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FormF. B 131 ^ - ' BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM Office Correspondence Xo Chairman Secies Date—March i?, 1959. Subject: Old Age Security Program Lauchlin Currie In accordance with your instructions, I sent a copy of the attached memoranda on social security to Secretary Hopkins today. March 17, i.u h p. Tha pnantmt pro •T^- i s defective on'1 both soeinl attl «COB grania« I t vary obviously f a l l * to ma©* fllM laatal &£€»<% Ml la rri4«s«#d by tbe attitud-3 of the tflwiirtwtm hulk of present alti-~n%$> p*matORB «r« t o t a l l v l»ad«q«at« In east* to Oa M O M M M gi<0ajHtaf tht* pr«a«at pomgraa l a «T«m aava to erltioiHt?,. *!&& pf&90bt§ ov#s*all econotslc p>srt>Hl«^ frcin>: us i s that of noaaalin aapaiii t j to aava rsl'-ttT:.s tn lavaatBMtt or a%at«4 i n othf?r taflBia« »B aa*ta deficiency o? coR,««ner ralati¥Q to our lapaatty to pa»4uiiaa fba papwwl of iM aga mmced in r)-rt fro?n t h e f?«3n^rHl Incomo tax bane, pro^i the obyioua a&lviiaa fa our aaaafla&t pjrotil«s« preratllag lAaa< I t f&ta in with tka .-: fee aaatal justice tatf involves & of LJitaiTnifaam with or aajMUftnga rwa UM t&t of |6aaa aaaaa h our if«taa af ^Tiv^t^ aatatsnrlaa r?rofit econ aad old aa^i p^usioiss tn-n a faatwa of Xn place, aowmr, of utilising this fvatvaJAa soei ;i ss I means of aolTtan smr economic pratdaat aa fewva actually i n tanatftart %h it ^robi*i^ by d art slag • aalHaaB of t a x oaUaatlani l a ^«^m to b^n#fit paya^n^fl that ^ a t ^ i l s '• ftiibFstasii"! (:U;croa@i? in coa— aayiaaj p<yae$r. On t h e o l d Mpi laaajMMNi part o r ^he pro.-prac.i «• w i l l , in tho fttatu 1937-39, iKVa vitMWQi about | 1 . 7 b i l l i o n ftW MMMMV buying povmr, l a 1940 tlia dusgftr of a deficiency in coiittuiaption w i l l become osp^cially a c u t e . In that y«&r, MM tax MlM on old &g-@ account w i l l r i s * by f i f t y persist, will b« 9Xteadf»6, s.M, assimate? no m*t* ttwa • 1937 l e v e l of p a y r o l l s , tax accruals v*il! grow to around 1900 nil If-Ml, frosa #550 million in n«t deduetian from buyiu^ po\ser will not only be l^rge in , but will N l a r g e r ttMB in 19«*9. basic economic dafoot of our ol<3 ag« |oeti(pMi l i e s in it® f a i l u r e to take eog&i 2enc«i of th« changed ecoiiortic onviro2Si«»nt f W U > « to savings aad the o u t l e t s for s»*?iiigs« Thraii^out th« mjijor p a r t of our h i s t o r y our • • ¥ ! • § • war© almost automatically t r a n s l a t e d i n t o caplttil exp©a«Utur«s ^scl h^me^ addsi to our standard of In •irtHrtm, tftr* o u t l e t s MHm such tlMt •» borro^ori frow prasant ByBtmz of old age insurance, anvia«*5iim an H M M of tax c o l l e c t i o n s ov«r benefit» for MMy yvars to eosae and IMWI • • • * ^tldltioi* to tlie voluise of current tmHM0$$ ! • bwMi i i a p l i c i t l y on th© asstmption that such Mntag w i l l wtA to our product i v e f a c i l i t i e s , w i l l add! to o*u* aimaKl pro-^uctiOB of mods n:%& l e e s t m.<& h0!»ee will p&rmlt tbe old^r poopl© to be p-?i<? witljout to lo»or HM 0lwtaNI of liTing of the r e s t of the couzaualty. 13ie so-nent i t t l seen th&t a j t l t l o n a l Sf&vi&gs, so far r» Mil ting i a Hi increase in annas! production, s o r e l y that we Jarjire lesa of tm effective dftMtti for tfca output of our existing productive f a c i l i t i e s , 41M ecosonic •argument for tfett ing method or ttlOMftlac old i # i ••WMfftf collapaoa, Th.