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October 29, 1(M
Chairman Eecles

Social Security Developments

Martin Frost

This morning's N w York Times carries a story that the Treasury
e
has recoxsrjsended an increase in the Social Security taxes to the "White
House. Proposals to tax stock"dividends and to tax undistributed profits
as a part of individual incone zre also mentioned BE being under active
consideration at the Treasury. I a informed by the Treasury's Division
m
of Tax Research thst these reports are inaccurate. Treasury policy -with
respect to the increase in Social Security taxes has not yet been formulated.
Te will be informed before the Treasury makes any specific proposal on tho
J
matter to the Proeident.
Aftor the conference at the YJhite House several weeks Ago, the
Treasury and Bureau of the Tudgot were asked to study and report on the
recommendations submitted by tho Social Security Board at that time. No'
interdepartmental eoirjnitteo was appointed to consider the matter*
Apparently neither the Director of the Budget nor the Secretary of the
Treasury hav© come to any final conclusion on those recommendations.
General fooling O > f the Treasury ttaff seems to be thet v.-hil© the increased
M8
payroll ta&tl are highly desirable as M ant i-inflationary measure, the
B
proposal? for increased benefits m d by tho Security Board are unwise both
a©
because they involve in immediate increase la Treasury expenditures and
because they may involve the Treasury in future obligations of very large
magnitude# Since these increased expenditures would take the form of unemployment insurance payments, disability and hospitallnation benefits,
increased Federal grants to the States for old-age assistance, ?sd a new
Federal grant to States and localities to pey part of the costs of direct
relief, I t would seem that from the point of view of poet-war readjustment
problems and the longer run future we should frvor these changes for about
the same reason that the Treasury i s inclined to oppose them, sanely, that
they involve a substantial lonr run increase in social expenditure.
In considering the linker© between increased taxes and increased
benefits i t should be kept in mind that the Security Board felt SOB© concern about the popularity of tho Eocir.l Security Systen no a \vholo and
was reluctcj.it to propose an increase in payroll taxes purely cs an antiinflationary measure without ••Vim; £r°J-no increr.ee in benefits ae a j u s t i fication for the increased taxes. The net effect of the changes i?/ould be
to increase th© not receipts attributable to the Social Security Systen
as a whole by about | 1 billion a year.




To:

Chairman Sceles

-2-

Rocoiasendations as to taxes
Present
rates
Old-age insurance taxes
Paid by employer
Paid by employee
Unemployment insurance
Paid by employer
Paid by employee
Si ekne a e bene fi t £
Paid by employee
Total

Proposed
rates

1
1

2
2

0

3
1

0

2

5

10

7

j

I t i s also recommended that the t&xes under old age
should cover the important groups r.ow left out of the ryatein,
ogriculturel Ir.bcrers, domestic servants, employees of non-profit
Zftions,. fiam operators nnd other gelf-Qinployed roreone, :-nd
employee?s. Under thvsttBCTployWfttinsurance system i t i s proposed to ex
tend coverege to employees end establishments h?,Ting, less than eight
The grose increaec in tsx ccllectionE in the calendar yeer
be ^."bout $2 b i l l i o n . The incroaec in the Tmsnrrloyiient insurance tax
vrculd not go into effoct until the beriruiing of 19^5 *B^ '^ould increase
c o l l e c t i o n by an additional R00 Trillion.
P.e c onpj r do d b e no f i t s
Thero would be ©dded to the present old-s^te incuranco system
provision for benefits to bo paid in tho ovent of jH I Ml mill end t o t s l
disfbilit;/ before rstireisont age. HUNM benefits like tho existing benefits
under old ar.o insurance rrould be Imtt M a matter of ri{jht o.Kd would not
be dependent upon a Toe&ns t e s t . The unemployment insurance system ^ould
be converted from i t s present basis of rrdxod Federal-Ctate adrainistrction
to a wholly Federslised system. Benefits would be increased, the waiting
period would be shortened and the length of the period during Y?hieh benefits
are paid increased. Those chnn^OR seem particularly important in view of
the large volume of unemployment due to tho operations of p r i o r i t i e s that
iii£.y develop in the innediete future. I new system of benefits for loss of
washes attributable to temporary disability Hid [HJIM III of hospitalization
QTi^onsQ is prcpoaed. lbtfft new benefits are to be covered by the new 2
per cent t«az#
In the field of grants to states for old-age benefits, payments
to tli© blind, and for tho support of dependent children, the present basis
under which the Federal Government matches State funds on a 50-50 basis
i s to be replaced by a variable system under -which the Federal Government
will pay £ higher proportion of the cost of such payments in States with




To:

Chairman Eccles

low income and fiscal resources. The conditions under which these payments
are granted are also to be liberalized, A new type of Federal grant is to
be mad© to share the cost of providing general relief with States and
localities. This represents a^eparture from the policy laid down by the
President in 1934 under vrhich the Federal Government tms to take responsibility for relief to "enployahles" and the States and local governments
were to take care of the "unemployables". MM th© system actually developed
the Federal Work programs navar employed nor© than half of the unemployed
and a good many employable persons were always on local relief rolls. The
discrepsney between the position of those able to gat UFA jobs and those
forced to depend upon local relief has been responsible for a considerable
volwsa of criticism of the Atisdnistration policy from social workers and
others familiar with the relief situation at first hand." *

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