.
Duffield:
I don't 600 why that's implied.
MoR:
I don't see it at all.
Tietjens:
That's a comparison between the Social Security System
and the Postal Savings System.
McR:
Your trusteeship 80 far as Postal Savings is concerned
18 for purposes of management. The United States
Government is responsible to the depositor in Postal
Savings for getting his money back. The trustee is
there for the purpose of management of the fund and
keeping it intact. Now you've got exactly the same
thing here and I have no objections to the way it 1e
written.
Viner:
Well, would this be better: that "This system of
trusteeship, in its managerial aspect
McReynolds: You've got too many words there.
Duffield:
This now reads this way, if you want to 800 how it 1s
now: "This trusteeship is similar in principle to that
used in the Postal Savings System."
Haas:
The management of the Postal Savings System."
Dimock:
How about this word
H.M.Jr:
Go ahead.
Dimock:
"The trusteeship principle resembles that which 18 in
operation in the case of Postal Savings."
Geston:
You're saying too much about it.
Blough:
That's about the appointment of the trustees.
Altmeyer:
"Such a board of trustees would be similar to
Viner:
You certainly have to leave out the private savings,
because the private savings continue to be private
property.
Regraded Unclassified
133
- 19 -
Brown:
that "Such & board If of trustees would be similar to
Altmeyer:
".......set up under the Postal Savings.'
H.M.Jr:
How have you got it now? Sayit again.
Altmeyer:
"Such a board of trustees would be similar to that
set up under the Postal Savings System."
Bell:
"Postal Savings Act."
Altmeyer:
"Postal Savings Act."
Blough:
Period.
H.M.Jr:
How does it read, Gene?
Duffield:
"Such a board of trustees would be similar to that
set up in the Postal Savings Act."
Haas:
That's it.
H.M.Jr:
Everybody happy?
MoR:
I don't think you can challenge that at all.
Haas:
There are three in each case.
Altmeyer:
We aren't responsible, Mac, if they go around saying
this is the same as the Postal Savings; we haven't
said it.
H.M.Jr:
What a man !
Dimock:
You could make it even stronger, I think, or at least
more generalized, by saying that the trustee principle
18 one which 18 used very widely by modern day govern-
ments, because it takes in all those public trusts
like they have in Great Britain, for example.
H.M.Jr:
Well, if you don't mind, I think it Just gives Altmeyer
a chance through his agents to say, you know, it's
like the Postal Savings; but I still haven't said it.
You see?
(Altmeyer laughs)
Regraded Unclassified
134
- 20 -
H.M.Jr:
Are you (Viner) unhappy about the way it's done?
Viner:
It's all right now to me; I didn't want this
"custodian of private savings" to go in.
H.M.Jr:
You people on the mourners' bench there - all right?
Viner:
All right now.
H.M.Jr:
Mr. Dimock, all right?
Dimock:
I don't know, I think it's rather weak now; I don't
know whether it accomplishee the purpose originally
in mind, to refer to/analogy.
an
Bell:
Does he understand the Postal Savings System?
Duffield:
Much better to leave it general.
McR;
I'm perfectly happy with the change. I think you get
the point in. There 18 8. lot of significance to the
fact that this has been handled as & trusteeship by
the Postal Savings; it's recognized. I'm perfectly
happy. I think you've got it protected,
H.M.Jr:
0. K.
"I also recommend the establishment of an 'old age
insurance trust fund' to be held in trust by 8 board
of trustees of the fund and to be deposited in a
special deposit account with the Treasurer of the
United States. The old age insurance trust fund would
be made up of (a) contributions collected under Title
VIII of the Social Security Act, (b) income accruing
to the trust fund, and (c) any other money appropriated
thereto by Congress, including the balance now carried
in the old age reserve account.
"The board of trustees should report annually to Con-
grees on the operation and status of the old age
insurance trust fund during the preceding fiscal
year and on its expected operation and status during
the next five fiscal years, reporting and estimating
the income of the fund, its disbursements, and its
assets. The board of trustees should report from time
to time to Congress on the actuarial position of the
fund. It should also make a special report to Congress
whenever the trustees believe that during the ensuing
five years the trust fund will exceed three times the
highest annual expenditures anticipated during that
five-year period. The trustees should also report to
Congress when they believe the reserve 18 falling unduly
low."
Regraded Unclassified
135
- 21 -
I think that's a swell paragraph; there's a
mouthful in that paragraph.
"3. To improve public understanding of the
purposes for which the funds are collected,
I recommend that the taxes under Title VIII
be termed 'contributions' levied under the
Government's taxing power. This terminology
has already been used in the Railroad Unem-
ployment Insurance Act.
"The change to a contingent reserve system
of old age insurance must necessarily influence
the rates at which the Government should collect
contributions."
Altmeyer:
Pardon just a second. Are you going to use the
word "contingent" or "contingency"? I see you're
vibrating between the two.
Duffield:
That's what we'll do.
Altmeyer:
You want to vibrate.
Viner:
I think it ought to be "contingency reserve system."
white:
It's not a contingent reserve; the reserve exists
for a contingency.
H.M.Jr:
Stop vibrating and make it "contingency." All right.
"I must advise Congress that acceptance of a con-
tingency reserve basis means that at some future
date either payroll taxes will have to be higher
than the present Act provides or there will be a
deficiency which the Government will have to make
up from other tax sources.
"On the other hand, if a contingency reserve system
is adopted and if the schedule of tax rates provided
in the Social Security Act remains unchanged, we may
have for a few years, unless benefits are increased
substantially, a reserve fund somewhat larger than
would be necessary under the standard I have here
suggested. However, the early annual disbursements
of. benefits are neither representative nor can their
136
-22-
amount be accurately forecast at this time. Con-
sequently, it may be desirable to anticipate B some-
what larger contingency reserve during the first few
years of benefit payments. In addition, the contri-
butory old age insurance principle would be Jeoper-
dized if, for the purpose of reducing the reserve,
the rate of contributions was reduced or inadequately
increased during the period when the public had not
yet come to understand completely the essential depen-
dence between contributions and benefits.
"I submit for your consideration four alternative
rate schedules for old age Insurance contributions.
They differ only as to the rates which would apply
during the next three years. The rate schedule
which will be most in harmony with the maintenance
of E contingent " - would be "contingency," wouldn't
it?
Puffield:
Yes.
H.M.Jr:
"
contingency reserve on the standard previously
proposed will depend on the benefit provisions
finally adopted by Congress. These alternatives
are as follows:
All right so far?
>ltmeyer:
well, I'm disturbed by that language at the top
of that page, where you say "a reserve fund some-
waat larger than would be necessary under the
standard I have here suggested," because you're
suggesting a maximum and it won't be larger, will
it, Reagh, than the maximum suggested?
Duffield:
Maximum? I thought we had worked that out this
noon, that it was all right - the language was.
deagh:
On the basis of your estimates of benefits, the
maximum would probably be about twice.
Altmeyer:
Then this doesn't make sense, does it? It isn't
Duffield:
Can't keep up with the actuaries.
Reagh:
I tried to make that clear, that it never gets over
twice.
137
-23-
Plough:
even under existing law?
Duffield:
I thought we went back again - after considering
this thing, we went back and said that it would
not on the basis ...
Reagh:
Not on the highest of the five, highest in five
years.
Blough:
that's even under existing law.
Reagn:
That's right.
Cohen:
But in the first couple years it's more than
two and a quarter, isn't it?
Reagh:
About two and a quarter in the very highest one.
Existing tax schedule, I mean. You're not
referring to existing benefit schedule.
Blough:
Yes, I am referring to existing benefit schedule.
Reagh:
Why, that's quite likely; yes indeed.
Duffield:
Yes; there, you see, it's all right as it is.
White:
This term "contribution" - I suppose it's much too
late to register any protest.
H.M.Jr:
Harry, just one second. Could you hold it a minute?
White:
Oh yes, 1 can hold it a long time.
H.M.Jr:
I want to ask whether Altmeyer is satisfied.
Altmeyer:
You say the language is all right?
Duffield:
If you maintain the present scale of taxes and the
present scale of benefits, the language is all
right.
Reagh:
That's all right, because under the existing benefit
schedule it could exceed; but not under any of the
proposed benefit schedules.
Altmeyer:
I see.
H.M.Jr:
You satisfied?
138
-24-
Altmeyer:
Yes.
H.M.Jr:
White?
White:
This term "contributions" troubles me a little.
I presume you've gone into it carefully. I can
see the justification for the term "a contributory
system,' because that has acquired a definite
significance in social security literature. It
means a particular kind of system. But when you
apply the term "contribution" to a kind of tax
under the assumptions that it is a quid pro quo -
that they'll receive a quid pro quo some time in
the future and that therefore it is not a tax but
a contribution, it implies that all other forms of
taxes, to my mind, are of a different character,
something for which they do not receive a quid pro
quo, and I rather object strenuously to that dis-
tinction. Probably it's too late. I don't think
you could get away with that - calling it a
contribution.
Haas:
Brown said most of the other countries do that.
White:
Do they?
Haas:
It's sort of an eye-wash, necessary eye-wash.
"hite:
It makes taxes more unpalatable.
Brown:
There are distinctions.
Viner:
This doesn't say that other taxes are not contribu-
tions. It says these taxes shall be called contri-
butions.
White:
It does so by implication.
Brown:
Yall it assessments.
"hite:
"Assessments" would be a good one.
Brown:
But the age-old term for social insurance payments
is "contributions," just as "assessments" is used for
other special purposes and "taxes" is B general word.
H.M.Jr:
"hat do you think, gentlemen; nothing is too late if
we're wrong.
139
-25-
Gaston:
1 think "contributions" is all right.
H.M.Jr:
What?
Gaston:
I think "contributions" is all right.
McR:
I'd be very unhappy if you took "contributions" out.
Haas:
Harry didn't notice we put quotations around
"contributions."
H.M.Jr:
Harry, you know who initials your requests for in-
creases for your staff.
white:
We want to keep nim (McR) happy.
H.M.Jr:
Where are we now?
Brown:
Top of 10.
H.M.Jr:
"1. Leave the present rate schedule unchanged,
that is, 1 percent on employees and employers each
from 1937 to 1939, inclusive, increasing to 1 §
percent on each in 1940, to 2 percent in 1943, to
21 percent in 1946, and to 3 percent in 1949.
I needn't read all these. I take it they're
accurate. I'll go down to
....
"You will observe that all of these plans provide
for the existing schedule in 1943 and thereafter."
You don't want to use the word "tax schedule"? Just
"schedule"?
Dell:
"Contribution schedule."
H.M.Jr:
You don't want to qualify "schedule"? No?
Hanes:
"Schedule of payments." No, that's all right. I'd
leave that.
H.M.Jr:
Just leave it, not rub it in, huh?
Hanes:
No.
H.M.Jr:
Okey-doke.
140
-26-
Bell:
"Rate schedule."
H.M.Jr:
No. You think it has to be qualified, Jake?
Viner:
"ell, you said "existing schedule of rates" or
"existing rate schedule."
^ltmeyer:
May I point out that at the top of the page
you say "present rate schedule," but in two and
three and four you speak of "tax rates."
Viner:
"... increase the rates on each..." - let's leave
out the "tax."
Altmeyer:
I think the terminology ought to be uniform all
the way through.
H.M.Jr:
God, this crowd is tax-shy, aren't they!
In two it would be "increase the rates on each,"
huh? In three it would be "increase the rates."
Duffield:
Four.
H.M.Jr:
Four - "increase the rates." We just won't have
taxes any more.
Gaston:
Aren't they going to be confused with benefit
rates?
Duffield:
Seems to me SO.
H.M.Jr:
Huh?
Gaston:
They might be confused with benefit rates.
Hanes:
Not if you read on.
Altmeyer:
I'd leave the word "tax." It's a - that's what we're
calling it now. You're suggesting a change, but
now it's called a tax. You can't get away from
the present terminology when you're speaking about
the present.
Viner:
You can put it "rates levied" and then there's no
question.
141
-26-
H.M.Jr:
Look, we start with number one - "Deave the present
rate schedule" - either put in the word "tax" there
or leave it out in the rest of the places.
Bell:
Put it in.
Hanes:
"hy not "increase the rate schedule"? Follow the
same language all the way.
H.M.Jr:
"Leave the present rate schedule," then
....
Hanes:
"...the rate schedule on each. "
n.M.Jr:
What?
Hanes:
Keep it uniform all the way through.
Brown:
One and two are different. One constitutes a
schedule as a whole, and in two and three and
four you're talking about rates as specifically
changed.
Blough:
It's the word "tax," though, that's coming out.
Brown:
I should think the way it is now is perfectly all
right.
Blough:
Except for the word "tax," which isn't uniform.
Brown:
Well, "tax.." If
Men:
No taxes are uniform.
H.M.Jr:
It's a tax rate. I don't see any - I'm willing to
call it "increase the tax rates on each, employees
and employers " What?
Altmeyer:
It's a rose there by any other name that smells
sweet.
White:
Change your mind since page four?
Altmeyer:
No, but I say that's for the future; this is the
present.
Viner:
We haven't changed the language yet by law.
H.M.Jr:
Bell points out that on page 9, the last paragraph,
Regraded
142
-27-
I say, "I submit for your consideration four
alternative rate schedules ...."
well:
"... for old age insurance contributions." Then
you say, "These alternatives are as follows:" You
"schedules." don't need, it seems to me, anything but your
H.M.Jr:
And you would leave ....
Bell:
Cut out both "tax" and "rate," if you want to.
H.M.Jr:
You can call it "schedule."
Duffield:
"Leave the present schedule unchanged." And what
you going to say, "Increase the schedule on each"?
Blough:
No, "the rates."
Brown:
"Rates" there, because it's different year by year.
Duffield:
I think it adds to clarity to put the "tax" in.
H.M.Jr:
How would you do it?
Duffield:
"Deave the present tax rates unchanged" and start
each one of them with "Increase the tax rates, so
and so.
H.M.Jr:
How did you have it in the first, top of page 10?
Duffield:
"Leave the present tax rates n
Blough:
"...schedule "
Brown:
You don't have to have uniformity between one, and
two, three and four, because one deals with a
whole schedule.
H.M.Jr:
All right. One just says, "Leave the present rate
schedule unchanged." That's all right, Gene; leave
it the way it is. Put it back the way it W2S.
Duffield:
All right.
H.M.Jr:
You ("ltmeyer) don't like it.
143
-28-
Altmeyer: No, I don't care. I think it would be understood.
H.M.Jr:
I mean like it was before we started to fussing with
it - just the way it was,
All right back there, g entlemen?
"You will observe that all of these plans provide
for the existing schedule in 1943 and thereafter."
That's all right.
"I should like also to place before you four tables
which show annual contribution collections, annual
benefit payments and the size of the old age reserve
fund over the next few years under each of the four
contribution schedules. In preparing these tables
the Treasury has used for illustrative purposes the
intermediate estimates of - that's a new word;
"intermediate estimates" you're going to call it
instead of "high-low." Don't you like "high-low"?
Wasn't it ....
Altmeyer:
It was called the "medium-high" before, wasn't it?
Cohen:
Medium-high.
Brown:
Anything to do with the size of hats?
H.M.Jr:
"Intermediate estimates" - that's what you people
like, huh?
Altmeyer:
I don't know whether I like it, but "medium-high"
isn't good.
"uffield:
Best we can do.
H.M.Jr:
All right - "intermediate estimates...'
Duffield:
It's all right.
H.M.Jr:
...intermediate estimates" in brackets; put after
it the word "Altmeyer" - ft of benefit payments
based upon the proposals outlined by the Social
Security Board in its report to Congress. these
estimates were supplied to the Treasury by the Board
144
-29-
and their inclusion of these estimates in the
Treasury's tables does not imply either approval
or disapproval of the benefit plans which underlie
the estimates."
Viner:
Don't you mean "the inclusion"?
Duffield:
No - "and their inclusion in the Treasury tables
H.M.Jr:
" does not imply either approval or disapproval
of the benefit plans which underlie the estimates."
That's all right.
"This material, I hope, will assist you in deter-
mining how repidly contributions should be collected
and now large the contingency fund should be."
Viner:
I should think that would be "in determining at what
rate contributions should be collected."
H.M.Jr:
"...st what rate"?
Blough:
If at what rates "
Viner:
it rates 11
H.M.Jr:
All right. All right?
Altmeyer:
(Nods approval)
H.M.Jr:
TI
at what rates contributions snall be collected"
instead of "how rapidly"?
Viner:
Yes.
H.M.Jr:
" at what rates contributions shall be collected
and how large the contingency fund should be.
"Our experience under the Social Security Act has
been very brief. We have been collecting taxes
under the old age provisions of the Act for only
slightly more than two years. We have not as yet
had any experience with the payment of monthly
benefits. Periodic re-examination of the Act,
therefore, is essential. I suggest that prior to
1943 Congress again comprehensively re-examine the
Regraded Unclassified
145
-30-
financial provisions of the Act."
Instead of saying, "I suggest," would it be all right
to say, "I think it is most important that prior to
1943 Congress Is that all right?
"I think it is most important that prior to 1943
Congress again comprehensively re-examine the
financial provisions of the Act. Pending that
re-examination, however, I believe that the tax
rates for 1943 and thereafter which are now in the
Act should be retained so that there shall continue
to be a definite program for financing old age
insurance on the statute books.
"I firmly believe the old age insurance program of
the Social Security Act constitutes a great and
far-reaching constructive program.'
I'm glad you put that in.
"Its planning, initiation and operation have been a
tremendous task. That task has been successfully
carried forward over the past four years. with
proper revision, the Act will provide a means of
protecting millions of our people against dependent
old age. It will protect them through enhancing
their capacity to help themselves and in planning
for & self-reliant old age. It will protect them
and our society from the dangers of paternalism."
I think that's all to the good.
(To Mrs Klotz) That last there - that's all new.
Klotz:
Yes.
H.M.Jr:
I'm very happy over this. I want to thank everybody
tremendously.
Altmeyer:
There is one thing that I'd like to ask you, one thing
I'd like to raise a question about that I think is all
right; and that is whether you want to go on record
relative to going from this guaranteed three percent
interest rate to the average rate. You see, we dis-
cussed that.
148
-31-
H.M.Jr:
What?
Altmeyer:
No mention is made of it.
H.M.Jr:
Don't I do it by implication?
Altmeyer:
No.
H.M.Jr:
I don't?
Brown:
We discussed that. It's a question of policy, sir.
It gets into 8 rather detailed explanation. There
WES a question of whether it should go into this
statement, involving as it does & rather detailed
explanation. On the other hand, we did discuss
whether it could be said in a sentence or two.
Duffield:
I was going to suggest that on page 6 if you wanted
to put in a sentence which would be very general,
you could say, "The Secretary of the Treasury should
be the managing trustee for the fund, with authority
to invest it in Government obligations yielding an
average return of ... - whatever this formula is.
H.M.Jr:
I'd like before you say that - unless there's some
good reason I don't know about, I don't want to muddy
the waters by raising the question of the 3 percent
rate. In other words, I'd rather leave it at 3
percent.
Bell:
I think it's a detail which should be worked out in
drafting the Act. And as I recall the memorandum
that you read the other day, they took out the
authority from the present Act to issue special
obligations. Now, I think that our experience in
the past year justifies the authority that you have
to issue special obligations, because you certainly
couldn't go in the market at the present time and
invest 50 million dollars.
H.M.Jr:
You want to leave it there?
Bell:
I certainly do want to leave it. I don't care what
rate they use. I certainly want them to leave the
authority to the becretary to invest either in the
market or special Issues.
147
-32-
H.M.Jr:
I want to make my point E. little clearer. I don't
want to put something in like lowering the interest
rate which would make the people who are investing
in this fund think that I am unfriendly to the fund,
because I'm doing so much which is new and I'm &
friend of the fund that I'd like to leave the 3 percent
thing, or leave it just - that part of it just the way
It is now, Dan, see?
