What FDR Said About Social Security

What FDR Said About Social Security. This article is based on an email I received from a reader. It was about promises made by FDR. I've debunked the myths of these 5 promises and explained them each in detail.

I received an email that had some quotes from President Franklin Roosevelt about Social Security. This email came to me from a reader who wanted to know my thoughts.

It says…

Just in case some of you young whippersnappers (& some older ones too) weren’t taught or just didn’t know this. Be sure and show it to your kids. They need a little history lesson on what’s what. And it doesn’t matter whether you are Democrat or Republican. Facts are facts!!!

FDR’s “Facts”

Franklin Roosevelt, a Democrat, introduced the Social Security (FICA) Program. He promised:

1.) That participation in the program would be completely voluntary,

2.) That the participants would only have to pay 1% of the first $1,400 of their annual incomes into the program,

3.) That the money the participants elected to put into the program would be deductible from their income for tax purposes each year,

4.) That the money the participants put into the independent ‘Trust Fund’ rather than into the General Operating Fund, and therefore, would only be used to fund the Social Security Retirement Program, and no other Government program, and,

5.) That the annuity payments to the retirees would never be taxed as income.

So let’s take each of these and talk about their validity.

The Myths Debunked

Myth 1: President Roosevelt promised that participation in the program would be completely voluntary

This tax has never been voluntary. From the first days of the program to now, anyone working at a job covered by Social Security has been obligated to pay their payroll taxes. There’s never been an opt-in or opt out provision except in VERY narrow circumstances.  

In the early years of the program, I believe that only about half the jobs in the US were covered by Social Security. So someone could choose to work at a job that wasn’t covered by Social Security and not have to pay FICA taxes and of course, that person would not be eligible to collect a future Social Security benefit. I suppose, in a very indirect sense, participation in Social Security was voluntary by your choice of employer. However, if a job was covered by Social Security, participation in payment of Social Security taxes was mandatory. 

Myth 2:President Roosevelt promised that the participants would only have to pay 1% of the first $1,400 of their annual incomes into the program. 

In the original 1935 Social Security Act the amount of tax was 1% each on the employer and the employee, on the first $3,000 of earnings. This rate was increased on a regular schedule in four steps so that by 1949 the rate would be 3% each on the first $3,000. The figure was never $1,400, and the rate was never fixed for all time at 1%. 

Myth 3:President Roosevelt promisedthat the money the participants elected to put into the program would be deductible from their income for tax purposes each year

There was never any provision of law making the Social Security taxes paid by employees deductible for income tax purposes. In fact, the 1935 law expressly forbid this idea, in Section 803 of Title VIII.  

It says, “the tax imposed by section 801 shall not be allowed as a deduction to the taxpayer in computing his net income for the year in which such tax is deducted from his wages.” 

Myth 4:President Roosevelt promisedthat the money the participants paid would be put into the independent “Trust Fund,” rather than into the General operating fund, and therefore, would only be used to fund the Social Security Retirement program, and no other Government program

The idea here is somewhat correct. However, this statement is usually joined to a second statement to the effect that this principle was violated by subsequent Administrations to pay for a war or some other project.  

The Social Security Trust Fund was created in 1939 as part of the Amendments enacted in that year. From its inception, the Trust Fund has always worked the same way. The Social Security Trust Fund has never been “put into the general fund of the government.” 

Most likely this myth comes from a confusion between the financing of the Social Security program and the way the Social Security Trust Fund is treated in federal budget accounting. Starting in 1969 (due to action by the Johnson Administration in 1968), the transactions to the Trust Fund were included in what is known as the “unified budget.” This means that every function of the federal government is included in a single budget. This is sometimes described by saying that the Social Security Trust Funds are “on-budget.” This budget treatment of the Social Security Trust Fund continued until 1990 when the Trust Funds were again taken “off-budget.” This means only that they are shown as a separate account in the federal budget. But whether the Trust Funds are “on-budget” or “off-budget” is primarily a question of accounting practices–it has no affect on the actual operations of the Trust Fund itself. 

Myth 5:President Roosevelt promised thatthe annuity payments to the retirees would never be taxed as income. 

Originally, Social Security benefits were not taxable income. This was not due to the way the law was written. It was the result of a series of administrative rulings issued by the Treasury Department. 

There were three separate Treasury Rulings, two from 1938 and one from 1941. During the years 1937-1939 two types of Social Security benefit were paid: Lump-sum retirement payments to retired workers, and lump-sum death benefits to the family of deceased workers. So there are two 1938 tax rulings, one covering lump-sum retirement payments and one covering lump-sum death payments. 
In 1939 the Social Security Act was amended and dramatically expanded to include survivors and dependents benefits of various types. In a 1941 ruling, the Treasury Department explicitly extended its earlier rulings to these new types of benefits. 
In 1970, the prior rulings were reaffirmed. 

In 1983 Congress changed the law by specifically authorizing the taxation of Social Security benefits. This was part of the 1983 Amendments, and this law overrode the earlier administrative rulings from the Treasury Department.  

So..the next time you see this email, you’ll know that it’s not really accurate. I’ve found that to be the case for lots of stuff on the internet.  

Thanks to the reader for the email. Now that you’ve read this article (which is a great first step), I’d recommend staying connected with my content so you won’t miss anything. In many cases I’ll publish my newest stuff on YouTube and then share it on my Facebook page. Then my content team does their magic and cleans it up into an article for those who enjoy reading. (Again…the article is shared on my Facebook page.)

Be sure to subscribe to my site so you won’t miss any of the new content coming out, plus you will receive the blueprint version of my book for free. Alternatively, you can just head over to Amazon and buy the full version. I can’t guarantee this, but I’m pretty sure you’ll get more value than the $12 it costs.

Thanks so much for reading…have a great day.  

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