Collection of the Museum of American Finance
The first page of Alexander Hamilton’ s Report on the Public Credit, which is considered to be the financial equivalent of the US Constitution.
bonds rendered traditional lines of defense less effective, and public support for a federal solution intensified as the Depression persisted. The elderly and unemployed were deemed especially vulnerable.
On August 14, 1935, President Franklin D. Roosevelt signed the Social Security Act of 1935. The Act included old age insurance, unemployment insurance and various funding programs to assist state-level programs to aid vulnerable populations. The Social Security Act also introduced a payroll tax to fund benefits. Proponents of the Act considered the payroll tax especially important, as it provided the perception that Social Security was an earned right, rather than a handout. The earned right claim was further reinforced with the passage of the
Social Security Amendments of 1939, which established the Social Security Trust Fund.
The reality, which few Americans appreciate to this day, is that there is a weak link between one’ s contributions into the Social Security program and the level of one’ s benefits. For example, the first generation of recipients, on average, received benefits that far exceeded their contributions, whereas future generations will likely contribute far more than they receive. During a conversation with a Treasury official, President Roosevelt conceded this fact, stating,“ I guess you’ re right on the economics. They are politics all the way through. We put those payroll contributions there so as to give the contributors a legal, moral and political right to collect their pensions and their unemployment benefits. With those taxes in there, no damn politician can ever scrap my Social Security program.”
The Social Security Act marked a monumental shift in federal entitlement policy. Prior to its passage, entitlement programs consisted almost entirely of pensions for veterans and selected groups of government employees. In contrast, Social Security offered benefits to a much broader constituency and was perceived as an earned right due to the existence of the payroll tax and Social Security Trust Fund. These precedents created a legal and philosophical foundation upon which new entitlement programs were launched in the decades following World War II.
24 FINANCIAL HISTORY | Spring 2025 | www. MoAF. org