The Welfare Mess

August 6, 1962

When the Senate rejected President Kennedy’s Medical Care for the Aged bill by the narrow vote of 52 to 48, he denounced the vote as “a most serious defeat for every American family. . . . We have to decide,” he continued, “the United States, in 1962, in November, in the Congressional elections, whether we want to stand still or whether we want to support this kind of legislation for the benefit of the people.”

Was the defeat of the medicare bill a defeat, or was it really a victory, for most American families? May it not at least be better to “stand still” for a while than to keep going in the wrong direction—further and further away from individual initiative and self-help, and deeper and deeper into the paternalistic welfare state?

How deep we have already got into the welfare state is documented in the July monthly letter of the First National Bank of New York. In a tabular comparison of public social-welfare expenditures in the fiscal years 1950 and 1961, the bank’s letter shows that old-age, survivors, and disability insurance payments rose from $784 million in 1950 to $12,160 million in 1961, an increase of 1,451 percent. Unemployment benefits rose to nearly $4 billion, an increase of 67 percent. Old-age assistance payments rose to nearly $2 billion, an increase of 33 percent. Aid to dependent children increased 115 percent, hospital and medical care costs 106 percent, government spending on medical research 827 percent, veterans compensation and pensions (at nearly $4 billion) 34 percent. Altogether, total public- welfare expenditures grew from $13.8 billion in 1950 to $37.3 billion in 1961, an increase of 170 percent.

LIMIT TO TAXES

This tremendous total does not include such welfare- related activities as farm-price supports, urban renewal, aid to depressed areas, etc.

The money to pay these gigantic welfare benefits did not come out of some magical fourth dimension. It came out of taxes—nearly half out of a flat tax on payrolls. If the employer’s contribution is considered to be in lieu of higher pay for the worker (as in the long run it must be) the tax on the workers is now at 6¼ percent. The combined tax is now scheduled to rise to 7¼ percent next year, to 8¼ percent in 1966, and to 9¼ percent in 1968. The President’s medicare program, if enacted, would add another ½ of 1 percent. Yet even Secretary Ribicoff declared last February: “I think we have reached a stage of almost maximum taxation under social security. In my mind, I place that at 10 percent of payroll.”

MOUNTING ABUSES

Rates have to be raised to keep the program solvent. But it is a real question whether presently scheduled rates are high enough to do this. No serious thought is given to the enormous “unfunded liabilities” already assumed by the social-security program. Official actuaries have placed these at $350 billion. One former actuary places them at $650 billion.

Yet hardly a week goes by in which a further piling up of liabilities is not recommended. Several Administration proposals would “liberalize” unemployment insurance further.

In the last year or so, reports of abuses and scandals in the welfare programs have been mounting. The bank letter cites a few. From Hollywood, it was reported that a child actor, who turned down a job paying up to $28 a day because he was accustomed to $100–$150 a day, was awarded unemployment benefits. In New York, a ring of six persons was uncovered which allegedly had bilked the public of $41,900 in unemployment compensation by faking employment records. A committee of the New Jersey legislature discovered a family with 23 children that was receiving $969 a month in welfare payments (including social security).

It is obvious that handing out generous welfare benefits to idle people while imposing heavy tax burdens on those who work and produce can only discourage ambition and responsibility, work, production, and economic growth. The President’s medicare program would give heavy (unearned) benefits to the present aged and load the cost onto the present young.

The whole social-security system is in urgent need of reexamination.