Blough:
That's really why it wasn't put in in the discus-
sion.
H.M.Jr:
See? Because I'm doing so much, 1 don't think
anybody who is insured under this can interpret
that I'm trying to sabotage the fund. I don't
think that's been raised, but if I lowered it
from 3 percent they'd say, "See, that's what
*orgenthau is doing; he really doesn't believe
in this thing.' See?
Altmeyer: Yes.
H.M.Jr:
So I'd like to have it - you see, what Dan and I and
the rest of us are up against - take Postal Savings;
we've got 75 million invested in El special 2 percent
note. Now, we'll hold that until there is a break
in the market - there always has been a break in
the Government bond market - and when there is a
sharp break we will go in and invest. we'll wait.
In the meantime they're earning 2 percent. If we
went in the market and bought, we couldn't invest
for them - the best rate today would be what?
Bell:
2 / - the longest.
H.M.Jr:
28, and we'd have to pay this tremendous premium.
Dell:
Not only do that, but push the market up several
points by trying to invest.
H.M.Jr:
80 we'll wait until there's E: sharp break. We
give them B. certificate earning them 2 percent.
But I'd like to leave the 3 percent thing alone,
leave it just as it is, so I can't be attacked on
that front. I think it helps you for me to take
that position, doesn't it?
148
-33-
Altmeyer:
Oh yes. The only reason I raise it is this:
that Vandenberg and people like that say you
ought to invest in either outstanding issues
or original issues. I don't know whether you've
got enough open-end issues, whether that would
tie you down or not. NOW, you can't do that if
you've got an arbitrary 3 percent rate; you'd have
to invest in these special issues because you've
got none that yield that much.
Haas:
Have difficulty, anyway.
neagh:
"hat you want is both.
H.M.Jr:
Ought to be able to do both. But whichever way it
is now, I'd like to leave it.
Bell:
We can do that now - original issue in the market or
special issue.
H.M.Jr:
Because from our standpoint it's - the Treasury
standpoint, it's perfect, isn't it?
Bell:
Absolutely.
H.M.Jp:
And there's been no complaint from the fund standpoint.
I can defend that, because right now I can't buy
anything without putting the market up El couple
points.
Altmeyer:
They've been calling these things on us, and from
a psychological standpoint there is great advantage
if the investments are the same as you'd sell to the
public, if you've got open-end issues that are
available. In other words, I think from a psycholo-
gical standpoint it's much better to take one of these
than issue special obligations.
Reagh:
Do you want to be prevented from buying in the market
except at a 3 percent rate? That's the existing law.
Altmeyer:
I say I agree with the Secretary there's no use in
sticking in this 3 percent; what I'm talking about
is, what is in your mind when it comes to the draft-
ing?
H.M.Jr:
I'd like to leave that part of it just as it is.
Regraded Unclassified
149
-34-
Bell:
Well, I would certainly like to leave it as it is
for this discussion, but when the Committee gets
down to drafting an Act and they raise that ques-
tion, I think we could consider it. I don't think
it makes much difference what rate it is as long as
we're going off of the full reserve. And at that
time I think we might consider changing the rate to
the average rate of the public debt.
n.M.Jr:
well, I'd like to have time, but after all I'm going
up there tomorrow, the first person for the Adminis-
tration to testify - I'm taking this plunge in this
cold water - and when I get through I'd like to have
it felt that the Administration still believes in the
Social Security Act, and 1 think I'd be very vulnerable
if I began to talk about lowering the rate from 3
percent to 2$ or 2, and they immediately could attack
me there. As far es I can tell, I'm not - my whatever
sense I have - I don't - I can't see that I'm
vulnerable. And quite to the contrary, 1 think -
I hope I'm right - that looking at it, 85 I put it
this morning, from the standpoint of 130 million
people, I think it's a good document.
white:
One suggestion: whether you would consider striking
out the word "financial" in the phrase "I suggest
that prior to 1943 Vongress again comprehensively
re-examine the provisions of the Act."
Duffield:
Well, the only point here - the Treasury's staying
out of the benefit side of the thing; Treasury's
staying out of the benefit side of the thing.
white:
because obviously an Act of this kind, which is
supposed to preveil over a period of several
generations, will have to be subject to change.
Duffield:
That's what we're saying.
H.M.Jr:
But I think that - I get the point - I think I
better keep it on the financial basis, Harry.
Dimock:
There's another question
E.M.Jr:
How do you like it, Harry?
White:
Strikes me as very good.
150
-35-
H.M.Jr:
Like whole? it from the standpoint of looking at it as a
White:
Very good. the only thing I'm troubled about - I'm
sure that's been carefully considered - is that the
excuse for the shift in position is a little bit
thin. But if I knew more about it, maybe it would
be thicker.
Gaston:
It is thin, Harry.
H.M.Jr:
"hat?
Dimock:
There is another question, if you have time.
H.M.Jr:
I have all the time you'll give me.
Dimock:
At the top of page 9 there is a sentence which,
if taken out of its context and quoted, would
conceivably lead to misinterpretation. The sen-
tence reads as follows: "However, the early annual
disbursements of benefits are neither representative
nor can their amount be accurately forecast at this
time." One word that trips me up is the word
"accurately." The man in the street 15 liable to
say, "Why not accurately?" wouldn't it be better
to say "precisely"? And then the word "representa-
tive." Unless somebody knows something about this
subject, he'll say, "Why aren't they representative?
Does that mean we're going to get much less?"
H.M.Jr:
What would you suggest?
Dimock:
That's harder to correct.
H.M.Jr:
Could you leave out that sentence entirely? Wouldn't
it go just as well?
Duffield:
That's the excuse so that you don't ....
Brown:
Pretty important.
H.M.Jr:
The sentence is?
Brown:
I'd say "precisely" is all right. I think "representa-
tive" is the word.
151
-36-
Dimock:
well, now would you explain that yourself? What
does that mean?
Brown:
Well, taken as E sample, it is not a good sample of
what will occur as the system matures.
Altmeyer:
Well, do you mean are neither representative of
their magnitude - would that help, to put in E
phrase to define "representative"?
Dimock:
"hy couldn't you put in parentheses a statement
that "because of the smaller magnitude," or some-
thing like that
Brown:
+ don't know whether it simplifies or it confuses.
I mean the word "representative" is B fairly well
known word; it means, is it & good sample?
Bell:
"ny hasn't the Secretary said enough if ne says
" the annual disbursements of benefits cannot
be precisely forecast at this time"?
Brown:
=
in the early years "
Reagn:
Well, there's another point there, that they're so
much smaller in the early years; tnat's the important
thing here.
Klotz:
I think it's all right.
Brown:
Well, it says both those words; that is, they "sre
neither representative. " - that is, they can't be
taken as 8 good sample of what will occur later -
" nor can their smount be precisely forecast at
this time." There are two meanings there.
daes:
You could say "normal in amount" or something like
that.
Brown:
If not normal. - but "normal" has other
connotations. "Typical"?
Heas:
"
normal in amount" does it.
Brown:
"
normal in amount" - that's all right.
H.M.Jr:
well, let's go around here.
152
-37-
Duffield:
I like this better.
Prown:
I like it the way it 1s, really. I think it says
what it means. The word "precise" is all right.
H.M.Jr:
I've still got time if anybody has another thought.
Dimock:
I have one other thought.
H.M.Jr:
Do you want to get a four o'clock (to Brown)?
Brown:
Sorry, Mr. Secretary, I'm supposed to go with Mr.
Viner at four o'clock.
H.M.Jr:
Going to New York?
Brown:
Yes, sir; I have an appointment up at Princeton.
H.M.Jr:
Can't be here tomorrow?
Brown:
I just can't, sir.
H.M.Jp:
I've gotten the most .... Very much obliged.
Brown:
Thank you very much.
H.M.Jr:
Thank you tremendously, a lot.
Viner:
Good-bye.
H.M.Jr:
Ever so much obliged. I'll just step out a
minute with you.
(H.M.Jr. goes out with
Viner and Brown)
(H.M.Jr returns)
H.M.Jr:
Well, I - now, are you (Altmeyer) satisfied?
Altmeyer:
Yes.
Duffield:
Only one other thing, Mr. Secretary. Do you want
to see the tables which are - the four tables?
H.M.Jr:
You stay behind a minute; I'll see them.
Well, everything all right? Right. You're (Altmeyer)
coming up, aren't you, tomorrow?
153
-38-
Altmeyer:
Yes. But I want to ask you some questions. I
mean I want - there are three questions I think
you're going to be asked
H.M.Jr:
All right.
Altmeyer:
that I think the answers ought to be
....
H.M.Jr:
Go ahead, please.
Altmeyer:
"First, Mr. Secretary, as a member of the Committee
I should like to know whether you favor keeping the
eventual benefit costs of this old age insurance
system at the present level or reducing it or
increasing it?"
H.M.Jr:
Now, come over and sit on this side of the room,
figuratively speaking. How should I answer that
one?
Gaston:
What do you mean by eventual?
wuffield:
I'd say that was a matter for the Social Security
Board.
Altmeyer:
It's & cost proposition for the Treasury, too.
White:
How is it possible to answer that question until
one knows more about what the future has in store
for us?
Altmeyer:
I'd say, "Well, I'd be very hesitant about amend-
ments that would increase the eventual cost of
this system" - something like that.
White:
Not quite the same thought as I expressed. It seems
to me dismetrically opposed. But how is it possible
for anyone to determine the adequacy or the justifi-
cation of any given amount of benefit payments in the
distant future?
Blough:
This is just his policy, though, now.
white:
I didn't understand the way you put your question.
H.M.Jr:
Well, frankly, 1f I get anything like that, I'm going
to say, "Mr. Altmeyer, would you mind answering that
154
-39-
question?" And I never hesitate to do that.
Altmeyer:
We've answered it in our report; recommended that the
eventual costs not be any greater, that any schedule
of benefits that's developed ought to result in a
cost
White:
That's the Social Security Board's recommendation.
Altmeyer:
Yes.
White:
It need not be the Secretary's.
4.8.Jr:
I'd duck it. I'm awful good at that, too. Now,
let's have some more.
Bell:
You pass.
H.M.Jr:
Yes. +hat's all right. Got some more questions?
Altmeyer:
ies. Well now, then another recommendation we made
WBS that you combine, or Congress combine, the tax
titles, or in lieu thereof at least make the
definitions of coverage or the base the same.
That's Titles VIII and IX. "hat's your reaction
to that?
H.M.Jr:
On, I'd simply say, "Gentlemen, I've just studied
this program rom the standpoint of what I have said
in my statement, and I haven't ot anything to add
to this statement. I haven't gone beyond what I've
got in this statement. If you want anything else,
the representative of the Social Security Board is
here to I mean I just wouldn't get into it.
I'm only going to talk on woat I actually know.
I'm not going to bluff.
Altmeyer:
Before we get very much further along in these
hearings, they're going to start asking us for
figures, all kinds of figures, and they'll want to
know up to 1980 on this kind of a base, that kind
of a base, every other kind of a base, what it's
going to cost. what is going to be the policy of
the Government? are we going to try to make guesses
like we did four years ago until 1980, then find
we've got a 50 percent margin of error?
155
-40-
H.M.Jr:
My answer 1s, we're coming in, we're estimating
for ten years, and we are suggesting Congress
restudy it in three years, and that I don't think
anybody can go beyond that.
Haas:
The tables show it until '55.
H.M.Jr:
Pardon?
Haas:
The tables show it until '55.
H.M.Jr:
I thought you boys said to cut it off at '49.
Altmeyer:
That's the tax rate. Tax rate stops at '49.
White:
Do the same thing for fifteen years; still remains
sound.
H.M.Jr:
I thought they weren't going beyond '49.
Baas:
'55.
H.M.Jr:
I've seen - the '55 is what I took to the President
because it has to run to '55 to begin to show a
deficit.
Gaston:
If I were a member of the Committee, I think I'd
protest very strongly at that kind of an answer.
I'd say, "dere's a program that contemplates a
steadily increasing cost for old age benefits.
There must be a maximum some time. Just give us
an idea what that maximum is, and when."
"hite:
Why wouldn't that be an appropriate time for an
actuarial expert to describe the number of factors
which are currently unknown and which would modify
substantially any estimate, which make it impossible
for anybody with reasonable certainty to give a
reliable estimate, in view of the factors which
are unknown?
Reagh:
we're just about accurate for twenty years from
now as we can be in the first year. In fact, our
first range in 1940 is from 75 million to 372 million.
We aren't going to be any worse off until we go to
1980.
H.M.Jr:
The answer - I'll say, "My guess is as good as yours.
If you want experts, we've got experts here who can
156
-41-
testify."
Gaston:
My point was just simply that we ought to be
willing to let our experts testify, qualifying
their testimony in any way they want to, but
giving their best guess.
H.M.Jr:
That's all right.
NO ahead, Mr. Altmeyer. is that all?
Altmeyer:
Yes.
H.M.Jr:
Now, what I'd do is this. When I'm stumped - I
mean not just because the question is difficult -
but if I don't want to answer - I can take it - but
when it's a question which needs an expert, I never
hesitate to turn and ask one, see? And what I
thought was that we would not show this in advance
to Jere Cooper and the rest, and I'm not going to
give them preparation to think up a lot of questions,
see? I'm taking this cold plunge before you with my
eyes partially open.
Altmeyer:
I W&S on for two hours two months ago. That's a
long time ago.
H.M.Jr:
I know; a lot of things have happened since then,
including Memel.
Blough:
Mr. Secretary, you will likewise sidetrack questions
on the Townsend plan and all that sort of thing?
Altmeyer:
Oh yes, that's another serious question. "What
do you think about the Townsend plan?"
H.M.Jr:
"I'm not an expert on that."
Altmeyer:
"Whe'd do you think about a sales tax?"
H.M.Jr:
I'm just going to say, "Gentlemen, I've just gone
as far as I'm going to here. If you want to give
me a lot of questions in writing, we'll go back and
give you the answers." I don't know the answers
and nobody here in the Treasury does either.
Altmeyer:
On the Townsend plan?
157
-42-
H.M.Jr:
Yes.
Altmeyer:
Why, I thought that
....
H.M.Jr:
Oh, we wrote a letter killing the 10wnsend plan
and the President wouldn't let me send it. That's
right here in the room, We spent weeks and weeks
and weeks and weeks on it. Of course, that was
before election.
White:
Why couldn't the Secretary very appropriately
take that position? Here's a recommendation
which has been confining his attention ...
Altmeyer:
If the Secretary takes that position, my reaction
would be, if I were a member of the Committee and
there were newspaper boys around the table there -
"Well, the Administration apparently doesn't want
to face the Townsend agitation head-on," and I
think it would weaken the people on the Hill who
have to withstand the Townsend agitation if the
Administration doesn't indicate the economic
effects of anything such as proposed under the
Townsend plan, and there would be a merry time
and there would be no gain to the Secretary or
to the plan. I should strongly urge jogging it.
H.M.Jr:
Look at the time I personally spend on a thing
like this. You've seen it.
Altmeyer:
Yes.
H.M.Jr:
Now, I feel that I'm prepared to go as far as
this statement goes.
Altmeyer:
But there is a unanimity - I mean we have a half
dozen economists there and the essence of the 10wn-
send plan is just as simple as A, B, C, I mean to
say you're not an expert to my mind doesn't answer
the question.
H.M.Jr:
How would you answer it?
Altméyer:
I'd say, "The townsend plan in effect is a multiple
sales tax, and a multiple sales tax is bound to be
a tax that pyramids; and in essence, gentlemen, the
Townsend advocates propose to encourage spending or
158
-43-
purchasing power by taxing spending or purchasing
power." I mean some simple statement like that.
"Now, if you want to know what the estimates of the
receipts will be and the incidence, I can't tell
you, because that varies with the kind of product
that's menufactured," and all that business. But
I mean the essence of the Townsend plan is so simple
and accepted by economists as being of no validity
that not to make a statement about it on the grounds
that a person isn't an expert, it seems to me, would
indicate that the Administration didn't want to
face it.
White:
Supposing somebody answered
H.M.Jr:
Just a second. You have to be prepared for this.
Now, I'm glad you brought it up. I'm willing to go
up and talk on that statement, put my name to it,
say, "This is for the Administration." You're willing
to have me do it; we're both working for the same
fellow, and when it comes to the questions on which
I'm not prepared and I don't feel I have adequate
answers, I'm going to turn to you and ask you to
talk for the Administration. We're both there
representing the President. O.K.?
Altmeyer:
O.K.
H.M.Jr:
What? "nether they're financial or otherwise. Decause
you - this is your life, this is your work, and it
isn't mine, and I'm not en expert on it and I'm not
going to get into an argument on the Townsend plan.
I mean we take - here we gave out a statement on
gold; I suppose it really took - a letter to Wagner -
I suppose it really took a couple months to prepare
a thing like that altogether - 1 mean until we get
the thing ready; and I can't just go up and argue
about
... I can say like Coolidge when they asked
him - what was it he said about religion?
Altmeyer:
He's for it?
H.M.Jp:
de said he's for it. So I can say, "I'm agin it."
"Yes, I'm against the Townsend plan, but Mr. Altmeyer
will tell you why."
(Hearty laughter)
159
-44-
Blough:
They might say, "Mr. Secretary, this Townsend
plan is a tax measure. Shouldn't the Treasury
be prepared to answer on B. tax measure?"
H.M.Jr:
Then they've got to give me time.
White:
I'd keep off it absolutely, because there's an
answer to that question, which will call for
another answer, and it'll be a springboard for
some Senators who are studying this plan; they've
got a lot of fellows who want to make a good
showing. Supposing they came back and said, "You're
not interfering with business, because the additional
tax is going to give ten billion dollars in the
course of a year of additional purchasing power,
which is going to increase business by ten percent,"
and so forth. I'm not speaking of the validity of
the proposal; I mean to say that it cannot be settled
by some such obiter dicta as you pronounce, and it
would mean getting into a discussion which I think
is better avoided unless there is a lot of prepara-
tion ahead of time.
H.M.Jr:
Well, there is no preperation on my part.
white:
1 think better avoid it. And since Mr. Altmeyer
is certainly properly qualified, I should think
you'd very appropriately say that there is something
he'd be glad to talk on.
Altmeyer:
Of course, there are two sides to the Townsend
plan, you see, and we've tried to confine ourselves
in the Social Security field to the benefits. Now,
the tax end of it is the more important end from the
standpoint of the average Congressman. See?
H.M.Jr:
Well, look, I'll just have to use the technique I
always use. when there is a question asked me which
I don't feel prepared or qualified to answer, I don't
answer it, and they can't make me answer it; and I'm
just going to stick to my text and say, "Gentlemen,
you've asked me to come up here and talk about the
financial aspects of the Social Security Act. Now,
I'm not prepared to talk about any other kind of
legislation on pensions or benefits." I'm not
prepared and I'll just stick by my guns. That's
all I'll have to do. But your asking me these
160
-45-
questions now enables me to make up my mind how
dangerous it is. I'll just have to stick to it,
that's all. If they say, "Well, what plan are
you for?" - "Well, I'm for the Social Security
Board and their plan. Now, ES to the modifications
of it, as to the effects on the Treasury, this is
what I believe in. Beyond that I can't go."
I know - I know it's - I'm taking lots of chances,
but
Altmeyer:
Well, you know the reason why I raise these ques-
tions.
H.M.Jr:
They're helpful. They're helpful.
Altmeyer:
Those fellows on the Ways and Means Committee have
spent two months now; they're steeped in this thing.
They've heard these economists on the Townsend plan,
they've learned an awful lot.
"hite:
That's right.
Altmeyer:
And I think with one or two exceptions on the
Committee they could give a pretty good economic
analysis of the Townsend plan, and I think it will
come as somewhat of a surprise that if they are
experts - that the Wovernment doesn't come forth
with something of an economic analysis along the
lines that they've heard, and they'll say, "Well,
that's rather strange. I wonder just what this
means: that the Government doesn't take a flat
position."
