Social Security Act of 1935: Townsend's $200 Plan and the FICA Bargain

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Before 1935, an American worker without savings faced old age with family charity or the poorhouse. Industrial work had broken up farm-based safety nets, the United States lagged behind Western Europe, and Meyer London's 1916 push to study social insurance failed against labor and insurers. The Great Depression made old-age poverty impossible to ignore, and Dr. Francis Townsend's clubs gathered over 25 million signatures for a $200 monthly pension that recipients had to retire to receive and spend within 30 days. Franklin D. Roosevelt had Frances Perkins lead the Committee on Economic Security. Health insurance was dropped under pressure from the American Medical Association, and old-age benefits were funded by a payroll tax.

Roosevelt said the payroll contributions gave workers a legal, moral and political right to their pensions, though the flat tax was regressive. Southern Democrats chairing key committees, including Robert Doughton and Pat Harrison, secured exclusions for agricultural and domestic workers, which left out 65 percent of African American workers and 27 percent of white workers. In 1937 the Supreme Court upheld the act in Steward Machine Co. v. Davis and Helvering v. Davis, with Justices Butler, McReynolds and Sutherland dissenting. Later amendments added survivors in 1939, cost-of-living adjustments in 1950, self-employed coverage in 1954, and Medicare and Medicaid in 1965.

• The Townsend plan would have required about $24 billion a year in a depressed economy.
• Roosevelt wanted cradle-to-grave protection but disliked permanent relief, which he called the dole.
• Regular monthly checks began in 1940, when benefits totaled $35 million.
• By 2009 nearly 51 million Americans received more than $650 billion a year.
• In the 1950s people over 65 had the highest poverty rate of any age group, and by 2010 Americans 55 to 75 held the largest share of wealth.