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Form F. R. 131

BOARD OF GOVERN•RS
FEDERAL RESERVE SYSTEM

O f f i c e

C o r r e s p o n d e n c e

To

Chairman Ecoles

Frnm

Martin Krost
0

Date

October 5 , 1 9 1 *

Subject; Changes i n Social Security
Coverage

I have received the following information through Kr. Curried
o f f i c e f o r your confidential use.
The Social Security Board i s making the following recommendat i o n s . I t i s not clear whether these recommendations have been accepted
by the President and by the Treasury.
The Board i s recommending extension of coverage under the Old
Age Insurance System to agricultural laborers, domestic servants, employees
of non-profit organizations, farm operators and other self-employed persons
and government employees. The Board i s recommending extension of coverage
under unemployment insurance to employees of establishments having less
than eight workers not covered under the present system.
The Board estimates that the extension i n coverage and an i n crease i n the tax rate f o r old-age insurance from 2 to i+ V e r cent would
raise the yield of this tax from the present annual rate of about |800
million to about $2 b i l l i o n . The Board proposes to raise the present
3 per cent tax f o r employment insurance to J per cent and to nationalize
+
the system which i s now administered by the State governments with
different scales o f employment benefits prevailing in each State. They
estimate that these changes would raise the y i e l d of this tax from i t s
present level of about #900 million to f l , 6 0 0 million. The change-over
to a f u l l y federalized basis w i l l require some time and i t w i l l not be
possible t o make this change f u l l y e f f e c t i v e before 191+3• The Board also
proposes to set up a system of d i s a b i l i t y and hospitalization benefits and
to levy a special 2 per cent tax for this purpose yielding about |800
million a year.
The combined e f f e c t of these proposals would be an increase
from the collections of $1,700 million in 19l|2 that would be made i f the
system were l e f t unchanged t o $3*700 m i l l i o n . In 19^+3 collections would
increase to $l+,i+00 million.
The old-age taxes are levied one-half upon employers and onehalf upon employees. The unemployment taxes are levied wholly upon
employers. I t i s generally believed that except in special situations
the employers1 part of the tax i s passed on to the consuming public in the
form of higher prices or back to employees in the form of lower wages than
would be paid i n the absence of the tax.