H.M.Jr:
You mean against it.
White:
I think you've given the best reason why he should
stick to the position he's just taken: because they've
been with it for several months and they can ask a
lot of questions that can be embarrassing, even
though there are good answers to them; but popped at
the moment, without any preliminary study and without
any kind of attention such as has been given to this,
it can give you a very bad half hour, for no good
purpose.
H.M.Jr:
well, I'll pray for a good day tomorrow.
161
-46-
Altmeyer: All right.
H.M.Jr:
you? I'm very much obliged. And you'll be there, won't
Altmeyer: Yes.
H.M.Jr:
All right.
262
Titles II and VIII of the Social Security
Act of 1935 charged the Treasury with responsibility
for collecting the taxes for old age insurance,
for administering the old age reserve account, and
for making the benefit disbursements certified to it
by the Social Security Board. I should like to
submit to you today some considerations bearing on
these aspects of the old age insurance program.
In 1935 when the Act was under consideration,
I urged adoption of a self-supporting contributory
old age insurance system in which the future tax
burdens on the beneficiaries would be lightened by
interest earned on a reserve fund accumulated by an
excess of taxes over benefits during the early years
of the system. I believe now as I believed then
that a sound old age insurance system must be on
a contributory basis. Our experience in these four
years leads me, however, to recommend to you an
important alteration in the role which a reserve
fund should play in this contributory insurance
system.
Four years ago when the old age insurance
program was being planned, we expected that the Act
163
- 2 -
as passed would provide old age security for a fairly
limited group in the community. We realized,
of course, that many workers who might not be insured
under the Act at any one time would later obtain
protection by shifting into insured occupations.
It was generally supposed, however, that the group
so shifting would be small compared with the great
mass of workers, who throughout their working life
would remain continuously either in the insured
category or in the uninsured category.
Because the limited group of employments
for which insurance was provided had been selected
primarily upon the basis of administrative
feasibility, it did not seem fair that uninsured
persons should be taxed in order to provide old age
benefits as-of-right for the insured group.
I therefore recommended to your Committee in 1935
that the old age insurance system be made self-
supporting from payroll taxes in insured employ-
ments.
Operation of the Act has provided signifi-
cant information bearing on this issue. This
information shows that the extent of migration,
temporary or permanent, from uninsured to insured
164
- 3 -
employments 1s far greater than was anticipated by
the President's Committee on Economic Security in
1935. In my last annual report, I pointed out
that the consequence of this migration was that
the scheduled tax rates were insufficient to main-
tain the system on the actuarial reserve basis
provided by the law.
There result 16, however, another and more
cheerful corollary of this migration. As a conse-
quence of the migration, a much larger proportion
of the total population of the United States is
qualifying under the contributory system to receive
old age benefits than had been expected. My latest
annual report presented the estimate that, without
extension of the coverage under the present law,
80 per cent of the population of the United States
ultimately will have qualified during their working
life for at least the minimum annuity under Title II
of the Act.
This experience throws new light on our
original belief that the Act ought to be self-
supporting. Four years of experience have shown
that the benefits of the Act will be BO widely
diffused that supplemental funds from general tax
- 4 -
165
revenues may be substituted -- without substantial
inequity -- for the expected interest earnings from
the large reserve contemplated by the present law.
Therefore, it becomes apparent that the argument for
a large reserve does not have the validity which
four years ago it seemed to possess.
There is no need at the present time and,
I believe, there will be no need in the near future,
for supplementing payroll taxes from general
revenue. For all classes of beneficiaries, the
values of the benefits which the Act provides are,
and for a long time will be, substantially in excess
of the contributions under the schedule provided in
the law.
There is another reason for questioning
the schedule of tax rates and the resultant reserve
set up in 1935. We adopted a gradual step-up in
the tax rate in 1935 in order to give industry an
opportunity to accustom itself to the new taxes and
80 avoid any undue restrictive effects. The trend
of business conditions in specific future years
could not, of course, then be accurately foreseen.
In periods of incomplete business recovery like the
present, the contributory old age insurance system
- 5 -
166
should be 80 financed as to have the least possible
deterring effect on business. It 1s, therefore,
a pertinent question whether B. substantial increase
in the tax rate should be allowed to occur at the
present stage of business recovery.
The depressing effect on the American
economy of the present disturbed state of world
affairs makes it especially urgent that at this time
we do not place any avoidable burdens on American
productive enterprise.
But, gentlemen, that 1s only one side of
the picture, Over against these factors affecting
business, your Committee will, of course, take into
account the possible undesirable effects on the
public understanding of contributory old age
insurance which may result if the tax rates are
not increased at this time, especially if increased
benefits are approved.
With these factors in mind, I recommend
the following changes in the Act:
1. We should not accumulate a reserve
fund any larger than is necessary to
protect the system against unforeseen de-
clines in revenues or increases in the
- 6 -
167
volume of benefit payments. Specifically,
I would suggest to Congress that it plan
the financing of the old age insurance
system with a view to maintaining for use
in contingencies an eventual reserve
amounting to not more than three times the
highest prospective annual benefits in the
ensuing five years.
2. The method of administering the
old age insurance reserve fund should be
changed 80 that it will be made clearer to
everyone that it 1s & trust fund established
for the benefit of the insured who have
contributed to it. I recommend the
creation of a board of trustees for the fund
to be composed of the Chairman of the Social
Security Board, the Secretary of Labor, and
the Secretary of the Treasury. The Secretary
of the Treasury should be the managing
trustee for the fund. This system of trustee-
ship 1s similar to that used in the Postal
Savings System under which the Government for
many years has been acting as custodian of
private savings.
168
- 7 -
I also recommend the establishment
of an "old age insurance trust fund" to be
held in trust by a board of trustees of the
fund and to be deposited in a special deposit
account with the Treasurer of the United
States. The old age insurance trust fund
would be made up of (a) contributions collected
under Title VIII of the Social Security Act,
(b) income accruing to the trust fund, and
(c) any other money appropriated thereto by
Congress, including the balance now carried
in the old age reserve account.
The board of trustees should report
annually to Congress on the operation and
status of the old age insurance trust fund
during the preceding fiscal year and on its
expected operation and status during the next
five fiscal years, reporting and estimating
the income of the fund, its disbursements,
and its assets. The board of trustees should
report from time to time to Congress on the
actuarial position of the fund. It should
also make a special report to Congress when-
ever the trustees believe that during the
169
- 8 -
ensuing five years the trust fund will
exceed three times the highest annual
expenditures anticipated during that five-
year period. The trustees should also
report to Congress when they believe the
reserve is falling unduly low.
3. To improve public understanding of
the purposes for which the funds are collected,
I recommend that the taxes under Title VIII be
termed "contributions" levied under the Govern-
ment's taxing power. This terminology has
already been used in the Railroad Unemployment
Insurance Act.
The change to a contingent reserve system
of old age insurance must necessarily influence
the rates at which the Government should collect
contributions. I must advise Congress that accept-
ance of a contingency reserve basis means that at some
future date either payroll taxes will have to be higher
than the present Act provides or there will be a defi-
ciency which the Government will have to make up from
other tax sources.
On the other hand, if a contingent reserve
system 18 adopted and if the schedule of tax rates
170
- 9 -
provided in the Social Security Act remains unchanged,
we may have for a few years, unless benefits are
increased substantially, a reserve fund somewhat larger
than would be necessary under the standard I have here
suggested. However, the early annual disbursements of
benefits are neither representative nor can their
amount be accurately forecast at this time. Conse-
quently, it may be desirable to anticipate a somewhat
larger contingency reserve during the first few years
of benefit payments. In addition, the contributory
old age insurance principle would be jeopardized if,
for the purpose of reducing the reserve, the rate of
contributions was reduced or inadequately increased
during the period when the public had not yet come to
understand completely the essential dependence between
contributions and benefits.
I submit for your consideration four alter-
native rate schedules for old age insurance contri-
butions. They differ only as to the rates which
would apply during the next three years. The rate
schedule which will be most in harmony with the main-
tenance of a contingent reserve on the standard
previously proposed will depend on the benefit pro-
visions finally adopted by Congress. These alternatives
are as follows:
- 10 -
171
1. Leave the present rate schedule
unchanged, that 18, 1 per cent on employees
from
and employers each ^ 1937 to 1939, inclusive,
increasing to 11 per cent on each in 1940, to
2 per cent in 1943, to 2½ per cent in 1946,
and to 3 per cent in 1949.
2. Increase the tax rates on each,
employees and employers, from 1 per cent to
1÷ per cent in 1940, to 1 per cent in 1941,
to 1-3/4 per cent in 1942 and follow the present
schedule thereafter.
3. Increase the tax rates from 1 per cent
to 1-1/6 per cent in 1940, to 1-1/3 per cent
in 1941, 1½ per cent in 1942 and follow the
present schedule thereafter.
4. Omit the increase in tem rates from
1 to per cent scheduled to take place in
1940, but step up the rates in 1943 and follow
the present schedule thereafter.
You will observe that all of these plans
provide for the existing schedule in 1943 and there-
after.
I should like also to place before you
four tables which show annual contribution collections,
annual benefit payments and the size of the old age
- 11 -
172
reserve fund over the next few years under each of
the four contribution schedules. In preparing these
tables the Treasury has used for illustrative pur-
poses the intermediate estimates of benefit payments
based upon the proposals outlined by the Social
Security Board in its report to Congress. These
estimates were supplied to the Treasury by the Board
and their inclusion of these estimates in the
Treasury's tables does not imply either approval
or disapproval of the benefit plans which underlie
the estimates. This material, I hope, will assist
you in determining how rapidly contributions should
be collected and how large the contingency fund
should be.
Our experience under the Social Security
Act has been very brief. We have been collecting
taxes under the old age provisions of the Act for
only slightly more than two years. We have not as
yet had any experience with the payment of monthly
benefits. Periodic re-examination of the Act,
therefore, is essential. I suggest that prior to
1943 Congress again comprehensively re-examine the
financial provisions of the Act. Pending that re-
examination, however, I believe that the tax rates
173
- 12 -
for 1943 and thereafter which are now in the Act
should be retained 80 that there shall continue to
be a definite program for financing old age insurance
on the statute books.
I firmly believe the old age insurance
program of the Social Security Act constitutes a
great and far-reaching constructive program. Its
planning, initiation and operation have been a tre-
mendous task. That task has been successfully
carried forward over the past four years. With proper
revision, the Act will provide a means of protecting
millions of our people against dependent old age.
It will protect them through enhancing their capacity
to help themselves and in planning for a self-reliant
old age. It will protect them and our society from
the dangers of paternalism.
SOCIAL SECURITY BOARD
INTEROFFICE COMMUNICATION
B. A. J. Altmeyer,
Chairman
DATE March 23, 1939
-
Jack B. Tate,
General Counsel
Subjetti Proposed changes concerning Old Age Reserve Account
Pursuant to your request, Mr. Calhoun, Mr. Bingham, Mr. Stavisky,
and I net with Mr. Tietjens and Mr. Feidler last night in, order to
prepare the statement of changes concerning the Old Age Reserve Account,
which you proposed.
We were in agreement that a statement, such as the following,
would be appropriate:
(1) The taxes under Title VIII shall be designated as "contri-
butions."
(2) It is further suggested that there be created and estab-
L'shed a fund to be known as the "Social Insurance Trust Fund," to be
held in trust by the Board of Trustees of the Social Insurance Trust
Fund and to be deposited in a special deposit account with the Treasurer
of the United States. The monies in the Social Insurance Trust Fund
shall not be covered into the Treasury of the United States.
The Social Insurance Trust Fund shall be made up (1) of monies
appropriated thereto out of the Treasury by Congress (including the
monies now carried in the old Age Reserve Account); (2) monies collected
by way of "contributions" under Title VIII of the Social Security Act.
It is contemplated that the "contributions" will be paid directly into
the trust fund and will not be covered into the Treasury and then appro-
priated out. (3) All interest, increment, or profit realized in opera-
ting the trust fund shall accrue to the fund.
The Secretary of the Treasury shall be the managing trustee of
the Board of Trustees of the Social Insurance Trust Fund. The Social
Insurance Trust Fund shall be deposited in the special deposit account
and withdrawn therefrom by the Secretary of the Treasury and as managing
trustee the Secretary of the Treasury shall exercise all fiscal control
over the Social Insurance Trust Fund. In that capacity shall have ex-
clusive authority to invest or reinvest the monies in the fund. It shall
be the duty of the Secretary of the Treasury to invest such portion of the
monies in the fund as are not, in his judgment, required to meet current
needs, The Secretary of the Treasury shall invest only in interest bearing both
obligations of the United States or in obligations guaranteed as to
principal and interest by the United States.
Regraded Unclassified
175
- 2 -
For purposes of investment, such obligations may be acquired
by the Secretary (1) on original issue at par, or (2) by purchase of
outstanding obligations at the market price. The interest yield on
obligations in which the Secretary may invest shall be not less than
the average rate of interest provided for in section 904(b) of the
Social Security Act.
(3) The board of trustees shall be composed of the Secretary
of the Treasury, Chairman of the Social Security Board, and the Secretary
of Labor, whose duties shall be to report annually to Congress as to the
operations and status of the Social Insurance Trust Fund during the pre-
ceding fiscal year and during the next five fiscal years.
With regard to (a) income from whatever source, including contri-
butions and interest; (b) disbursements of every character pursuant to
payments under Title II of the Social Security Act; (c) the asseta of
the trust fund, including cash and securities and their yield.
The board shall also, from time to time, include special actua-
rial estimates having a bearing on the general fiscal condition of the
fund.
The board of trustees shall make a special report to Congress,
whenever it shall appear to the board of trustees that during the
ensuing five years there will be a balance in the Social Insurance Trust
Fund greater than three times the highest annual expenditure anticipated
during such period.
Regraded Unclassified
176
March 24, 1939
FOR THE SECRETARY'S FILES:
Digest of discussions at
meetings on the drafting
of the Secretary's Social
Security statement of
March 24, 1939.
A group of more than twenty officials from
the Treasury Department, the Social Security Board,
and the Labor Department met at 3:30 March 22nd at the
Treasury. Included in those attending the meeting were
Mr. Blough, Mr. Ecker, Mr. Reagh, Mr. Haas, Mr. Tietjens,
Mr. Feidler, Mr. Murphy, Mr. McReynolds, Mr. Gaston,
Mr. Daniel Bell, and Mr. Duffield of the Treasury Depart-
ment; Mr. Marshall Dimock, Second Assistant Secretary of
the Department of Labor; and Mr. Wilbur Cohen, Mr. St. John,
and Mr. Calhoun of the Social Security Board.
A preliminary draft of a statement by the
Secretary was present to the group by Mr. Blough in be-
half of himself and Mr. Duffield. The Social Security
Board representatives and the actuaries asserted that the
statement which approached the problem through the size
of the reserve fund could not logically do 80 without
first discussing the question of benefit payments.
Mr. Blough and Mr. Duffield and other Treasury representa-
tives asserted that the Secretary's belief that benefit
payments were not an appropriate matter for Treasury
177
- 2 -
recommendation. The discussion of the necessity of
mentioning benefit payments led Mr. McReynolds to the
conclusion that the Secretary should not be the first
witness for the Government since he could not disouss
the benefit side of the program. Accordingly,
Mr. McReynolds talked with Mr. Altmeyer on the telephone
urging that the Social Security Board should open the
Government's testimony. Mr. Altmeyer objected to this
procedure. Mr. McReynolds also telephoned Secretary
Morgenthau to urge this point of view and the Secretary
reasserted his desire to testify before leaving for 8
vacation. Mr. Duffield suggested that the statement
could be worked out without touching the benefit side of
the question and offered to redraft the preliminary
statement with the help of technical experts and re-
submit it to the group at 7:30 that evening. At 7:30
on March 22nd Mr. Cohen, Mr. St, John of the Booial
Security Board, Mr. Haas, Mr. Murphy, Mr. Blough,
Mr. Tietjens, and Mr. Duffield of the Treasury again
met to discuss a revision of this statement prepared in
the interim by Mr. Blough, Mr. Tietjens, Mr. Ecker, and
Mr. Duffield. Mr. Haas and Mr. Murphy objected to the
justification given for the Treasury's change of posi-
tion since 1935 on the question of a full reserve for
old age insurance. This justification as then written
stated that a large reserve was not feasible because of
178
- 5 -
the temptation to raid it and spend it for purposes
which would not benefit the persons contributing to the
fund. Mr. Haas and Mr. Murphy suggested that the
Treasury would be accused of having raided the fund in
the past and argued that a stronger statement could be
made on the behalf of the facts presented in the
Secretary's Annual Report on migration of workers from
uninsured to insured occupations. Mr. Duffield said
he understood that the point about raiding the fund was
one which the Secretary wanted in his statement in
accordance with the directions he had given at a meeting
in his office at noon on March 22nd. While the rest of
the group went over other portions of the statement
Mr. Murphy drafted his suggested substitute for Justify-
ing the shift of a full contingency reserve.
Mr. McReynolds and Mr. Gaston joined the group at 9:30
when discussion was resumed on the question of justify-
ing the contingency reserve. They both argued
strenuously against the justification on grounds that
the fund would be raided, supporting Mr. Haas' arguments.
Mr. Duffield again asserted his belief that the Secretary
wanted to use this argument. At the conclusion of the
meeting it was agreed that Mr. Blough, Mr. Murphy, and
Mr. Duffield would revise the statement and embody
the material submitted in rough draft by Mr. Murphy
179
- 4 -
8.8 well as minor revisions brought out by the second
reading of the statement. The resulting version of
the statement was presented to the Secretary at 9:15
on March 23rd. At 11:00 March 23rd Dr. Viner,
Dr. Douglas Brown, Mr. Haas, Mr. Blough, Mr. Duffield,
and, later, Mr. Tietjens and Mr. Reagh met to revise
the statement again in accordance with suggestions
which developed during the Secretary's first reading
of the proposal. The changes were primarily in
language except that Dr. Viner dictated a brief new
paragraph emphasizing the disturbed state of world
affairs and its depressing effect on American business,
and Dr. Brown a new paragraph praising the Social
Security program and its development to date. Both
Dr. Viner and Dr. Brown asserted the belief that the
Secretary of the Treasury should continually stress the
necessity of keeping the program solvent and should
suggest methods for doing Bo. This version, virtually
the final one, was submitted to the Secretary at 2:30
March 23rd.
ESD
180
Statement by Secretary Morgenthau Before the
Ways and Means Committee of the House of
Representatives, Friday, March 24, 1939,
Titles II and VIII of the Social Security Act of 1935 charged the
Treasury with responsibility for collecting the taxes for old age insur-
ance, for administering the old age reserve account, and for making the
benefit disbursements certified to it by the Social Security Board, I
should like to submit to you today some considerations bearing on these
aspects of the old age insurance program,
In 1935 when the Act was before this Committee, I urged adoption
of a self-supporting contributory old age insurance system in which the
future tax burdens on the beneficiaries would be lightened by interest
earned on a reserve fund accumulated by an excess of taxes over benefits
during the early years of the system. I believe now as I believed then
that 8. sound old age insurance system must be on a contributory basis,
Our experience in these four years leads me, however, to recommend to
you an important alteration in the role which a reserve fund should play
in this contributory insurance system.
Four years ago when the old age insurance program was being planned,
we expected that the Act as passed would provide old age security for a
fairly limited group in the community, We realized, of course, that many
workers who might not be insured under the Act at any one time would later
obtain protection by shifting into insured occupations, It was generally
supposed, however, that the group so shifting would be small compared with
the great mass of workers, who throughout their working life would remain
continuously either in the insured category or in the uninsured category.
