Committee on Economic Security (CES)
Volume II. Old Age Security
Papers in Support of Old-Age Provisions of Bill
Statement of Probable Costs of Gratuitous
Old-Age Pensions With and Without the Establishment of a System of Federal
Old-Age Benefits
By Joseph P. Harris
One of the principal reasons for the establishment of a system of Federal
old-age benefits is to reduce the heavy drain for the support of free
old-age pensions which will be made in the future upon all governments,
Federal, State and local, to be paid out of general taxes. There is indication
that without a companion system of federal old-age benefits, this cost
will become extremely large.
England operated a system of free old-age pensions from 1908 until 1927,
when it was forced to set up a supplemental system of old-age insurance
to reduce the cost. By 1927 more than 72% of the persons in the eligible
age group were receiving free old-age pensions. This is certainly a strong
indication of what will take place in this country if we establish a Federally
aided system of free old-age pensions without also providing for a system
of Federal old-age benefits.
The actuaries of the Committee on Economic Security have estimated that
without a system of Federal old-age benefits, the cost of free old-age
pensions will amount to approximately $2,600,000,000 by 1980. This assumes
that by that time 50% of persons over 65 years in age, or 8,500,000 will
be receiving free old-age pensions averaging $25 per month. These estimates
are probably conservative in the view of the increasing pressure for old-age
pensions for everyone, without regard to need, and for larger pensions.
The total cost to the Federal Government and to the states may very well
greatly exceed these estimates. It may be anticipated that there will
be constant pressure to increase the amount, to reduce the requirements
or proof of need, and to increase constantly the part which the Federal
Government contributes.
With a companion system of Federal old-age benefits, the cost of free
old-age pensions will be very much less. More than half of the gainful
workers of the country will be taken care of by the system of Federal
old-age benefits. The workers who are not covered by the federal old-age
benefits (self-employed persons, farmers, agricultural laborers, the professions,
public employees, institutional employees and casual labor) will still
have to be taken care of in old-age if they are needy, but the dependency
ratio of this group should be materially less than that of the entire
population, and as the time goes along, it may be possible to extend the
system of Federal old-age benefits to part of this group. Many of this
group are already covered by retirement systems.
1. According to the estimates of the actuaries, the cost of free old-age
pensions by 1980, if Federal old-age benefits are set up, will be approximately
$1,000,000,000 annually, instead of a cost of $2,600,000,000 without Federal
old-age benefits. It is extremely doubtful whether the state and local
governments would be able to bear one half of this large amount, with
the financial burdens which they already have, and consequently there
will be a strong demand for the Federal Government to pay the entire cost.
2. When some 25,000,000 gainful workers are covered under a system of
Federal old-age benefits and are required by law to pay Federal taxes
upon their wages, this large group will oppose the payment of lavish free
old-age pensions to other members of the population who have not been
taxed to build up their own old-age benefit rights.
3. While a system of Federal old-age benefits will greatly reduce the
tax burden of free old-age assistance in the future, the other merits
of old-age benefits over free old-age pensions should never be lost sight
of.
They are as follows:
(a) Payments are made as a right, not as a public charity.
(b) Much more substantial provisions may be made, providing not merely
a bare existence but some of the comforts of life in old age.
(c) Old-age benefits are a form of social insurance, in accordance with
our best traditions of thrift.
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