The Social Security Act of 1935 (SSA) was enacted by the 74th United States Congress and signed into law by President Franklin D. Roosevelt. Part of President Roosevelt’s New Deal, the act was intended to provide U.S. citizens with financial security in their old age, backed by the promise of the federal government. The SSA was controversial when enacted, and its merits, organization, and long-term sustainability remain debated to this day.

In the wake of the act’s passage, NYSSCPA President James F Hughes [1935−1937], in “Financing Social Security” (The New York Certified Public Accountant, January 1936), tackled some of the issues and constitutional challenges posed by the SSA.

Quantifying the Impact

Hughes’s first objective was to paint a picture for readers of just how significant the impact of the SSA on a federal government—much smaller in 1935, before World War II—would be:

No previous taxing act had the effect of immediately requiring 26,000,000 people to contribute irrespective of their incomes … Vis ualize, if possible, the vast army of Federal employees, newly created, required to take care of these records, to start them and see to the proper conduct of them and the very substantial increased amount of work required to carry out the provisions of the Act.

Hughes then explained what would be required for the SSA to achieve President Roosevelt’s idea of a form of social insurance funded by contributions provided by workers starting from an early age. A federal committee set about defining “qualified individuals” under the law, setting a cap on salary to be taxed, determining the tax rates based upon actuarial projections, and deciding which occupations (e.g., “farm workers, domestic servants … and seafaring people”) should be excluded. This committee recognized the need to build up a large reserve before any benefits were paid, so while tax collection began in 1937, benefits were not paid until 1942. Provisions were made for the estates of those taxpayers who died before collecting any or all benefits due.

The committee also calculated that:

The taxes to be levied upon the taxable part of the earnings of those who were covered by the old age provisions of the Act would exceed the payments necessary to the beneficiaries of such Act. So they decided that as idle cash must be invested … it should be invested in the obligations of the United States.

What Hughes took as fiscal prudence has been a source of political contention ever since, as this funding surplus has been irresistible to lawmakers seeking to decrease taxes or increase spending in other areas while maintaining the appearance of responsible budgeting.

The population growth estimate cited by the committee turned out to be too conservative, even if it did forecast the general aging trend. But Hughes’s crystal ball certainly failed him when he quoted the prediction of a Doctor Carrel, in the New York Times: “… some individuals could be put into storage for long periods of time, brought back to normal existence for other periods, and permitted in this manner to live for several centuries.”

Hughes also noted that the constitutionality of the law was likely to be challenged, citing a Supreme Court case which in 1935 ruled an earlier Railroad Pension Law unconstitutional, leading to its reenactment in separate bills (one providing for pension benefits, the other for taxes). Hughes suggested that this similar legislative approach would be successful for the SSA, but, as of his writing, the matter was still contested.

Looking back 85 years later, Social Security has become one of the most enduring and essential federal programs ever enacted. But its very size and impact have meant that Social Security, and its long-term outlook, has always been at the forefront of political debate, never less so than in election years such as this one.

Some of Hughes’s projections may have been proven inaccurate, but his article presents an edifying example of how CPAs can participate in the discussion of public policy: by providing frank, quantifiable, and verifiable analysis that policymakers can use implement their decisions—and citizens can use to gauge their support.