- 2 -
181
Because the limited group of employments for which insurance was
provided had been selected primarily upon the basis of administrative
feasibility, it did not soem fair that uninsured persons should be taxed
in order to provide old age benefits as-of-right for the insured group,
I therefore recommended to your Committee in 1935 that the old ago in-
surance system be made sclf-supporting from payroll taxes on insured CII-
ployees and their employers.
Operation of the Act has provided significant information bearing
on this question. This information shows that the extent of migration,
tomporary or permanent, from uninsured to insured employment is far
greater than was assumed by the President's Committee on Economic Secur-
ity in 1935. In my last annual report, I pointed out that the consequence
of this migration was that the schedulod tax rates were insufficient to
maintain the system on the actuarial reserve basis provided by the law,
There is, however, another and more cheorful result of this migra-
tion. As a consequence of the migration, a much larger proportion of the
total population of the United Statos is qualifying under the contributory
system to receive old ago benefits than had been expected, My latest
annual report presented the estimate that, without extension of the cover-
age under the present law, 80 per cont of the population of the United
States ultimately will have qualified during thoir working life for at
loast the minimum annuity under Titlo II of the Act.
This experience throws now light on our original bolief that the
Act ought to be self-supporting. Four years of experience have shown that
the benefits of the Act will be so widoly diffused that supplemental funds
from general tax revemies may be substituted - without substantial in-
equity - for a considerable proportion of the expected interest earnings
Regraded Unclassified
182
- 3 -
from the largo reserve contemplated by the present lew. Therefore, it
becomes apparent that the argument for a large reserve does not have the
validity which four years ago it seemed to possess,
There is no need at the present time and, I believe, there will be
no need in the near futuro, for supplementing payroll taxes from general
revenuo. For all classes of beneficiaries, the values of the benefits
which the Act provides are and for a long time will be substantially in
excoss of the contributions under the schodule provided in the law.
There is another reason for questioning the schedule of tax rates
and the resultant reserve sct-up in 1935. We adopted e. gradual step-up
in the tax rate in 1935 in order to give industry an opportunity to ac-
custom itself to the new taxes end so avoid any undue restrictive effects.
The trond of business conditions in specific future years could not, of
course, then be accurately forescen. In periods of incomplete business
recovery like the present, the contributory old age insurance system should
be so financed as to have the least possible deterring effect on business.
It is, therefore, a pertinent question whether a substantial increase in
the tax rate should be allowed to occur at the present stage of business
recovery.
The depressing effect of the present disturbed state of world affairs
upon the American economy makes it especially urgent that at this time we
do not place any avoidable burdens on American productive enterprise.
That is only one side of the picture. Over against these factors
affecting business, your Committee will, of course, take into account the
possible undesirable effects on the public understanding of contributory
old age insurance which may result if the tax schedule is disturbed at
this time, especially if increased benefits are approved.
Regraded Unclassified
- 4 -
183
With these factors in mind, I recommend the following changes in
the Act:
1. Tie should not accumulate a reserve fund any larger than
is necessary to protect the system against unforoseen declines
in revenues or increases in the volume of benefit payments.
Specifically, I would suggest to Congress that it plan the finan-
cing of the old age insurance system with a view to maintaining
for use in contingencies an eventual reserve amounting to not more
than three times the highest prospective annual benefits in the
ensuing five years.
2. The method of administering the old age insurance reserve
fund should be changed 30 that it will be made clearer to everyone
that it is a trust fund established for the benefit of the insured
who have contributed to it, I recommend the creation of a board
of trustees for the fund to be composed of the Chairman of the
Social Security Board, the Secretary of Labor, and the Secretary
of the Treasury. The Secretary of the Treasury should be the man-
aging trustee for the fund. Such a board of trustees would be
similar to that set up in the Postal Savings Act.
I also recommend the establishment of an "old age insurance
trust fund" to be held in trust by a board of trustees and to be
deposited in c. special account in the Treasury. The old age in-
surance trust fund would be made up of (a) contributions collected
under Title VIII of the Social Security Act, (b) income accruing to
the trust fund, end (c) any other money appropriated thereto by
Congress, including the balance now carried in the old age reserve
account.
184
- 5
The board of trustees should report annually to Congress
on the operation and status of the old age insurance trust fund
during the preceding fiscal year and on its expected operation
and status during the next five fiscal years, reporting and es-
timating the income of the fund, its disbursements, and its assets.
The board of trustees should report from time to time to Congress
on the actuarial position of the fund. It should also make a
special report to. Congress whenever the trustees believe that
during the ensuing five years the trust fund will exceed three
times the highest annual expenditures anticipated during that
five-year period. The trustees should also report to Congress
when they believe the reserve is falling unduly low.
3. To improve public understanding of the purposes for which
the funds are collected, I recommend that the taxes under Title
VIII be termed "contributions" levied under the Government's tax-
ing power. This terminology has already been used in the Railroad
Unemployment Insurance Act.
The change to a contingenty reserve system of old age insurance
must necessarily influence the rates at which the Government should col-
lect contributions. I must advise Congress that acceptance of a con-
tingency reserve basis means that at some future date either payroll taxes
will have to be higher than the present Act provides or there will be a
deficiency which the Government will have to make up from other tax sources.
On the other hand, if a contingency rescrve system is adopted and
if the schedule of tax rates provided in the Social Security Act remains
unchanged, we may have for a few years, unless benofits are increased
Regraded Unclassified
6
185
substantially, a reserve fund somewhat larger than would be necessary
under the standard I have here suggested. However, the early annual
disbursements of benefits are neither representative nor can their
amount be preciscly forecast at this time. Consequently, it may be
desirable to anticipate a somowhat larger contingency reserve during
the first fow years of benofit payments. In addition, the contributory
old ago insurance principle would be jeopardized if, for the purpose of
reducing the reserve, the rate of contributions was reduced or inado-
quately increased during the period when the public had not yet come to
understand completely the essential dependence of benofits on contributions
I submit for your consideration four alternative rate schodules
for old age insurance contributions. They differ only as to the rates
which would apply during the next three years, The rate schedule which
will be most in harmony with the maintenance of a contingency reserve on
the standard previously proposed will depend upon the benefit provisions
finally adopted by Congress. These alternatives are as follows:
1. Leave the present rate schedule unchanged, that is, 1
per cent on employees and employers each from 1937 to 1939,
inclusive, increasing to 12 per cent on each in 1940, to 2
per cent in 1943, to 21 per cont in 1946, and to 3 per cent
in 1949.
2. Increaso the tax rate on each, employees and employers,
from 1 per cont to 1½ per cent in 1940, to 12 per cent in 1941,
to 1-3/4 per cent in 1942 and follow the present schedule there-
after.
3. Increase the tax rate from 1 per cent to 1-1/6 per cent
in 1940, to 1-1/3 por cent in 1941, 12 per cent in 1942 and follow
Regraded Unclassified
186
- 7 -
the present schedule thereafter.
4. Omit the increase in tax rato from 1 to 12 per cent
scheduled to take place in 1940, but step up the rates in
1943 and follow the present schedule thereafter.
You will observe that all of these plans provide for the existing
schedule in 1943 and thereafter.
I should like also to place before you four tables which show
annual contribution collections, annual benefit payments and the size
of the old age reserve fund over the next few years under each of the
four tax schedules, In proparing these tables the Treasury has used for
illustrative purposes the intermodiate estimates of benefit payments
based upon the proposals outlined by the Social Security Board in its
report to Congress. These estimatos were supplied to the Treasury by
the Board and their inclusion in the Treasury's tables does not imply
either approval or disapproval of the benefit plans which underlie the
estimates, This material, I hope, will assist you in determining at
what rates contributions should be collected and how large the contingency
fund should be.
Our experience under the Social Security Act has beon very brief.
We have been collecting taxes under the old age provisions of the Act for
only slightly more than two years. We have not as yet had any experience
with the payment of monthly benefits. Poriodic re-examination of the Act,
therefore, is essential, I think that it is most important that prior to
1943 Congross again comprehonsively re-examine the financial provisions
of the Act. Ponding that ro-examination, however, I believe that the tax
rates for 1943 and thereafter which are now in the Act should be retained
187
- 8 -
so that there shall continue to be a definite program for financing old
age insurance on the statute books.
I firmly believe the old age insurance program of the Social
Socurity Act constitutes a great and far-reaching constructive program.
Its planning, initiation and operation have been a tremendous task, That
task has been successfully carried forward over the past four years.
With proper revision, the Act will provide a means of protecting millions
of our poople against dependent old age. It will protect them through
enhancing their capacity to help themselves and in planning for a self-
reliant old age. It will protect them and our society from the dangers
of paternalism.
188
ALTERNATIVE PLAN I
1. Tax schedule of present law: 1 percent on employee and 1 percent on employer
through 1939, increasing to 1% percent in 1940, 2 percent in 1943, 21 percent
in 1946, and 3 percent in 1949 and thereafter.
2. The benefit estimates used are for illustrative purposes only and are the
intermediate estimates based upon the proposals outlined by the Social Security
Board in its Report to Congress.
(In millions of dollars)
:
Calendar year
:
1940
:
1941
:
1942
:
1945
:
1950
:
1955
:
:
:
:,
:
:
Net tax receipts (gross receipts
$ 707
$
780
$ 781
$1,078
$1,751
$1,849
minus administrative expenses)
Less: Benefit payments
175
400
555
914
1,697
2,320
Net cash receipts of Government
532
380
226
164
54
- 471
Add: Interest accrued
51
66
77
110
147
135
Total addition to fund
583
446
303
274
201
- 336
Fund at end of year
2,013
2,459
2,762
3,846
5,064
4,395
* Fund at end of year 1939 is estimated to be $1,430 millions.
189
ALTERNATIVE PLAN II
1. Tax schedule: 1+ percent on employee and 11 percent on employer in 1940; 11
percent on each in 1941; 1% percent on each in 1942; same as present law in
1943 and thereafter.
2. The benefit estimates used are for illustrative purposes only and are the
intermediate estimates based upon the proposals outlined by the Social Security
Board in its Report to Congress,
(In millions of dollars)
:
Calendar year
:
:
:
:
:
:
1940
1941
1942
1945
1950
1955
:
:
:
:
:
:
it tax receipts (gross receipts
minus administrative expenses)
$ 605
$ 746
$ 884
$1,078
$1,751
$1,849
Less: Benefit payments
175
400
555
914
1,697
2,320
Net cash receipts of Government
430
346
329
164
54
- 471
Add: Interest accrued
49
62
74
109
146
134
Total addition to fund
479
408
403
273
200
- 337
Fund at end of year
1,909
2,317
2,720
3,836
5,052
4,381
.
Fund at end of year 1939 is estimated to be $1,430 millions.
190
ALTERNATIVE PLAN III
1. Tax schedule: 1-1/6 percent on employee and 1-1/6 percent on employer in 1940;
1-1/3 percent on each in 1941; 1-1/2 percent on each in 1942; same as present
law in 1943 and thereafter.
2. The benefit estimates used are for illustrative purposes only and are the
intermediate estimates based upon the proposals outlined by the Social Security
Board in its Report to Congress.
(In millions of dollars)
:
Calendar year
:
:
:
1940
:
:
1941
1942
1945
1950
:
1955
:
Net tax receipts (gross receipts
minus administrative expenses)
$ 570
$ 666
$ 758
$1,078
$1,751
$1,849
Less: Bonefit payments
175
400
555
914
1,697
2,320
Net cash receipts of Government
395
266
203
164
54
- 471
Add: Interest accrued
49
60
69
100
136
122
Total addition to fund
444
326
272
264
190
- 349
Fund at end of year
1,874
2,200
2,472
3,528
4,695
3,966
. Fund at end of year 1939 is estimated to be $1,430 millions.
191
ALTERNATIVE PLAN IV
1, No increase in tax through 1942; thereafter tax schedule of present law.
2. The benefit estimates used are for illustrative purposes only and are the
intermediate estimates based upon the proposals outlined by the Social Security
Board in its Report to Congress.
(In millions of dollars)
:
Calendar Year
:
1940
:
1941
:
1942
:
1945
:
1950
:
1955
:
:
:
Net tax receipts (gross receipts
minus administrativo expenses)
$ 501
$ 505
$ 504
$1,078
$1,751
$1,849
Less: Benefit payments
175
400
555
914
1,697
2,320
Net cash receipts of Government
326
105
- 51
164
54
- 471
Add: Interest accrued
48
56
58
82
115
98
Total addition to fund
374
161
7
246
169
- 373
Fund at end of year *
1,804
1,965
1,972
2,907
3,974
3,131
*Fund at end of vear 1939 is estimated to be $1,430 millions.
192
March 24, 1939
This material was used by the Secretary when
he appeared to testify on the Hill today on Social
Security.
193
TREASURY DEPARTMENT
INTER OFFICE COMMUNICATION
DATE
TO
Secretary Morgenthau
FROM
Mr. Foley, Acting General Counsel
At your suggestion, the following brief outline, comparing
certain features of the Postal Savings Fund with the proposed "Social
Insurance Trust Fund", has been prepared for your convenience.
Postal Savings Funds
Proposed Social Insurance
Trust Fund
1. Management.
1. Management.
By & board of trustees com-
By a board of trustees com-
posed of the Postmaster General,
posed of the Secretary of the
the Secretary of the Treasury,
Treasury, as managing trustee,
and the Attorney General.
the Chairman of the Social Secur-
ity Board, and the Secretary of
Labor.
2. Nature of the Fund.
2. Nature of the Fund.
A trust fund, not covered
A special deposit subject
into the Treasury. Leka V.
at all times to the order of the
United States, (1930) 69 Ct. Cl.
Secretary of the Treasury, as
79.
fiscal agent.
3. Depositaries.
3. Depositaries.
Reserve of 5% must be de-
The Treasurer of the United
posited in lawful money with
States.
the Treasurer of the United
States. The balance is to be
deposited locally "in solvent
banks" willing to receive it,
subject to certain requirements
as to security or deposit insur-
ance, and to certain limitations
upon the amount deposited in any
one bank.
194
- 2 -
Postal Savings Funds.
Proposed Social Insurance
Trust Fund
4. Investment.
4. Investment.
(The President may direct
(The Secretary of the Trea-
the trustees to withdraw from
sury is required to invest such
the banks and invest all or any
portion of the fund as, in his
part of the fund, except the 5%
judgment, is not required to meet
reserve. Excess deposits, not
current needs.)
required for the 5% reserve, which
banks are unwilling to receive,
may be invested by the trustees.)
Investments are limited to
Investments must be made in
bonds or other securities of the
interest-bearing obligations of
United States, including certain
the United States, or obligations
guaranteed bonds, bonds subject
guaranteed as to both principal
to call, and Postal Savings
and interest by the United States.
Bonds.
Special issues authorized for in-
vestment of this fund.
No limitation on source of
Purchases may be made atpar
purchases, except Postal Sav-
on original issue, or in the open
ings Bonds are to be acquired
market.
from "holders". In the case of
call bonds, the Secretary of the
Treasury shall call a sufficient
amount and reissue them at par
to the trustees, upon notifica-
tion by the trustees of the
amount which they desire to in-
vest in this manner.
5. Rate of Return.
5. Rate of Return.
No limitation as to the
Interest must be not less
amount of interest on invest-
than the average rate on all
ments.
other interest-bearing obliga-
tions forming part of public
debt, as of the end of the month
preceding date of acquisition of
the particular investment.
(In order for the Secretary of
the Treasury to comply with this
requirement in the present state
of the market, it will be neces-
sary to invest in special issues.)
195
- 3 -
Postal Savings Funds
Proposed Social Insurance
Trust Fund
5. Rate of Return.
(Continued)
Deposits in banks must
bear interest at 24% except
that, as to member banks of the
Federal Reserve System, a lower
rate may be accepted where it is
fixed by the Board of Governors.
(1935) 38 Op. Atty. Gen. 389.
6. Disposition of Income.
6. Disposition of Income.
The excess income from de-
All income accrues to and be-
posits or investments over and
comes a part of the fund.
above that necessary for inter-
est due depositors shall be
covered into the Treasury as
part of the postal revenue.
7. Reports to Congress.
7. Reports to Congress.
The trustees are required
The trustees shall make annual
to make a detailed report of
reports showing the condition of
the entire system of postal
the fund during the preceding fiscal
savings, as well as their manage-
year, and the anticipated condition
ment of the fund, at the begin-
during the next five fiscal years.
ning of each regular session.
A special report shall be made
whenever it appears that at any time
during the ensuing five years the
fund will be greater than three
times the highest annual expenditure
anticipated during that period.
iNtl
196
March 24, 1939.
Dear Dr. Brown:
I want to express By very deep appreciation
for your assistance and the effort you made to
make yourself available yesterday in helping to
prepare no to appear before the Ways and Means
Committee to discuss the revision of the Social
Security Act.
with kind regards
Sincerely,
(Signed) H. Morgenthau, 32.
Professor Douglas Brown,
Prineston University,
Princeton, New Jersey.
maR
Regraded Unclassified
197
de
BOARD OF GOVERNORS
<<<<<<<<<<<<<<<<<<<<<<<<< 8 0000000 NUMBAR 2
the fn HS16
please the
OF THE
FEDERAL RESERVE SYSTEM
WASHINGTON
sig.
OFFICE OF THE CHAIRMAN
0000
March 25, 1939.
Dear Henry:
I want to offer you my compli-
ments and congratulations on the fine work
you did in presenting your views on the
Social Security Act before the Committee
on yesterday.
I feel sure that this is the
sound thing to do from an economic and
business standpoint and that your action
will have the general approval which it
deserves.
Sincerel yours,
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
38
BOARD OF GOVERNORS
OF THE
FEDERAL RESERVE SYSTEM
WA HAS HINGT MAR 25
4 INGTOM 10PM
WASHINGTON
1939
OFFICIAL BUSINESS
6 - (if TO ******* AVOID
D.C.
DEPARTME NO
1
Honorable Henry Morgenthau, Jr.
Secretary of the Treasury
Washington, D. C.
Personal
please
Return to Room 285
199
1996, s 1
My dear Mr. Reales:
In the absence of the Secretary, who
to any on a brief vacation, I as &
knowledging your letter of March Mth.
It will be brought to Mr. Morgenthma's
attention as seen as he returns to the
effice, and is the meantime 2 - were he
would wish as to thank you for your write
of communication conserning his recent
appearance before the Committee.
Sincerely yours,
s
No s, Klets,
Private Secretary.
.787
Remorable Harriner s. necles,
Chairman, Board of Governore,
Federal Necesve Rystem,
Tachington, 2. e.
dibe
200
The Bank
National City New
ESTABLISHED 1812
New York March 27, 1939.
CABLE ADDRESS "CITIBANK"
IN REPLYING PLEASE QUOTE INITIALS
Dear Henry:
I liked your statement about the Social Security tax
very much indeed. I'm glad that in suggesting the tax reduction
you also emphasized the importance of preserving the psychological
principle of 8. participating pension plan. That is a point of
the utmost importance which many people miss. The reception that
your suggestion has received seems to make it clear that your
recommendation will be adopted, and I believe it will constitute
perhaps the most important step which has been taken so far in
definite encouragement to enterprise.
Sincerely yours,
Roudagh
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
WRB.H
Return to Room 1311
201
March 29, 1939.
Tear The. Burgens:
Your letter of March 27th, speaking
so pleasantly of the Secretary's recent
statement, reached his office after he
had left Washington for a brief vacation
in the South. I shall be glad to bring
this to his attention just as soon as he
1s back at his desk, and I know that he
would wish - to thank you for your praise
of his recommendation.
Sincerely yours,
yes/
H.S.Klots,
Private Secretary.
Dr. Randolph Burgess,
The National City Bank of New York,
New York, New York.
GEF/dbs
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FILE (per nmc) 4/3/39 MLS
202
March 27, 1939.