® MMiMtag BVgHMrt for the panNMBt lUVtMNi i s a politleal-aoclnl MMi I t I s believed that ftdfc«r««M to • particular schedule of tax trt«M tail incr^fises Is BMiHMMry for the i of t»i« contributovy principle of old »*sa tasur»a©«« Th^ car.; principle, in turn, i s regardml M IWMMMMUqp to (a) provide • basis for th»ttfSjPHPMHMMIn t i l t i l t i a c i beaefit p^pMWM MNMMMiary in • eoxmtry vttli auch wide iacotae dlffemmoftft* (b) do MMQf *atti HM MMMM test rmd (c) saf©gunrr] scales of benefit pi-yaf?ntB ajfftl&tt reductions links in t h i s arguaeat must {&) I t | s d i f f i c u l t to see tmtt the co:st2't'biitarj principle i s tied up with any ftyticular te)^ftdial« o* tea pnym^nzB iOMpi OBQ in vsJitcii iHMrj. bsneficiary SNMMtlVM back as MMWBt proportional to *;hRt he f*&A i n . Actually this i s saut new provided, WWl fitlliiw departuros wnri pn9M^I ^f tins Social BMnt^f Advisory Bofjrd* In say casa, the bulk of th# ie-?:? on th« unployer i s fAHMV p&seed bft«k or pas«»d on to th«? COEBW^T, SO that the ipsjiaral eOR.a"i2ifi^ public, t»ffiTiri1 nr fa«t«ra, doraestlee aiid people o^er s i x t y - f i v e , i s btiag tdMi to provide benefits for p a r t i e u l a r W i l m • In covered occupations. mitted, but I t l a tKM thnt thm important This t s freely adthin*;: l i that people should feel tfcftt they wri nftltled to MI annuity iMMMMt they have p*14 pMttVM in the for:.- of -eases, Tho vrggMMtt ftt t h i s point, howtfTOP, IMMMMM WBMNMfIfly finespun when this psychological lUUlHl is tied up vsitli aay ^ r t l c u l a r rate of taxes, ^&<i any particular, r^te of Increase in such taxes. I t is rtoubtless 4e3imble tliat future 'beneficiaries should be corscioue of the fa«t that, they tire currently paying old age taxes roughly proportional to their incoraef?. This help .5 to justify differs ness in annuity p^ynents Mwl to avoid the teot of dire need to tttsltfy for such ammitisa. Hoirevar, • (paMUN<td percentj-.vg^ p t i y r o l l o r IMMMM t a x • IIITiwjiH.irtHrff t h i s , whethi'5T' i t M^NMra i m l > l i i of the current ccmt of a n n u i t i e s , as i n IH|1HH(1, (b) or I ismch iAJ^ta y f Hitlgii of the cost, as our With rafprence t o tiUI irgVBMrt Ifeynt to a p5;«:''tieul..&r schedule of rmt<M L^UI increases p « r t i c u l c r schedules of iSMdLtiea from change by Con.^T&fiBBBy i t m^y ba poittoc out th?it %h.& toft pMM4 i s U06 i s already Iin1m0l1llf erxtensiro r e v i s i o n s . I t |fl M&M to expect that through yrlotia devicfeJi M can safeguard, an I n s t i tution or soci-1 pMgMi froi?;. change, RUlt people o^er s i x t y - five w i l l receive i n the year 1960 depends on a host of f&ctors we cannot even March 17, 1939. SOCIAL SECURITY PROGRAM FOR 1940 Now that the Social Security Act is up for revision an effort should be made to devise a plan that would (a) meet the widespread demand for national old age pensions, (b) permit differentials in monthly payments in different parts of the country, (c) preserve the contributory principle, (d) make for an addition to rather than a subtraction from consumer buying power, (e) entail no additional appropriations nor taxes over those now contemplated for 1940. Such a plan, if it can be worked out, would remove the old age pension issue from politics in 1940, would prevent the threatened deficiency in consumer buying power in 1940, and yet could not be opposed on economy grounds.