My dear Mr. Dimocks
On behalf of the Secretary, who is
in the South on & brief vacation, I want
to acknowledge and thank you for sending
him a copy of the statements you made
before the Ways and Means Committee today,
concerning Social Security Legislation,
The report will be brought to Mr. Morgen-
than's attention as soon as be returns to
the office, and I as ware he will be most
interested in seeing your comments.
Sincerely yours,
yor
7
H.S.Klots,
Private Secretary.
Nonorable Marshall R. Dimock,
Second Assistant Secretary of Labor,
Washington, D. c.
dbs
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203
Statement of
Pesal.
Marshall E. Dimook
Marshall E. Dimock
Serond Assistant Secretary of Labor
sistant Secretary of Laber
*****
fatske for as
Social Security Legislation
buse Mays and Means Committee
March 27, 1939
I.
In advancing the proposed changes which your Committee is considering, the
Social Security Board has called attention to the need for improved coordination
between its own Bureau of Unemployment Compensation and the United States En-
ployment Service of the Department of Labor. Our Department has attempted to
cooperate with the Social Security Board to the fullest possible extent and
hence we welcome this opportunity to counsel with you on a matter of mutual
experience affecting the fundamental interests of the country.
De wish to approach this question of administrative coordination first of
all from the standpoint of the respective services which each of the two programs
render to the workers. To should like briefly to point out what we believe to
be the fundamental functions to be performed respectively by an unemployment
compensation program and by a public employment service.
I wish to emphasize at the start that while both unemployment compensation
and employment service activities are related to the general problem of the
workers' economic security, these two programa are not the same thing; their
functions are not identical and their clientele is not the same,
Unemployment compensation is essentially an insurance program, The functions
to be performed in its administration are basically: (1) tax or contribution
collection; (2) determination of benefit eligibility and computation and payment
of claims; (3) adjudication of disputed claims and disputed coverage of the law.
These are all primarily insurance or fiscal functions.
The functions of employment service are quite different and includes
(1) registration and classification of all applicants for work (whether or not
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covered by unemployment compensation): (2) selection and referral of workers to
fill employers' openings; (3) conduct of a public relations program directed
toward employers and designed to cultivate their cooperation and to find Jobe:
(4) service functions to other governmental programs. The last-mentioned category
consists of taking new and continued claims for unemployment compensation bene-
fits, selecting and referring workers to public works and work relief projects,
and reporting placements or failure to accept available private employment to
unemployment compensation and relief agencies.
The mere statement of these functions indicates that the whole approach of
the employment service is an employment approach. It assumes that, from the
standpoint of both the individual and the community, a Job is the only thoroughly
desirable solution to the individual's unemployed status.
Unemployment compensation is a stop-gap, tide-over to a loss of income
for a limited period of time and for the groups of workers covered by the re-
spective state unemployment compensation laws, I do not mean in the slightest
neasure to minimize the very desirable results of unemployment compensation (such
as the maintenance of workers' morale and of sustained purchasing power in the
community). Nor do I wish in any way to minimize the magnitude of the task of
unemployment compensation administration. But I do wish to emphasize that the
function of unemployment compensation is an insurance and not a placement function.
The chairman of the Social Security Board is entirely correct in his state-
ment that the Social Security Board embraces "the biggest bookkeeping job in the
world," unemployment compensation playing a large part. At the same time it
should be remembered that the work of the public employment service represents
the biggest personnel Job in the country.
I indicated carlier that these two governmental programs differ in their
clientele. All job seekers whether employed or unemployed, whether covered
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or uncovered by unemployment compensation, and all employers represent the
clients of B. public employment service.
Unemployment compensation in this country at present covers only approxi-
mtely 50 percent of the workers, and large areas in the field of agricultural
employment, domestic service, and employment in establishments of small size are
not touched by the state unemployment compensation laws. It should be noted
that the burden of unemployment among these uncovered groups is no loss, and in
many cases 1a greater, than among workers covered by the respective state unem-
ployment compensation laws. It 18 significant that at the present time the active
files of employment offices in this country contain over seven million applica-
tions, but that less than one million of these applicants for work are currently
receiving unemployment compensation benefits.
Thus, the coverage of the employment service and its scope of responsibility
to the working population of the country is vastly greater than the coverage and
acope of unemployment compensation.
It appears to be in keeping with this discussion to outline the broad func-
tions of the public employment service as now constituted, They are as follows:
1. To assist employers in securing suitable employees and to help persons
seeking work to secure suitable employment,
2, To assist in bringing about and maintaining a balance between the demand
and supply of workers in various occupations,
3. To serve as an authoritative source of information on employment,
To achieve these ends, the United States Employment Service has set up
machinery to carry out the necessary functions involved. Methods have been de-
vised to clear labor between states, within a district, and between districts.
Employment information, as reflected in analyses of registration and placement
activities is made available to all states and to govermental units responsible
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for planning public works programs.
Studies are going on and much work is being done in solving problems of
employment, training, retraining, and vocational guidance. Improvements in
selection and placement methods are being made constantly through information
secured in the analysis of Jobs in all types of industries. Much has been done
to improve methods of judging qualifications and abilities of persons seeking
70rk.
The United States Employment Service has definite provisions for the 001-
lection and summarization of occupational information. This information 1s made
available to all offices so that it may be given to individuals seeking vocational
guidance and occupational information helpful in their occupational adjustment,
Clearance methods have been developed to create mobility in skilled labor,
and much has been done in the development of information helpful in transferring
workers from one industry to another as needed, Much attention on the part of
the employment service is given to such groups as juniors, who characteristically
lack work experience. It has separate divisions for veterans and farm workers.
In other words, the present public employment office 18 a community personnel
organization serving the occupational adjustment needs of all types of indi-
viduals.
The United States Employment Service is one of the government's principal
agencies for assembling basic data with which to attack the problem of unemploy-
ment and economic readjustment. Furthermore, it is in a department which already
protects the interests of the workers, and in which the supplementary services of
the Buremi of Labor Statistics, the Division of Labor Standards, and other similar
agencies are available.
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II.
I have dwelled upon these differences between the functions and coverage
of the employment service and unemployment compensation because these basic
considerations have an important bearing upon the administrative problems of
coordinating the two services of government.
For further understanding of the complexities of the administrative problem
involved in the coordination of these two services, I should like to bring briefly
to the attention of the Committee the existing administrative organization and
financial structure for the performance of the two functions, both in the states
and in the federal government.
Without exception, in all 48 states and the 2 territories, unemployment
compensation and employment service are administered within a single agency of
state government. In most states these represent coordinate bureaus or divisions
with equal status but under the ultimate authority of a higher overhead agency
such as a state labor department. This overhead agency brings about the necessary
coordination between the activities of the two separate divisions but, at the
same time, permits each division to carry on effectively, and without domination
by the other function, its own distinctive activities.
The public employment service, by its very nature, 16 essentially & local
community institution, and the work of a state employment service is actually
carried on in local employment offices distributed throughout the state. By
contrast, much of the work in the administration of unemployment compensation 10
carried on in a large central headquarters office. In practically all of the
states there is & centralization of employer and employee records, of tax 001-
lection and benefit payment processes. In almost all states, benefit checks are
mailed from a central office. Some aspects of the administration of unemploy-
ment compensation are carried on in the field, AB, for example, the auditing of
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payroll accounts, the collection of delinquent taxes, and initial stages in the
adjudication of disputed claims. But the largest segment of field activities of
the unemployment compensation program relates to the filing of new and continued
claims for benefit. This process 1s carried on in every state in the public
employment offices. The worker, under the present organization, goes to but one
office to apply for work and to file his claim for benefit-he "enters through
the same door." In no state is he required to go to two offices for these two
purposes. The state laws themselves require that as a prerequisite to filing a
claim for benefit, the worker must register for employment in his local employ-
ment office.
In the federal government, as we have already pointed out to this Committee,
the responsibility for administering unemployment compensation rests with the
Social Security Board, and for administering Public Employment Service with the
Department of Labor. The difficulty is that there does not exist in the federal
government the same degree of overhead coordination in a single agency as exists
uniformly among the states,
The complexity of the administration of these programs in the federal govern-
ment is accentuated by the differing financial arrangements for each function.
The costs of unemployment compensation administration in the states are borne
entirely by federal grants from the Social Security Board. Costs of employment
service administration are borne in part by state appropriation, in part by
federal matching funds made available by the United States Employment Service
under the Tagner-Peyser Act, and in part by a grant from the Social Security Board.
These three sources of funds which enter into the total expenditures of a
state employment service are commingled in a single account and are justified in
a single budget, This budget, hovever, must be reviewed by representatives of
both the United States Employment Service and the Social Security Board. Hence
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the difficulty of administration arises not no much from the fact that the state
agency must deal with two separate federal agencies, but that they must doal
with two federal agencies with respect to employment service, The state agencies
deal solely with the Social Security Board on their budgets for unemployment
compensation administration, but mist deal jointly and concurrently with both
federal agencies on all employment service matters.
Differences between federal laws applying to these two functions also have
an important bearing upon these administrative problems, The United States
Employment Service is administered under the Wegner-Peyser Act, an Act which
authorities regard as one of the best formulas for federal-state administration
of any which Congress has ever passed. It created in the Department of Labor a
bureau vested with the responsibility for the promotion, establishment, and main-
tenance of a national system of rublic employment offices. The service developed
under this Act has achieved nation-wide recognition for its successful placement
activity in all types of employment, private and public, The extent of approval
which both employers and employees have accorded it makes it one of the outstand-
ing accomplishments of social legislation in recent years. The employment offices
administered by the United States Employment Service have achieved a record of
success in their own right and have, in addition, performed valuable services to
newly-created governmental agencies such as the Public Works Administration, as
vell as to old-established units of the government such as the Bureau of Public
Roads, One of the largest users of its services are the members of the Asso-
ciated General Contractors of America, It is not too much to say that the United
States Employment Service has represented the center of government's work approach
to the unemployment problem.
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III.
The Department of Labor believes it to be of vital importance further to
develop the placement activity which was begun in the United States Employment
Service as early as 1918 and greatly expanded in 1933. We recognize clearly the
problem of working out an effective coordination between the employment service
and unemployment compensation. The problem is to accomplish this objective with-
mit injury to either function. We believe that this coordination should be
brought about in such a way as to leave the employment service free and able to
act as a placement agency; to give its central emphasis to its central job; but
70 also want to make it clear that provision must be made through the employment
offices for an adequate service to the administration of unemployment compensation,
that is, for proper procedure for taking new and continued claims for benefits.
By a proper recognition of the nature of these functions and a careful balance
of the factors involved, these two objectives can be attained,
To believe that B. major step toward the solution of the problems 78 are
discussing would be accomplished through direct, adequate financing of the em-
ployment service, This would mean that the total federal appropriation for ad-
ministering state employment services would be made to the United States Employ-
ment Service in the Department of Labor.
The total cost to the federal government of such an arrangement would be no
more and might conceivably be less than at present. The state agency would be
dealing with a single agency of the federal government in regard to all employ-
ment service matters and would receive all of the federal funds for this function
from one source. By the same token, the unemployment compensation function should
be adequately financed.
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We are convinced that in all respects where joint action is needed between
these programs, the necessary results can be secured by the coordination of
bureaus within a single department and under a common head directly delegated to
blend their activities.
If the Congress decides that closer coordination is desirable, it will of
course determine the department in which it should take place, The Department
of Labor would merely draw attention to the cimilarity between the purposes and
objectives of these two related functions and the general statutory purpose of
the Department of Labor which is, "To foster, promote and develop the welfare of
mage earners of the United States, and to improve their working conditions and to
advance their opportunities for profitable employment."
I wish to emphasize the concluding words in Congress' mandate to the De-
partment of Labor. It is our Job to promote opportunities for "profitable
employment." What then could be more central in the Department of Labor than
the United States Employment Service?
(6282)
213
COPY
CHAMBER OF COMMERCE
of the
UNITED STATES OF AMERICA
Washington
March 29, 1939
Honorable John 1. Hanes,
Under Secretary of the Treasury,
Washington, D. C.
Dear Mr. Hanes:
Enclosed are two copies of the report of the Chamber's
Special Committee on the Social Security Act. In view of our
recent discussions, we thought the Secretary might like to have
a copy and you might desire one for your files.
This report is subject to some slight revisions prior to
printing.
We will be able to supply copies of the printed report in
a matter of days If you should desire them.
Yours sincerely,
/s/ John J. O'Connor
Manager
Finance Department
335/837
Enclosures
14
Report of the Special Committee on
The Social Security Act
To the Board of Directors of the
Chamber of Commerce of the United States:
Logislation of BO wide & eweep as the Social Security Act, and in
fiolds where earlier experience under our conditions is lacking, should have
periodic reviow. There will then be opportunity to make proposals designed to
koop the logislation in accordance with conditions as thoy develop. Periodical
reviows can also keep clear the benefits, costs and liabilities that may be in-
horited by future generations.
There now appears general recognition that the time has arrived for
the first of these periodic reviews. Since the beginning of January there have
boon placed before Congress, or one of its Houses, the following:
Recommendations of the Social Security Board for changes in
the law;
Proposals of the Advisory Council for changes in the federal
plan for old-age annuities made after a year of study
with the aid of the Board's facilities;
Recommendations placed before the Senate by its special
Committee on Unemployment and Reliof;
Proposals of an inter-departmental committee for further
development of measures to protect health.
The recommendations in these reports are outlined in an
appendix.
Having the benefit of these reports now before Congress, this Committee
has made its own examination, and submits this report.
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215
Old-Age Insurance
The financial provisions of the federal old-age insurance plans are
of outstanding importance, because of the great suma involved, and the conse-
quences of the methods used in raising such large amounts of money. Of the
reports before Congress, only the Advisory Council's report deals with this
subject. With the recommendation of the Advisory Council that these financial
provisions should be changed we concur, This recommendation is that the gov-
ernment should mest each year its obligations under the plan as they mature and
should not pile up the huge reserve fund contemplated under the present law.
Two years ago the Chamber's annual meeting attached great importance to such
a change. It very properly urged that there should be no dependence upon re-
serves calculated according to the actuarial principles necessarily used by
private insurance companies, for the reason that such a procedure is wholly
inconsistent with a government-operated, compulsory system of benefits, sup-
ported by taxation.
There are also substantial arguments of a practical kind against the
government attempting to use the reserve plan. For example, such a plan re-
quires levy of heavy taxes upon payrolls years in advance of the proceeds being
needed. Of course, this 1a & highly deflationary process in & period of busi-
ness depression. On the other hand, the collection by the federal government
of large amounts of money well in advance of the time for expenditure for the
purposes for which they were avowedly collected would inevitably lead to heavy
diversion of these funds to immediate purposes of an altogether different sort.
Government Contribution
Abandonment of the provisions for creation of a great reserve will
also afford opportunity to change the government's contribution from an in-
direct to a. direct form. The government's contribution is now made through
interest charges connected with the large reserve fund. The public interest
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in old-age insurance will warrant eventually, instead of this interest provision,
a direct contribution from the government to be added to the contributions
through taxes upon employers and employees. As part of a change to a pay-as-you-
go system there should be contemplation of such & direct contribution from the
government, the exact time of the direct contribution to be the subject of
future study.
There now arises also & practical question in
a practical situation. The present law provides that on January 1, 1940, the
rates of payroll tax, now 1% for employers and 1% for employees, will increase
to 1% and 134. Such an increase will mean tax collections will rise from about
$600,000,000 a year to $900,000,000. Bosides, there is already A roserve accumu-
lated which on December 31, 1938, amounted to $1,131,000,000. The oxtont of the
funds available next year, if there is a change to a pay-ns-you-go basis, is ob-
viously large. The amount will appear large, too, in relation to such supple-
mental and increased benefits as are advocated in this report. The exact require-
ments, however, will depend upon computations as to the sume needed, and such
computations are not yet at our disposal. Consequently, we believe that a deci-
sion whether or not under the pay-as-you go system there will be a need of advance
in the tax rates from 1 por cent to 11 per cent on January 1, 1940, should be
postponed until data necessary for a conclusion can be reached.
Rates of Tax
The ratea of tax should be related to the principle of "pay-as-you-go."
The rates should not currently bring in substantially more than current costs of
the plan with enough to maintain 8. contingent reserve sufficient only to permit
continuation of maturing benefit payments during periods of temporary depression
and continuation of stable tax rates.
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Contributors' Rights
The existing program contemplates the payment of benefits to persons
as B right that belongs to them because of the contributions they have made, and
the contributions their employers have made. The system thus is founded on the
principle which underlies successful plans employed by private business itself
to provide retirement pensions. There should always be vigilance to safeguard
this basic feature.
Preservation of a eyetem based upon rights to benefits for which there
has been payment will, on the one hand, gradually reduce the extent of old-age
assistance in the form of pensions for which payment has not been made and, on
the other hand, will avoid new departures in the direction of old-age benefits
of such a kind.
Early Benefits
In order that the old-age insurance plan may be strengthened, its bene-
fits should become available at an earlier time than 1942 and the benefits for
those who reach retirement age in the earlier years after payments begin should
be made more substantial. In this way there will be a more favorable comparison
with the larger payments in the nature of free pensions which will be available
under old-age assistance laws of the states, with federal aid, for persons who
have acquired no rights by reason of advance contributions. As the law now
stands, many persons who become eligible for monthly payments in the early years
after payments begin will recoive as little as $10 a month under the old-age
insurance plan, with nothing additional because there is an aged spouse, whereas
a neighboring husband and wife, in the same general economic circumstances and
of the same age, may through a state plan for old-age assistance be receiving
$30 a month or more, The resulting inequalities would seem to be obvious.
Postponement of benafits to 1942, in the present law, has been con-
nected with the accumulation of an insurance actuarial reservo. Change to the
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218
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pay-as-you-go plan, as we recommend, will mis emple funds available for monthly
benefit payments beginning on January 1, 1940. There will be sufficient funds
also for increasing the benefits.
Part of the increase in benefits can take forms that will tend to pro-
mote the security which the law contemplates. One of these forms can be payment
to a married man, with suitable provision against abuse, of a supplementary al-
lowance on behalf of his aged wife, equivalent in amount to half the husband's
own bonefit. Of course, if an aged wife in her own right, upon reaching 65 years
of age. is herself entitled to a larger benefit, she should be allowed to receive
this larger payment in lieu of the supplementary allowance.
Another form of increase should be a provision, under proper safeguards,
giving to the widow of an insured worker, after she has reached age 65, an annuity
reasonably related to the annuity her husband would have received. This will add
greatly to the sense of security of the aged women of the country, who are well
aware of the probability that & wife will outlive her husband.
& third form of increase would likevise have as its purpose promotion
of family security, and would malos provision against the chance that an insured
worker may die before reaching age 65, leaving dependent children or a widow with
dependent children. For the former there should be provided during the years of
usual dependency an orphan's benefit, and for such a widow having in her care
one or more dependent children of her deceased husband there should be a corres-
ponding widow's benefit payable during the period of dependency of the children.
Ultimate Cost
With increases in benefits in early years should go compensating ad-
justments elsewhere in the provisions for the federal plan, in order that the
ultimate cost of the system may not be increased. Original estimates made it
clear the ultimate costs of the present system will be heavy. The greatest care
Regraded Unclassified
219
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should be maintained to see that the ultimate costeof the system will never be
costs
raised above the / of the present law.
There are two points at which compensatory adjustments may properly
be made. The benefits of single persons who attain age 65 after the plan has
reached full-scale operation, or after the plan has been operative for at least
20 years, might be reduced without impairment of the purpose of the plan. There
might also be B. more appropriate provision 88 to payments in the event of the
death of a covered worker before reaching age 65, with the amount restricted to
a relatively small maximm benefit for burial purposes rather than rising to the
much larger sum that might be reached under the present law. It 1a not a purpose
of old-age insurance to create estates to leave lump sums to others.
Other Extensions
Other benofits for persons included within the present old-age insur-
ance plan and extension of the plan to large classes of workers not now included
have been proposed in one quarter or another. For example, there has been some
advocacy of providing benefits for persons who are included within the old-age
insurance plan but who before reaching age 65 become totally and permanently
disabled, and thore are proposals for extending old-age insurance to domestic
servants and to agricultural laborers.
None of these extensions, in our opinion, should be made at present.
Respecting all of them there should be development of many more facts than are
now available before there is an endeavor to reach a decision.
In regard to total and permanent disability, insurance companies have
experience which should be analyzed and taken into account. When they placed
in their policies provisions for payments to the insured person upon his becom-
ing totally end permanently disabled, they encountered administrative problems
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220
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of the first magnitude and suffered such heavy losses that many of the insurance
companies have censed placing in their policies provisions of this sort.
Extension of the plan to additional classes of workers should await
evidence of accomplishment in two directions. In the first place, there should
be demonstration that the administrative problems incident to the coverage now
given by the law have been solved. That demonstration cannot be given until
monthly payments begin, in 1942 under existing law or in 1940 if the law 18
altered. Under the present law for old-age insurance, more than 42,600,000
accounts have boon set up by the Social Security Board, with an average of
17,000 being added each working day. Every three months there has to be post-
ing of wage data to an average of 28,000,000 of these accounts, from reports
sent in by an average of 1,800,000 employers. Over 6,000 employees of the Board
are now engaged with the administrative functions, and there are to be more.
Such figures suggest the size of the administrative task which has already been
undortekon. How well it has been met will not be known until it 1s put to the
test for which it has been intended, - providing for monthly payments promptly
and accurately for workers who retiro at 65,
Extension of the coverage to classes of workers beyond those now
covered will raise administrative problems of more difficulty than has yet been
encountered. The classes now covered present the fewest and simplest adminis-
trative problems. Domestic servants and agricultural workers will give rise to
the most numerous and the most baffling problems. Certainly, the Social Security
Board should study these problems. Only when it CED present solutions that are
realistic should there be consideration of extension of coverage to these classes
of workers.
for the federal system of old age insurance
There are other extensions/which we believe can appropriately be made
at once. For example, the present exemption of banks in the reserve system on
the ground they are instrumentalities of the federal government soems anomolous.
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221
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Moreover, there appeare to be a discrimination, in that banks not in the reserve
system are not exempt.
Exclusions from Tax
As exemples of errors in the law which experience makes plain, two
instances of taxation may be cited. At present, the nominal wages paid to 02-
ployees of non-profit organizations that are exempt from federal income tax are
subjected to taxes for the federal plan of old-age insurance, The inconsistence
is apparent; for such wages are not intended to be a source of livelihood for
the recipients. In another instance the taxes are now discouraging to employers
in steps they may want to take of their own accord for the benefit of employees.
Tax must now be paid upon payments an employer may make toward retirement bene-
fits for employees, provision for dismissal wages, medical and hospital care,
and similar purposes. Both the nominal wages and the payments we have described
should be excluded from the statutory definition of wages, and so made free of
tax.
Indeed, payments into funds to support such plans of employers as we
have mentioned should be free also from all imcome taxation, state or federal.
All money paid for the benefit of workers should be devoted exclusively for that
purpose. For like reasons, the benefits should be free from taxation.
Unemployment Compensation Program
The unemployment compensation program instituted by the Social Security
Act is now coming into full effect. All but two states are now paying unemploy-
ment compensation. By July, 1939, all states will be making such payments. As
of January 31, 1939, the funds of the states on deposit in the United States
Treasury, invested as contemplated by law, amounted to $1,074,000,000. In pay-
roll taxes, the states will collect this year almost $800,000,000.
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222
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The proposals of the Social Security Board for changes in the unem-
ploymant-compensation provisions of the Social Security Act of most far-reaching
character relate to the extension of coverage. There have been no proposals with
respect to a change in the rate of the federal tax, which is 8. controlling factor
for rates of state tax. The Board iteelf has the important recommendation, that
thero be a change in the base for the tax, through limitation of the tax to the
first $3,000 of annual compensation exceeding that figure,
Tax Rates
We believe that prior to the making of any changes of BA important
character there should be a comprehensive study of the existing system, and the
results published. There are indications that, in some jurisdictions, at least,
the amount of the combined state and federal tax is excessive. For example, the
director of the Unemployment Compensation Board of the District of Columbia in
reporting upon the constantly growing balance in the unemployment trust fund of
the District has said:
"Eventually we would have all the money there is in the District
if this surplus is allowed to accumulate as it is now."
In this connection, it is, of course, true that any state may raise or
lower the amount of its state tax, but if the tax rate is made less than 2.7% the
taxpayers of the state would still be required to pay a total tax to the state
and to the federal government of 3%, so long as the federal tax is kept at that
figure, We urge, therefore, that careful consideration be given to the desir-
ability of the amendment of the federal act to make it possible for any state to
reduce the tax burden of the employere within the state to a rate which will
result in the raising of funds only sufficient to meet the needs for unemploy-
ment compensation.
Experience Rating
Reduction of collections from payroll taxes may be expected, too, as
Regraded Unclassified
- 10 -
223
provisions for experience rating come into effect. When such provisions are
adequate, they promote in an effective manner the purposes of legislation for
unemployment compensation. By giving & special incentive to employers to pro-
vent unemployment, if the nature of their business will permit, they tend to
keep unemployment at an irreducible minimum.
By providing allowances when an employer's tax paid to his state do-
creases with his demonstration that he is successfully stabilizing operations
and employment, the Social Security Act puts no obstacle in the way of experi-
ence rating in the states. The laws of every state should include provision
for experience rating of employers. The public interest will be promoted, em-
ployers will have savings in payroll taxes in accordance with their accomplish-
ments, and all employees will be benefited. The advantages of experience rating
far outweigh the objections made against it on the ground that it may require
more record keeping in the public offices administering unemployment-compensa-
tion lawa.
Employees Covered
The Social Security Board's recommendation as to extension of coverage
is the same in regard to unemploymont compensation as with respect to old-age in-
surance, - 1.8., to domestic servants and farm laborers. Our attitude on these
proposals for extension here is the same as on proposals for similar extension
for old-age insurance. In fact, the problems to be solved may be even more dif-
ficult in connection with these classes of workors under & law for unemployment
componsation than for old-age insurance.
The Social Security Board proposes that the federal act be amended to
provide that employers of one or more persons be subject to the federal tax. It
will be recalled that the tax in the present federal act relates to employers of
eight or more persons.
Regraded Unclassified
224
- 11 -
Decrease of the number of employees bringing an employer within the
federal act should be gradual. New administrative difficulties which are sure
to arise can then have an opportunity for solution, whereas in & more extreme
form they might defy solution. Hence, we believe it unwise to extend the COV-
orage of the foderal Act at once to employers of one or more persons, and pro-
pose that now an intermediate provision should be made causing An extension to
employers of four or more persons.
Tax Base
We welcome the recommendation of the Social Security Board that the
federal payroll tax be limited to the first $3,000 of annual wages as is the
We recommend that the same limitation should be placed in all state lave,
case with the tax for old-nge insurance./ We agree, too, with the Board that
the tax should be assessed on the basis of "wages paid" instead of "wages pay-
able," in order that the basis may be the name in the two parte of the act,
In short, we concur with the statement of the Board that the federal unemploy-
mont-compensation tax provisions should be combined with those of old-age in-
surance which relate to employers. Such combination will have the advantage
of relieving employers from making two separate returns for payroll taxes to
the federal government.
Employee Contributions
We believe also that employees as well as employers should contribute
to the funds from which unemployment compensation benefits are paid. This pro-
posal is made not so much from the point of view of relieving employers from a
portion of the cost as from the point of view of assuring & direct and continuing
interest on the part of the employees, both in administration of the law and when
modifications are under consideration.
State Parsonnal
The most impartial and able administration is alone compatible with the
Regraded Unclassified
- 12 -
225
purpose of such legislation as the provision for unemployment compensation. Such
an administration 1a possible only if all public employees with & relation to the
subject are under civil service. We accordingly believe the Social Security
Board is taking a correct position in saying that the federal not should be
amended so that each state would be required, 8.8 a condition precedent to the
securing of federal funds, to establish a systematic merit system, to be subject
to approval by the Social Security Board.
United States Employment Service
The United States Employment Service, at present in the Department of
Labor, 18 a coordinating agency for state employment services toward which, under
legislation of 1933, federal aid is given on a basis of the amount of federal
aid being at loast matched by the states. There are thus federal expenditures
for administrativo expenses and federal aid reaching at least $9,000,000 in the
next fiscal year.
But under the Social Security Board there will be grants in the next
fiscal year of at least $26,000,000 of federal money to state employment BeΓy-
ices. In connection with unemployment compensation, the Social Security Act
contemplates that the federal government out of its revenues from the foderal
tax on payrolls under Title IX 18 to pay to the states their costs of adminis-
tration of their legislation for unomployment benefits. Of those costs, a large
part is in the groatly increased costs of the state employment services in coor-
dinating their labor exchanges to provisions for unemployment compensation.
Persons who become unemployed must be registered at these labor exchanges,
efforts must be made to find employment for them, and certificates that em-
ployment has not yet been found must be issued as prerequisites to their ob-
taining payments of unemployment compensation.
Measured in grants of federal money, the functions of the United States
Employment Service for the Social Security Board are much more extensive than the
Regraded Unclassified
226
- 13 -
functions for the Labor Department. It would consequently seem obvious that con-
siderations of efficiency call for transfer of the United States Employment Serv-
ice to the Social Security Board.
Similarity of Definitions
As already indicated, the Committee believes that definitions in the
part of the Social Security Act relating to unemployment compensation should be
brought into such agreement with definitions in the part relating to old-age
insurance that an employer will be able to make one return for payroll taxes
under both portions of the law. This process of bringing about uniformity would,
of course, require that if there 1a acceptance of the recommendations in connec-
tion with old-age insurance, there should be exclusion from the definition of
wages the nominal wages paid by non-profit organizations, and also voluntary pay*
ments made by employers for benofits to accrue to their employees, and that there
should be the same exclusion in connection with unemployment compensation.
But there may be differences in definitions also between the federal
law and state laws for unemployment compensation. Such differences should not
be permitted to prevent an employer from obtaining offset against the federal
tax up to the maximum of 90% for payments actually made under state laws, even
though there may be some differences in definitions from the federal statute.
Similarly, when an employer meeting the difficulty which often exists of making
a decision as to the state to which he should pay tax on account of somo of his
employees makes e mistake and pays to the wrong state, he should be allowed off-
set when he corrects the error and pays to the correct state. An extension of
time within which credit may be claimed will be necessary for this purpose.
There are other features and interpretations of the provisions of the
Social Security Act regarding unemployment compensation which are peculiar to
this part of the law and which, according to experience, should be corrected.
An outstanding example is the interpretation of the Bureau of Internal Revenue
Regraded Unclassified
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227
that an officer of a non-profit organization, who serves without compensation
and for patriotic, civic, or humanitarian motives, is to be counted 0.0 an "em-
ployee" for the purpose of ascertaining if the organization has eight or more
employees, and thus is subject to the federal payroll tax. Such absurdities
can only lead to injustice not intended by Congress, and should be ended.
Public Assistance
Advocating a strengthening of provisions for old-age insurance, we do
not believo there should be additions to the federal responsibility for the old-
age assistance plans of the states. Under the portion of the Social Security
Act dealing with the subject, the amount of federal aid is increasing without
any additional logislation. In the current year the appropriations of Congress
for federal aid to states in their plans for old-age assistance are $214,000,000.
The amount asked of Congress for next year 10 $225,000,000. The growth in these
figures is apparent from expenditure of federal funds for this purpose in the
year endod with June, 1937 - $124,000,000. The size this appropriation is reach-
ing is especially notable in view of the general policy which is being followed, -
with the states providing, with this federal aid, for those who are in need and
are not employable while the federal government wholly at its expense provides
work for those who are in need and are employable. In providing work relief
through the Works Progress Administration the government is this year spending
over two and a quarter billions of dollars, or more than in any previous year.
In the face of such large expenditures, and with payroll taxes being
levied to an aggregate of 1.5 billions of dollars this year the expenditures
and the accompanying burdens should not now be increased. In particular, the
contributions of the federal government for old-age assistance should not be
increased, as is proposed by the special Senate committee. It may be true that
a number of states are undergoing the unpleasant process of recasting their
logislation for the financing of old-ago assistance, but these states are mainly
Regraded Unclassified
- 15 -
228
belated in giving attention to matters which should have been earlier put right.
In a number of ways state legislation has needed revision; for there has been
some unsuccessful and even thoughtless experimenting mong the states. Certainly,
thore is no cause in the recasting of state legislation for incroasing the scale
of federal aid. Even though the increase 1a suggested in the form of federal
nid to the states for special plans for assistance to handicapped persons under
65 years of age, as is now proposed in the bill drafted to incorporate the pro-
posals of the special Sonate committee, the principle should be recognized as
the same, and both on principle and because of the added expenditures, for which
the initial appropriation would be $125,000,000, this extension should not now
be considered.
Neither has there been shown a justification for a related proposal,
that states where average incomes and the level of the standard of living are
low should receive more than their pro rata of federal aid. The proposal of
the special Senate committee is that the contribution of the United States for
public assistance of aged persons should be 50% of the amount paid, but in
states where the average per capita income is loss than the average for the
country as & whole the federal contribution should be raised in proportion to
the difference. Such a formula would be incomplete, the Social Security Board
has pointed out; for there should also be taken into consideration the needs of
states. If there were such an addition to the formula, one part would substan-
tially offset the other, and the basis of federal aid would remain much as at
present.
Public Health
The Social Socurity Act contains provisions intended to promote public-
health services in the states. For that purpose there 16 federal aid for states,
countice, and other state subdivisions. The Social Socurity Board tostifies that
since 1935 thore has boon a great increase in these activities in the states,
Regraded Unclassified
229
- 16 -
For example, the number of counties with whole-time health officers almost doubled
in three years.
But soon after the Social Security Act became law there was appointed
an interdepartmental committee to recommend extension of the provisions of the
Social Security Act in regard to health activities. The resulting report the
President has placed before Congress for study.
With such a subject it 1s difficult not to be sympathetic, but before
deciding upon the merits of any specific proposals it is necessary to ask if
the country can now afford them. What would be entailed in public expenditures
is apparent from an estimate that, if the recommendations in the report which has
now been placed before Congress became fully operative, the annual additional
cost would be $850,000,000.
There seems to be but one conclusion with respect to these proposals.
This is the conclusion that they should not be considered until the country can
afford them, and can pay for then without burdons that will create new hardships
in other directions. Consideration of these proposals, therefore, should be
postponed at least until there has been such savings in present public expendi-
tures that there 1s available a clear sum sufficient to meet the full estimated
annual cost of the proposals.
SPECIAL COMMITTEE ON THE SOCIAL SECURITY ACT.
2/16/89
March 16, 1939
Regraded Unclassified
230
March 16, 1939
Appendix
PROPOSALS FOR AMENDMENTS TO THE
SOCIAL SECURITY ACT
Proposals from official sources for the amendment of the Social
Security Act have been made by:
The Social Security Board.
The Advisory Council on Social Security.
(Advisory to Social Security Board and Senate Committee)
The proposals of the Council are restricted to the provi-
sions of Titles II and VIII on old-age insurance,
Senate Committee to Investigate Unemployment and Relief.
The proposals of the Committee have been put into legislative
form through a bill (s. 1265) introduced by Senator Byrnes.
Interdepartmental Committee to Coordinate Health and Welfare
Activities. (Representatives of government departments)
The proposals of the Committee have been put into legisla-
tive form through & bill (s. 1620) introduced by Senator
Wagner.
Federal 01d-Age Insurance
BENEFITS
Starting Monthly Benefits in 1940. The Board, the Council and the
Senate Committee recommend that monthly benefits begin in 1940 instead of 1942,
Increasing Benefits in Early Years. The Board and the Council rec-
ommend.
Benefits for Aged Wives. The Board and the Council recommend.
Benefits for Widows and Orphans. The Board and the Council recommend.
The Board proposes that benefits should be paid on behalf of children at least
until they reach 16 years of age, and until 18 while attending school.
Disability Insurance. The Board and the Council argue for eventual
benefits to permanently disabled persons.
Regraded Unclassified
2 I I
231
Benefits to Single Annuitants. The Council, only. proposes that
benefits payable to unmarried individuals, after the plan has been in opera-
tion B. number of years. should be reduced.
COVERAGE
The Board "is of the opinion that it 1a sound social policy to extend
old-age insurance to as many of the Nation's workars as possible."
Agricultural Labor. The Council would cover all farm employees if
administratively possible by January 1, 1940, The Board would include all
agricultural labor except a hired man employed by a small farmer.
Domestic Servants. The Board and the Council recommend their in-
clusion.
Maritime Workers. The Board and the Council recommend their inclu-
sion.
Non-Profit Organizations. The Board and the Council recommend the
inclusion of employees of religious, educational, and charitable organizations.
Personal Service. The Board proposes that, regardless of legal status,
all persons in substantial relation of employees be covered including, for ex-
ample, all insurance, real estate, and traveling salesmen.
FINANCING
Old-Age Reserve Account. The Council states that "under social in-
surance programs it is not necessary to maintain a full invested reserve such
as is required in private insurance provided definite provision is made for
governmental support of the system."
The Board leaves recommendations to the Treasury Department. No
recommendations from the Treasury Department have yet appeared.
Revenue from Sources other than Payroll Taxes. The Council recom-
mends the adoption of the principle of distributing the eventual cost of the
Regraded Unclassified
<32
- 3 -
old-age insurance system by approximately equal contributions by employers,
employees, and the government.
The Board concurs in the proposal for participation by the govern-
ment.
The Council insists that "the eventual annual cost of the insurance
benefits now recommended, in relation to covered payroll and from whatever
source financed, should not be increased beyond the eventual annual disburse-
ments under the 1935 Act."
PAYROLL TAXES
Postponement of Increases, A majority of the Council recommends that
the increase in the tax rate from 1% each on employer and employee to 15% on
each be allowed to go into effect as provided in the Act on January 1, 1940.
Several members of the Ceuncil feel that this 50% increase in the tax rate
should be reconsidered and that it be allowed to go into effect only after care-
ful study indicates the necessity.
Unemployment Compensation
The Board and the Special Senate Committee have made recommendations
for changes in the unemployment compensation provisions of the Social Security
Act.
The Senate Committee has also offered recommendations for changes in
state lows. The waiting period, according to the Committee, should be shorten-
ed to one week. The period of benefits should be lengthened. The amounts of
benefits should be fixed at a few standard figures. The complicated tax system
should be simplified.
The Committee asperts that federal appropriations to cover the cost
of administration should be made available only if state employees are select-
ed through a. merit system.
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233
The weekly payments proposed by the Committee are as follows:
Persons earning
Weekly
per week
payments
Under $15
$ 5.00
$15 to $20
$ 7.50
$20 to $25
$10.00
$25 to $30
$12.50
Above $30
$15.00
Persons eligible for unemployment compensation who work at least 26
weeks in previous 12 months. Waiting period one week. Duration of benefit
period 13 weeks.
The Board says that the most pressing problem in unemployment com-
pensation is improvement and simplification of state laws and their adminis-
tration.
EMPLOYERS' TAX AND REPORTING PROCEDURES
The Board recommends that the federal unemployment compensation tax
provisions be conbined with those of old-age insurance to relieve employers
from making two sets of tax returns.
EXTENSION OF COVERAGE
The Board recommends that the coverage of unemployment compensation
be sinilar to the coverage it recommends for old-age insurance with certain
exceptions. Thus, it would bring under the unemployment compensation pro-
visions agricultural workers, domestic employees and employees of non-profit
organizations.
Compensation for Seamen. The Board recommends that a federal act be
passed covering all maritime employment which it is not possible or practicable
to bring under state laws.
Employers of One or More Employees. The Board recommends that the
present federal restriction to employers of eight or more employees be elimi-
nated so that employers of one or more employees would be covered.
Regraded Unclassified
- 5 -
234
ANNUAL WAGES SUBJECT TO TAX
The Board recommends that the federal payroll tax be limited to the
first $3,000 of annual wages as in the case of old-age insurance taxes.
STATE EMPLOYEES UNDER MERIT SYSTEM
The Board, as well as the Senate Committee, recommends that the
Federal Act be amended to require that methods of state administration shall
include procedures for the establishment and maintenance of personnel stand-
ards on a merit basis.
CONSOLIDATION OF FEDERAL AGENCIES
The Board calls attention to the desirability of the merging of the
United States Employment Service (now in the Department of Labor) with the
Board's Bureau of Unemployment Compensation.
The Senate Committee recommends that the Employment Service by trans-
ferred to the Social Security Board.
EXPERIENCE RATING
The Board recommends the clarification of the present complicated pro-
visions of the Federal Act relating to credits against foderal taxes ellowable
to employers in states which have experience-rating provisions.
BASE OF PAYROLL TAXES
The Board recommends that the base of the payroll tax be changed from
"wages payable" to "wages paid", thus making it the same as that for old-age
insurance taxes.
Regraded Unclassified
- 6 -
235
Public Assistance and Welfare and Health Services
Public Assistance
The Social Security Act contains provisions for grants-in-aid to
states on programs of assistance to specified classes of individuals. The
bill by Senator Byrnes (s. 1265) would amend the existing provisions and add
provisions for assistance to "handicapped individuals."
OLD-AGE ASSISTANCE (TITLE I)
The Byrnes bill would provide grants-in-aid to the states for old-age
assistance on the condition that the average payment to the beneficiaries be
not less than $15.00 per month. There is no stipulation with regard to a mini-
mum average payment in the present act.
In the year ended June 30, 1938, the Federal Government granted to
the states $179.1 million for old-age assistance.
DEPENDENT CHILDREN (TITLE IV)
The Byrnes bill would increase the federal participation in benefits
from one-third to one-half of the sums expended, but not in excess of $18.00
per month for one dependent child and $12.00 per month for each other depend-
ent child in the same home, on the condition that the payments be not less than
an average of $10.00 per month for each dependent child. The Social Security
Board also recommends participation by the Federal Government by the granting
of funde equivalent to one-half instead of one-third of the payments to the
beneficiaries.
In the year ended June 30, 1938, the Federal Government granted $25.0
million to the states for dependent children.
AID TO THE BLIND (TITLE x)
The Byrnes bill would amend the Act to provide for grants-in-aid to
the states for assistance payments to the blind on the condition that the
Regraded Unclassified
236
N # I
average payment to the beneficiaries be not less than $15.00 per month. The
present act contains no such stipulation.
Payments to the states for the year ended June 30, 1938, amounted to
$5.2 millions.
AID TO HANDICAPPED INDIVIDUALS (PROPOSED TITLE XA)
The Byrnes bill would provide for grants-in-aid to the states for
assistance payments to handicapped individuals. A handicapped individual is
defined as a needy person between the ages of 16 and 65 years, not an inmate
of a public institution who is unable to perform work because of physical or
mental disability, other than impairment of vision.
Grante-in-aid would be made to the states on the condition that the
average payments to the handicapped persons be not less than $15.00 per month.
The bill would authorize an appropriation of $125. millions for the
fiscal year ending June 30, 1941.
Welfare and Health Services
The Social Security Act contains provisions with respect to welfare
and health services as follows:
Maternal and Child Welfare. Title V.
Maternal and Child Health Services, Part 1.
Services for Crippled Children, Part 2.
Child-Welfare Services, Part 3.
Vocational Rehabilitation, Part 4
Public Health Work, Title VI.
The bill by Senator Wagner (s. 1620) would amend the existing pro-
visions, authorize larger appropriations, and add new provisions.
MATERNAL AND CHILD HEALTH SERVICES (TITLE V, PART I)
The Wagner bill would widen and make more explicit the provisions
of the Act with regard to granto-in-aid to states for promoting the health of
mothers and children, and medical care during maternity and infancy.
8 -
237
In the year ended June 30, 1938, the Federal Government granted $3.7
million to the states for maternal and child health services.
The Wagner bill would authorize the following appropriations:
1940
-
$8
millions
1941 - $20 millions
1942 - $35 millions
MEDICAL SERVICES FOR CHILDREN (TITLE V, PART 2)
The Wagner bill would broaden the provisions of the present act which
relate to crippled children by providing for medical care of children not
crippled or otherwise physically handicapped.
In the year ended June 30, 1938. the Federal Government granted $2.7
million to the states for services to crippled children.
The Wagner bill would authorize the following appropriations:
1940 - $13 millions 1941 - $25 millions 1942 - $35 millions
CHILD WELFARE SERVICES (TITLE V. PART 3)
No proposals for changes in the Act have been made,
Payments to the states for the year ended June 30, 1938, amounted to
$1.3 millions.
VOCATIONAL REHABILITATION (TITLE V. PART 4)
No proposals for changes in the Act have been made.
PUBLIC HEALTH WORK (TITLE VI)
The Wagner bill would widen and sake more explicit the provisions of
the Act with regard to grants-in-aid to the states.
In the year ended June 30, 1938. the appropriation was .millions.
The Wagner bill would authorize the following appropriations:
1940 - $15 millions
1941 - $25 millions
1942 - $60 millions
Regraded Unclassified
- 9 -
238
Proposed Additional Health Services
Senator Wagner's bill proposes health services in addition to those
now contained in the Social Security Act.
HOSPITALS AND HEALTH CENTERS (PROPOSED TITLE XII)
Appropriations would be authorised for grante-in-aid to states to
construct and improve existing hospitals and to mesist the states for a period
of three years in defraying the operating coet of added facilities. The amounts
proposed are:
1940 - $8 millions 1941 - $50 millions 1942 - $100 millions
MEDICAL CARE (PROPOSED TITLE XIII)
Appropriations would be authorized for grants-in-aid to states to
extend and improve medical care for persons suffering from severe economic
distress. The amounts proposed are:
1940 - $35 millions - thereafter as required.
Temporary Disability Compensation
The Wagner bill would authorize appropriations for grants-in-aid to
states to assist the etates in the development, maintenance and administration
of plans for tenporary disability compensation.
The bill defines disability as inability to work or unfitness for
work by reason of injury or illness. Compensation would be limited to cash
benefits for not more than 52 weeks for such disability not arising out of or
in the course of employment.
The report of the Interdepartmental Committee on which the proposed
legislation is based recommends payroll taxes as the source of the funds for
benefits on account of so-called temporary disability. The Wagner bill, of
course, contains no provisions for the raising of funds required for any of
the parts of his program.
Regraded Unclassified
- 10 -
239
The bill would authorize an appropriation of $10 million for grants-
in-aid to the states for the year ended June 30, 1940.
Variable Grants
The Social Security Board and the Senate Committee on Unemployment
and Relief propose to change the present system of uniform percentage grants
for public assistance to a system whereby the percentage of the total cost in
each state met through a federal grant would vary, between limits, in accord-
ance with the relative economic capacity of the state. This proposal is en-
bodied in the Byrnes bill (s. 1265).
Similarly, the Wagner Bill would apply the same principle to grante-
in-aid to the states for welfare and health services.
Merit System
The Board proposes that the Social Security Act be amended to re-
quire that methods of state administration shall include procedures approved
by the Board for the establishment and maintenance of personnel standards on
a merit basis. Both the Byrnes bill and the Wagner bill would establish this
requirement.
4-3-39
m
240
Secretary Morgenthau's recent statement to the House Ways and
Means Committee urging drastic revision of the social security tax
plan has net with & universal chorus of approval from editorialists.
They are in general agreement that his opposition to the scheduled
increase in the tax rate is the first concrete step that has been
taken in the direction of improving business confidence after recent
utterances of the Administration looking toward business appeasement.
The following newspapers carried editorials approving of the
Secretary's recommendations:
Wilmington Journal
Charlotte News
Peoria Journal-Transcript
Manchester Union
Boston Transcript
Lawrence Tribune
Newark News
Springfield, Mass., Republican
Jersey City Journal
Syracuse Herald
Utica Observer-Dispatch
Watertown Times
Baltimore Evening Sun
Greenville News
Rochester Democrat & Chronicle
Boston Post
Minneapolis Trimune
Wash ington Post
Indianspolis Times
New York Post
St. Louis Post-Dispatch
New York Sun
Cincinnati Enquirer
Texarkana Gasette
Providence Journal
Mankato, Minn., Free Press
Pittsburgh Post-Gasette
Altoona Tribune
Wilmington News
Springfield, Ill., Journal
Grand Rapids Herald
San Francisco Chronicle
Canton Repository
Durham Herald-Sun
Lynchburg News
Buffalo News
Washington Star
Allentown Chronicle & News
New York Sun
New Bedford Standard-Times
Baltimore Sun
Dallas News
Hartford Times
Easton, Pa., Express
Boston Post
Muncie Star
Boston Globe
Butte Stendard
Worcester Telegram
Pawtucket Times
Rockford, Ill., Star
Macon Telegraph
Bridgeport Post
Tulsa World
Nashville Tennessean
Cleveland Plain Dealer
Huntington Advertiser
Norfolk Virginian-Pilot
Indianapolis Star
Shreveport Times
Lym Telegram-News
Chatanooga News
Greensboro, News
Providence Evening Bulletin
St. Louis Globe Democrat
Birmingham Age-Herald
Los Angeles Times
Kalamasoo Gazette
Paterson News
Lansing Journal
Chicago Times
New Haven Journal-Courier
Springfield, Ohio, Sun
Abheville Citizen-Times
Miami News
Jackson News
241
A 'canned' editorial of approval appeared in following Scripps-
Howards papers:
Memphis Press-Scimiter
Cincinnati Post
Cleveland Press
Pittsburgh Press
Columbus Citizen
Knoxville News-Sentinel
Washington News
Evansville Courier
New York World-Telegram
Birmingham Post
El Paso Herald-Post
San Francisco News
Denver News
Houston Press
The following newspapers carried editorials expressing tacit or grudging
approval of the Administration's recommendations but urge an even
more thorough overhauling of the whole social security programt
McKeesport News
Little Rock Democrat
Christian Science Monitor
Wall Street Journal
New York Herald-Tribune
New York Times
Wheeling Intelligencer
Camden Courier
Youngstown Vindicator
Augusta Kennebec Journal
Greenville News
The following newspapers urge even further cute in social security
taxes and adoption of a pay-as-you-go policy in fulls
Buffalo Courier Express
Cincinnati Times-Star
No opposition 18 expressed relative to the proposal of Secretary
Morgenthau for cutting the tax burden. Some of the newspapers in the
last two groups above warn of increased costs of the program and crit-
icise the Administration for postponing revision of the Social Security
Act until this time.
242
The following excerpts are from aditorials published in & few of
the more oustanding newspapersi
"The Morgenthau statement is of particular importance because he
has been repeatedly identified as the one person responsible for writing
the full reserve into the Social Security Act If there is to be abandon-
ment of the full reserve system, it is difficult to see how it can be
partial
Welcome indeed is the assurance of Secretary Morgenthau."-
New York Sun
"The Administration took an ungrudging and courageous step yester-
day to help business. It deserves ungrudging praise. Opponents of the
New Deal should give the Administration honest applause for admitting
and remedying & mistake. "-Scripps Howard Editorials
"Morgenthau is to be congratulated for having candidly acknowledged
past miscalculations and for proposing specific corrective steps."-Waab-
ington Star
"Morgenthau's suggestion,
is a welcome evidence of the Government's
realization that the present law can be revised without loss of prestige
for the Administration orthe principle of social security."-Baltimore
Evening Sun
Morgenthau's announcement, has two very satisfactory results.
Legislation should easily be obtainable Principle of social security
now has no avowed enomies. "-Cleveland Plain Dealer
"The change proposed by the Secretary should in all conscience be
adopted.
Here is at least one constructive step in the rightdirection
in which the President concurs. "-St. Louis Clobe-Democrat
"Morgenthau's recommendation. has met with an enthusiastic recep-
tion. "--Washington Post
"Secretary Morgenthau puts his finger on a vital recovery need
when he recommends the moderating of old age insurance pay roll taxes
levied under the social security act Task of convincing Congress should
not be difficult. "--Minnespolis Tribune
"Seems wise to limit the amount of taxes to a figure which will
build up a reasonable reserve fund. Present law is a punishing one."
-Boston Post
For the benefit of recovery the pay roll taxes cannotbe brought down
"An appeasement to cheer about has come from the Administration...
to that point too soon. "-San Francisco Chronicle
first plank of true liberalium; therefore one would not be surprised
"Response to the honest critici of informed opponents is the
if President Roosevelt in his next speech pute forward the claim that
the New Dealers are now more liberal than ever, "--Syracuse Herald
Regraded Unclassified
MEMORANDUM FOR THE SECRETARY:
April 3, 1939.
There were very few general comments on the Social Security
statement. Our records total 3 from New York State, 1 from Pennsylvania,
1 from Connecticut. These were of the type that were given B general
acknowledgment and thanks. All were favorable, and they came from the
average run of newspaper reader.
Dr. Burgess wrote the Secretary as follows: "I liked your state-
ment about the Social Security tax very much indeed. I'm glad that in
suggesting the tax reduction you also emphasized the importance of
preserving the psychological principle of a participating pension plan.
That is B point of the utmost importance which many people mies. The
reception that your suggestion has received seems to make it clear that
your recommendation will be adopted, and I believe it will constitute
perhaps the most important step which has been taken so far in definite
encouragement to enterprise." Was thanked for his letter in the
Secretary's absence, and told that it would be brought to the Secretary's
attention immediately upon his return.
Frederic A. Delano wrote summarizing the whole development of the
problem of Social Security legislation, and saying in particular, "I have
been reading in the daily papers of the very substantial victory which
I think you achieved in getting Congress to see the desirability of re-
laxing the rules on Social Security. It is also interesting to note
the whole development of this problem.
I therefore rejoice in
the success which your Department and the Administration have achieved."
Mr. Delano asked for B. copy of any resume that might be made of favor-
able editorials and comments. Mr. Gaston acknowledged the letter and
promised to show Mr. Delano the collection of editorials now being made.
Kr. Thomas F. Myers, Jr., Publisher, Myers Newspapers, Chicago,
Illinois, sent a long telegram, beginning. "We are grateful for reconsider-
ation of the Security taxes on payrolls. The burden has wiped out our
profits over the year". Mr. Myers asked for a statement in full, which
was sent with Mr. Gaston's reply.
A telegram from Mr. J. B. Aicken, Charleston, West Virginia, alludes
to old age benefit tax, but mainly criticizes the unemployment compensation
tax.
Mr. George Robinson, Miami Beach, Florida, asked for a full transcrip-
tion of the testimony, and estimates of future disbursements in a personal
letter to Mr. Gaston.
Platow, Lyon and Stebbins, 60 Broad Street, New York City. The
Secretary's plans for the reduction of the payroll tax will aid business,
Regraded Unclassified
244
- 2 -
and that is, after all, the most important thing the Administration
can do. It was well known that the reserve feature of the Act, calling
for more than our present large national debt, would not stand up under
scrutiny. The change of front with respect to this feature will also
have a stabilizing effect upon the country in general.
The only comment critical of the Secretary was really critical of
the entire Social Security program: It came from Mrs. Devereux of New
York City. She states that the whole program is a burden and an expense,
and gives the usual "line" about using Social Security funds for current
expenditures.
Harry K. Taylor, Hartford, Connecticut, writes, "I think that your
plan to postpone Social Security tax increases is sound, and the most
constructive thing that has been proposed by the Administration for a
long time. I am not alone in my thought. Scores of Hartford men have
expressed themselves today in favor of your idea. We think you sane,
and we need sanity now."
Warren Publications, Incorporated, Cambridge, Massachusetts, sent
& form letter expressing themselves in favor of postponing of further
increases of payroll taxes. Enclosed Colliers editorial entitled,
"Make Social Security Secure". This is evidently being sent to various
Administration officials.
Regraded Unclassified
TREASURY DEPARTMENT
245
INTER OFFICE COMMUNICATION
wiss Channery
DATE 4/3/39
TO
MR. GASTON
TO held be the Scretain
FROM
MRS. FORBUSH
Supplementary Receipts on the Secretary's
Social Security Statement
Letter from Mr. Lew Hahn, National Retail Dry Goods Association,
New York City, saying as follows: "The Board of Directors of the National
Retail Dry Goods Association, at its March meeting, adopted a resolution in
support of your proposal that the Social Security tax rate on employer and
employee be left unchanged at one per cent for the present. It was the
opinion of the Board of Directors that this proposal, if adopted, would be
of considerable encouragement and help to the business si tuation. With best
wishes, #
One letter from an unemployed worker suggesting that all taxes be
removed from employers, and that any money needed to finance Social Security
should be raised by taxes on the labor-saving machinery which is causing
unemployment.
Regraded Unclassified
246
4/3/39
MR. GASTON
MRS. FORBUSH
Supplementary Receipts on the Secretary's
Social Security Statement
Letter from Mr. Lew Hahn, National Retail Dry Goods Association,
New York City, saying as follows: "The Board of Directors of the National
Retail Dry Goods Association, at its March meeting, adopted a resolution in
support of your proposal that the Social Security tax rate on employer and
employee be left unchanged at one per cent for the present. It was the
opinion of the Board of Directors that this proposal, if adopted, would be
of considerable encouragement and help to the business situation. with best
wishes, #
One letter from an unexployed worker suggesting that all taxes be
removed from employers. and that any money needed to finance Social Security
should be raised by taxes on the labor-saving machinery which is causing
unemployment.
wr/abs
Regraded Unclassified
247
April 10, 1939
For the Secretary
I learned that Mr. Eccles is greatly perturbed
over the fact that, whereas he has agitated and worked
for a year and more for some changes in the Social
Security setup, the Secretary has now come forward
and gotten the publicity and credit for such changes
as a measure of business appeasement.
He has approached at least one newspaper man to
write a story putting him on a pedestal as having a
record of talk in that field. He asks, however, that
none of his ideas be attributed to him in the form of
direct quotation but rather put in the form of state-
ments made by others as to his activities.
Upm
248
April 26, 1939.
MEMORANDUM
Po
TO: Secretary Morgenthau
FROM: Mr. Gaston
The following additional comment on Social Security
offents by State Chairmen in response to Farley's letter,
have been received.
Gory Gogg, Lewisburg, West Virginia - Approves
"reasonable" contingency fund in place of
large reserve. Thinks custodians of fund
should be outside appointees instead of
Government officers ex officio.
Robert Humphreys, Frankfort, Kentucky - Favors
proposal to postpone tax increase. Believes
old age benefit and unemployment compensation
are favored by Kentucky.
TO:
Mrs platy
249
From: Mr. GASTON
Regraded Unclassified
250
April 26, 1939.
MEMORANDUM
TO: Secretary Morgenthau
FROM: Mr. Gaston
The following additional comment on Social Security
efforts by State Chairmen in response to Farley's letter,
have been received.
Gory GOGE, Lewisburg, West Virginia - Approves
"reasonable" contingency fund in place of
large reserve. Thinks custodians of fund
should be outside appointees instead of
Government officers ex officio.
Robert Humphreys, Frankfort, Kentucky - Favors
proposal to postpone tax increase. Believes
old age benefit and unemployment compensation
are favored by Kentuoky.
Regraded Unclassified
251
MR. MORGENTHAU'S OFFICE TO-
Mr. Hanes
Mr. Gaston
Mr. Gibbons
Mr. McReynolds
Mr. Alexander
Mr. Harper
Mr. Allen
Mr. Helvering
Mr. Bartelt
Mr. Irey
Mr. Batchelder
Mr. Julian
Mr. Bell
Mr. Kilby
Mr. Berkshire
Mr. Lochhead
Mr. Bernard
Miss Lonigan
Mr. Birgfeld
Mr. Maxwell
Mr. Blough
Adm. Peoples
Mr. Broughton
Miss Reynolds
Mr. Bryan
Mr. Rose
Mr. Cannon
Mrs. Ross
Mr. Davis
Mr. Sloan
Mr. Dolano
Mr. Spangler
Miss Diamond
Miss Switzer
Miss Flanagan
Mr. Tarleau
Mr. Foley
Mr. Thompson
Mr. Graves
Mr. Upham
fr. Heas
Mr. White
Jr. Hall
Mr. Wilson
Mr. Hanna
Regraded Unclassified
THE POSTMASTER GENERAL
252
WASHINGTON
DEPARTMENT
UNITED * STATES OF *
April 24, 1939.
My. dear Mr. Secretary:
The attached is copy of letter Mr. Farley
receied from Mr. Gory Hogg, Chairman of the
Democratic State Committee, Lewisburg, West
Virginia. It is in relation to the Social
Security Tax.
Sincerely yours,
Was
William J. Bray,
Secretary to the
Postmaster General
one Humps bome
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington.
COPY
DEMOCRATIC STATE COMMITTEEE
253
CHARLESTON? W. VA.
P. 0. BOX 1210
Lewisburg, W. Va.
April 19, 1939
Hon. James A. Farley, Chairman
National Democratic Committee
Hotel Biltmore,
New York, N. Y.
My dear General Farley:
Your letter relative to suggested changes in the Social Security
Tax received.
After consulting with a number of our representive citizens it seems
to me that the carrying on of this program from current collections rather
than from the income of an enormous fund should be much more practicable,
provided of course, a reasonable fund is accumulated to keep current
collections in balance with current expenditures under circumstances which
might occasion some falling off of the current collections.
Whether the Administration be in the hands of a Board or N single offi-
cial, it 1a my belief that it should be a Board or an official chosen
solely for the purpose and not a Board made up ex-officio from officials
charged with other and varied responsibilities.
The use of the word "contributions" in place of "taxes" is more
euphonius and probably more accurate in describing the process, though
undoubtedly, all such exactions wear pretty heavily on tages.
With best wishes, I am
Sincerely,
Gory Hogg.
Regraded Unclassified
COPY
STATE DEMOCRATIC HEADQUARTERS
NEW CAPITAL HOTEL
FRANKFORT, KENTUCKY
254
April 20, 1939
Hon. James A. Farley
Chairman, Democratic National Committee
New York, N.Y.
My dear Chairman:
Your letter concerning the proposed change, in
the Social Security tax has been given much consideration
by me.
In my opinion, Proposal Four would be the
wisest proposal. There are approximately twenty-five
thousand employers in Kentucky who are required to pay the
Social Security tax to the Federal government, With business
conditions at a low ebb this tax is somewhat burdensome
to the employer and the increase as now fixed by law will
make it more burdensome each year until 1943. The total
amount of this tex together with the Unemployment Compensa-
tion will amount to & considerable percentage of the entire
payrodls. Naturally, this tends to force the employer to
reduce his personnel. I am doubtful of the proposition of
the law being administered by el board. The administration
of this law does not effect the taxpayers to any great de-
gree. They are interested only in he reduction of taxes
end stabilization of employment so that they will know with
some degree of certainty what to expect in the future.
The question of whether these taxes should be
called taxes or contributions is immaterial. The Kentucky
Unemployment Compensation law calls them contributions and I
favor that, however, I think it 16 unimportent.
The people of Kentucky are much in favor of Old
Age Benefit and Unemployment Compensation, however, I believe
they are opposed to the proposition of building up such &
huge reserve fund.
I do not set myself up as an authourity on these
matters and this is only my observation but I believe it is the
prevailing feeling in Kentucky.
Very truly yours,
Robert Humphreys
Frankfort, Kentucky
RH:L
PENALT deld PRM
WASHINGTON
PAYMENT of P
OFFICIAL BUSINESS
255
WASHIN 193981 D.C.
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington.
256
April 28, 1939.
MEMORANDUM
TO: Miss Chaunosy
WS
(For the Secretary)
FROM: Mr. Gaston
man
The Democratic National Committee of the State of
Washington replies to Mr. Farley's request for an opinion
as to Secretary Morgenthau's recommendations on Social
Security taxes and reserve:
(1) Generally approves H.M.Jr's plan
(2) Multiplicity of tax reports is burdensome
(3) Relief of agriculture is the urgent matter in
the State of Washington.
MR. MORGENTHAU'S OFFICE TO
Mr. Hanes
Mr. Gaston
Gibbons
Mr. McReynolds
257
Mr. Alexander
Mr. Harper
Mr. Allen
Mr. Helvering
Mr. Bartelt
Mr. Trey
Mr. Batchelder
Mr. Julian
Mr. Bell
Mr. Kilby
Mr. Berkshire
Mr. Lochhead
Mr. Bernard
Miss Lonigan
Mr. Birgfeld
Mr. Maxwell
Mr. Blough
Adm. Peoples
Mr. Broughton
Miss Reynolds
Mr. Bryan
Mr. Rose
Mr. Cannon
Mrs. Ross
Mr. Davis
Mr. Sloan
Mr. Delano
Mr. Spangler
Miss Diamond
Miss Switser
Misa Flanagan
Mr. Tarleau
Mr. Foley
Mr. Thompson
Mr. Graves
Mr. Upham
Mr. Haas
Mr. White
Mr. Hall
Mr. Wilson
Mr. Hanna
Regraded Unclassified
OFFICE DEPARTMENT
THE POSTMASTER GENERAL
UNITED POST STATES
WASHINGTON
April 26, 1939.
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington.
My dear Mr. Secretary:
Attached is copy of another letter
Mr. Farley has received concerning the
Social Security tax. It is from Mr.
E. A. Carroll, Democratic National Com-
mitteeman, Wenatchee, Washington.
Sincerely
Wengony yours,
William J. Bray,
Secretary to the
Postmaster General
WJB:SJM
COPY
DEMOCRATIC NATIONAL COMMITTEE
STATE OF WASHINGTON
259
OFFICE OF THE NAT'L. COMMITTEIMAN
April 20th, 1939
Hon. James A. Farley, Chairman
Democratic National Committee
Hotel Biltmore
New York City, N.YL
Dear Jim:
Due to illness I have been delayed in answering your communication
of April 5, 1939 regarding a suggested change in rates in the Social
Security Tax to the Ways and Means Committee of the House of Representa - -
tives. My personal opinion quite agrees with the Secretary of the Treas-
ury that a lowening of the tax with the objective of abandoning the idea
of 8 forty-seven billion dollar reserve would meet with the approval of
workers and emplèyers of this State. The State of Washington is not classed
8.8 industrial and consequently we are not subjected to the security tax
complaints that are so pronounced in other states. The general opinion
over the state is that business ie being burdened unnecessarily with
tax statements and demands for examinations that could webl be coordinated
under some plan of reorganization of departments.
The Secretaries suggestion of administration of the fund meets
with my approval, however; There are many that would object to this
administration. It seems to me that changing the name"taxes" to
"contributions" meets with the approval of all fair minded citizens.
The State of Washington, is farmore concerned at this time with
unsatisfactory problems facing agriculture and horticulture than they are
with the reconstruction of the tax set up. Growers are going farther in the
red every day, and it is regretable that they are forgetful of the many
favors of the past, but it is very apparent that agritulture will have
to show a profit to the growers or our postion will grow more unfavorable
each month.
Very sincerely.
E.A.C.
E. A.Carroll
Office of the Postmaster General
PENALT vola
Mashington, D.C.
& 5-FM APR GTON 26 D.C.T
PAYMENT
VINGS
S
2
OFFICIAL BUSINESS
'939
AS
TMASTER
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington.
260
281
May 2, 1939.
MEMORANDUM
TO: Secretary Morgentnau NS
FROM: Mr. Gaston
SUBJECT: National Committeemen's comments on Social Security
recommendations.
Charles B. Broughton, Democratic National Committeeman,
Sheboygan, Wisconsin, writes as follows:
Approves delaying tax increase if it will not injure
"effectiveness of Social Security."
Also likes suggestion of "contributions" in place of
taxes and board of trustees.
262
May 2, 1939.
MEMORANDUM
TO: Secretary Morgenthau
FROM: Mr. Gaston
SUBJECT: National Committemen's comments on Social Security
recommendations.
Charles B. Broughton, Democratic National Committeman,
Bheboygan, Wisconsin, writes as follows:
Approves delaying tax increase if it will not injure
"effectiveness of Social Security."
Also likes suggestion of "contributions" in place of
taxes and board of trustoes.
Regraded Unclassified
MR. MORGENTHAU'S OFFICE TO--
Mr. Hanes
Mr. Gaston\
Mr. Gibbons
Mr. McReynolds
"
-
263
Mr. Alexander
Mr. Harper
Mr. Allen
Mr. Helvering
Mr. Bartelt
Mr. Irey
Mr. Batchelder
Mr. Julian
Mr. Bell
Mr. Kilby
Mr. Berkshire
Mr. Lochhead
Mr. Bernard
Miss Lonigan
Mr. Birgfeld
Mr. Maxwell
Mr. Blough
Adm. Peoples
Mr. Broughton
Miss Reynolds
Mr. Bryan
Mr. Rose
Mr. Cannon
Mrs. Ross
Mr. Davis
Mr. Sloan
Mr. Delano
Mr. Spangler
Miss Diamond
Miss Switzer
Miss Flanagan
Mr. Tarleau
Mr. Foley
Mr. Thompson
Mr. Graves
Mr. Upham
Mr. Hass
Mr. White
Mr. Hall
Mr. Wilson
Mr. Hanna
264
OFFICE DEPARTMENT:
THE POSTMASTER GENERAL
UNITED POST STATES OF AMERICA *
WASHINGTON
April 29, 1939.
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington.
Dear Mr. Secretary:
Attached is copy of letter Mr. Farley
has received regarding the Social Security
tax from Mr. Charles E. Broughton, Democratic
National Committeeman, Sheboygan, Wisconsin.
Sincerely
in
William J. Bray,
Secretary to the
Postmaster General
WJB:SJM
COPY
265
C. E. BROUGHTON
DEMOCRATIC NATIONAL COMMITTEEMAN
SHEBOYGAN, WISCONSIN
April 25, 1939
Hon. James A. Farley, Chairman
Democratic National Committee
Biltmore Hotel
New York, New York
Dear Mr. Farley:
I think the proposal of Secretary of the Trea-
sury Mr. Morgenthau as to changes in the Social Security tax
law would meet with popular favor. I know it would in this
vicinity, and this is typicals I think, of the sentiment in
the average industrial community.
I think that the omission of the increases in
the tax rate of from one cent to one and one half cents in
1940 would have a stimulating effect, if the Secretary of the Treas
sury Morgenthau believes that we can do that without injuring
the effectiveness of Social Security. By stepping up the rate
in 1943 we would delay the increased tax, and there are always
arguments justifying delay.
I think our political enemies would like to
see increases in 1940, hoping thereby to tie up the Sécial
Security and the increased tax as a campaign argument. This
will be eliminated or minimized if the present rate were
left effective without the increase. I also like the sug-
gestion that the word contributions be substituted for taxes
and that a board of trustees be set up comprising the three
agencies, the 8. S. Treasury, labor and 6. representative from
the Social Security Board.
Trusting that in my humble way I have offered
some advice that will be helpful, I an
Sincerely yours,
c. E. Broughton
C. E. Broughton
*AZ*
Ore of the Postmaster General
PENAUTTTORG
N
PATHENT
Mashington. D.C.
APR.D
OFFICIAL BUSINESS
1-PM D.C.S.
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington.
266
THE POSTMASTER GENERAL
267
WASHINGTON
POLICY OFFICE DEPARTMENT
*
UNITED STATES OF DEPARTMENT
May 3, 1939
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
Dear Mr. Secretary:
Attached is copy of letter Mr. Farley
has received regarding the Social Security
Tax from Mr.Scott Ferris, Democratic National
Committeeman, Oklahoma City, Oklahoma.
Sincerely yours,
Willing illiam J. Bray,
Secretary to the
Postmaster General
WJB:MK
SCOTT FERRIS
268
Cotton Exchange Building
Oklahoma City, Okla.
April 21, 1939
Honorable James A. Farley
Chairman Democratic National Committee
Hotel Biltmore
New York City, New York
My dear Mr. Chairman:
In the rush of things, your letter has been neglected.
I have been out of town. So Sorry. It deserved an earlier reply.
I haven't gone into this tax situation technically. Personally,
I favor lowering of taxes everywhere you can and every time you can
and do it quickly. We just can't keep on piling taxes mountain high
on people and get away with it. The ultra conservative democrate and
repoublicans will form a coalition and go against us and tip over our
boat. I know this won't be a very intelligible letter but I just know
you can't constantly keep on taxing those willing to work and earn and
give to thos unwilling to do anything for what they get. It just won't
work and is just & dangerous position to have us in.
I beg of you, my dear Mr. Chairman, to do what you can to get
us out of it and the reduction of taxes is the best route I know to go.
With great respect, I am
Very sincerely yours
Scott Ferris
DEPARTMENT
65 8 WV to N/W 6261
to ANVIEWOES
269
May 9, 1939.
MEMORANDUM
TO:
Becretary Morgenthau
FROM: Mr. Gaston
The Michigan National Committeeman, writing to Mr. Farley,
expresses no opinion on your Social Security recommendations but
encloses extracts from three letters from manufacturers whose
opinion be asked. All favor postponing the tax increase. Two
say calling the tax "a contribution" would be mere camouflage
and two complain generally of high taxes.
A
270
May 9, 1980.
TO: Becretary Morgenthau
FROM: Mr. deaton
the Nichigan National Committeeman, writing to Mr. Farley,
expresses no opinion on your Social Security recommendations but
enclesse extracts from three letters from manufacturere whose
spinion be acked, All favor postponing the tax increase. two
say calling the tax "s contribution" would be more camouflage
and two complain generally of high taxes.
MR. MORGENTHAU'S OFFICE TO--
Mr. Hahes
Mr. Gaston
Gibbons
Mr. McReynolds
271
....
Mr. Alexander
Mr. Harpers
Mr. Allen
Mr. Helvering
Mr. Bartelt
Mr. Irey
Mr. Batchelder
Mr. Julian
Mr. Bell
Mr. Kilby
Mr. Berkshire
Mr. Lochhead
Mr. Bernard
Miss Lonigan
Mr. Birgfeld
Mr. Marwell
Mr. Blough
Adm. Peoples
Mr. Broughton
Miss Reynolds
Mr. Bryan
Mr. Rose
Mr. Cannon
Mrs. Ross
Mr. Davis
Mr. 81oan
Mr. Delano
Mr. Spangler
Miss Diamond
Miss Switzer
Miss Flanagan
Mr. Tarleau
Mr. Foley
Mr. Thompson
Mr. Graves
Mr. Upham
Mr. Haas
Mr. White
Mr. Hall
Mr. Wilson
Mr. Hanna
272
OFFICE DEPARTMENT
THE POSTMASTER GENERAL
UNITED POST # STATES OF ANION OF *
WASHINGTON
May 8, 1939.
Honorable Henry Morgenthau, Jr.,
Secretary of the Treasury,
Washington, D. C.
Dear Mr. Secretary:
Attached is copy of another letter Mr.
Farley has received relative to the Social
Security tax. It is from Mr. Edmund C.
Shields, who is Democratic National Committee-
man for Michigan.
Sincerely yours,
William J. Bray,
Secretary to the
Postmaster General
WJB:SJM
COPY
273
SHIELDS; BALLARD; JENNINGS &.TABER
Lawyers
1400 Olds To wer Building
LANSING, MICH.
April 21st, 1939
Hon. James A. Farley
Democratic National Committee
Hotel Biltmore
New York, New York
Dear Earley:
Your letter of April 5th, concerning
changes in the Social Security Tax, was duly received.
I wrote to various heads of manufacturing
and business concerns and received a few replies.
I am enclosing a copy of some of the letters
and as soon as I receive further information I will send
it on to you.
Sincerely,
Ed
Edmund C. Shields
COPY
274
If I have read your letter of April 10th, very
carefully and discussed it with our accounting depart-
ment. Re feel that the #4 plan indicated in your
letter is the best plan. If this plan is followed
without any step-ups until 1943 the whole thing can
be thoroughly considered before that time and. if
necessary re-arrangements can be made in 1943 which
would lighten the load and perhaps not affect the
efficiency of the social security plans.
"As far as changing the account to make the
tax read "Contributions" is conderned for old age
security instead of "taxes", I do not think this is
fair at all. This is nothing more or less then 8 tax
forcibly collected. A contribution is something
you give of your own free will. It seems to me this
thing is just as mjch of & tax as anything elese we
pay and should not be camauflaged in any way."
"I believe that item #4 would be the best
request to make, at the present time. If I understand
it correctly this would mean that the present rate of
1% would remain until 1943. At that time or possibly
before, business might be in a position to stand a
larger tax. This tax, together with a number of others,
is such 8. burden on the smaller units that some of them
have been forced to cease operations. I, therefore,
feel the best thing would be to impose as little tax on
them as possible for any source until business has
developed to a point where it can pay more from earnings.
I have never been against taxes, when business warrants
paying them. I believe what this country needs today,
chiefly, is industry--men at work and everyone employed;
and to do this, industry must be permitted to have
greater earnings, before they are called upon to pay
increased taxes."
Regraded Unclassified
COPY
275-
27
"Your letter seems to proceed upon the theory that the
taxpayer should choose one of the four alternatives set forth.
In our judgment, any one of the alternatives would create a
tremendous and dangerous backlog of idle funds. It would seem
to me the proper grading of the taxes would be & budget set up
for each particular year and the tax assessed to meet that
budget only, be the amount 6 half of one percent or more than
one percent, as that year!s needs might require.
I don't believe there is question in the mind of any
business man but that these tax matters are retarding business
progress today. Therefore, let us proceed to reduce and
eliminate 88 many of these taxes as possible. In other words,
if costs could be reduced inside of the purchasing power of the
majority of our people, business would be better. But it
seems that taxes have been placed on corporations by politicians
of botheparties for some time past to the extent that costs have
been increased to where the large percentage of the people are
unable to buy except at long intervals. This has reduced em-
ployment, and Icannot see any great future for business until
porduction costs are reduced considerably.
Ae far 88 celling this E. contribution instead of a
tax, I em not much of & believer in camouflage. Let us face
the issue squarely, as I do not believe any person desires to
contribute, end I also feel if the matter was left to 8. group
of business men to work out this situation, that they CO ld
work it out in the anner of insurance where the costs to the
employer as welll as the employee would be considerably less
than they are now end where the benefits to the needy would
be from three to four times as great.
You compensation tax Is handled through private
enterprise. There is no reason why Social Security Tax and
Unemployement Tax could not be handled Ln the same way. There-
fore my suggestion is to get government out of business, and
the benefits derived would be 88 stated above, several times
greater.
I em not writing this from 6. political standpoint,
8.5 both parties are guilty. However, the time has arrived
when business 1s not much more then tax collection agency
for the government, and unless there is some relief given
to business, you will find more and more of them getting out,
which will further reduce employemtn for small businesses
batehhad to stand the brunt of these taxes, and still they
furnish by far the greater part of the employment. But,
88 years go by, NO find it very much more difficult to operate,
and I think the time has arrived when taxes should be
simplified to the extent at least of where the average
intelligent person could handle his own business without being
compelled to employ experts.
I fully believe that the one percent which is now
charged to both employer and employee will be amply sufficient
to take care of the demands upon it at any time."