Last update: 2010 Nov 30. Click on History for changes and updates.
Because of the importance of "The Nine Guiding Principles of Social Security" described by Mr. Robert M. Ball to any discussion of changes in Social Security to address the solvency issue, I have posted Mr. Ball's paper in the continuation of this post.
The principles originated in a report by six members of the 1994-96 Advisory Council for Social Security. Mr. Robert M. Ball, who was Commissioner of the SSA from 1962 to 1973 with other positions in the SSA back to 1952, was one of the six members. The Nine Guiding Principles of Social Security by Mr. Ball were subsequently published by Century Foundation Press in 1998.
The Social Security Administration references the document at Oral History Collection, Robert M. Ball - Curriculum Vitae, but does not publish the document. The references from the SSA website are
- “Straight Talk About Social Security, with Thomas N. Bethel, New York, NY, Century Foundation Press, 1998. (Note: The Nine Guiding Principles of Social Security, pp. 59-64 reprinted in Insuring the Essentials: Bob Ball on Social Security. Also reprinted in Insuring the Essentials are pp. 1-5, 33-39 and 41-58 clearing up misunderstandings about financing and the disadvantages of privatization schemes.”
- "Insuring the Essentials: Bob Ball on Social Security, the Century Foundation Press, New York, NY, 2000."
Don Nordeen
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Continue reading The Nine Guiding Principles of Social Security.
- Key Words: Social Security, Robert M. Ball, Robert Ball
The Nine Guiding Principles of Social Security (continued)
Introduction
(added and revised 2010 Nov 30)>>>The Guiding Principles were apparently first published by the 1994-96 Advisory Council on Social Security. See Membership. The Nine Basic Principles are described in a report by six the Council’s members who favored a Maintain Benefits plan, Social Security for the 21st Century: A Strategy to Maintain Benefits and Strengthen America's Family Protection Plan. The referenced document is:
Social Security for the 21st Century:
A Strategy to Maintain Benefits and Strengthen America's Family Protection Plan
Robert M. Ball, Edith U. Fierst, Gloria T. Johnson,
Thomas W. Jones, George Kourpias, and Gerald M. Shea
The final paragraph in the section, Understanding the Full Value of Social Security, is:A Strategy to Maintain Benefits and Strengthen America's Family Protection Plan
Robert M. Ball, Edith U. Fierst, Gloria T. Johnson,
Thomas W. Jones, George Kourpias, and Gerald M. Shea
"All in all, it would be hard to imagine a more broadly valuable or cost-effective investment than Social Security. Our Maintain Benefits proposal improves the "money's worth" of Social Security for individual workers. But it is still the full value of Social Security -- across generations -- that should be kept uppermost in mind when comparing the pros and cons of proposals that would fundamentally alter the traditional Social Security program. Our proposal, alone among those offered by members of the Advisory Council, fully preserves the principles that have made Social Security so valuable for so many generations of Americans11."
The Nine Basic Principles are included as part of Endnote 11, which states,
"11. Our Maintain Benefits plan follows the same guiding principles that have made Social Security by far the nation's most successful social program."
The remainder of Endnote 11 is the discussion and description of the Nine Basic Principles, which became The Nine Guiding Principles of Social Security in later publications."The Maintain Benefits plan is described in detail in the report.
Mr. Robert M. Ball, who was Commissioner of the SSA from 1962 to 1973 with other positions in the SSA back to 1952, was a member of this Advisory Council.
In 1998, the Century Foundation Press published
“Straight Talk About Social Security, with Thomas N. Bethel, New York, NY, Century Foundation Press, 1998. (Note: The Nine Guiding Principles of Social Security, pp. 59-64 reprinted in Insuring the Essentials: Bob Ball on Social Security. Also reprinted in Insuring the Essentials are pp. 1-5, 33-39 and 41-58 clearing up misunderstandings about financing and the disadvantages of privatization schemes.”
which includes Mr Ball’s discussion of The Nine Guiding Principles of Social Security. Explanation of each of The Nine Guiding Principles of Social Security is provided in Mr. Ball’s paper which is copied below.The Nine Guiding Principles are basically from the 1994-96 Advisory Council’s report. The 1994-96 Advisory Council records the principles that have been maintained and preserved in the legislation. The legislation since 1998 has also maintained and preserved the principles. The list of principles begins with the introductory paragraph:<<<
While these principles are not defined in the law, they reflect the observations by the 1994-96 Advisory Council of the principles that are embodied in the law by its requirements for taxes and its defined benefits, and how these have changed over the years. Obviously, the definitions of the tax requirements and benefits are at the discretion of the Congress. Written in 1998 by Mr. Ball, these principles likely still apply today since few changes have been made in OASI in the last 12 years. Clearly, the nine principles are consistent with Social Security as we know it today and the legislative changes since its inception. See Social Security: A Program and Policy History.
What has been indirectly established in the law are at least implied commitments and promises — covenants — to the American citizens. These covenants have been made by Congress as defined in the laws governing Social Security. Full debate and disclosure are certainly appropriate before Congress makes any changes in the law that are in conflict with these nine guiding principles.
Below is a copy of Mr. Ball's 1998 paper as published on the internet. See internet references at the end of this post.
The Nine Guiding Principles of Social Security*
Former SSA Commissioner Robert Ball discusses the guiding principles that have made Social Security the most durable, successful and popular government program of the last 70 years. These nine principles have made Social Security unique in its ability to survive short-sighted political calculations, balance public opinion, and maintain promises across generations:
In the midst of the Great Depression, the founders of today's Social Security system took the bold step of establishing a new institution which they expected to be slow-growing but permanent. They wanted to make a decent retirement attainable for millions of Americans who would otherwise become dependent on their families or on public assistance when they grew too old to work or could no longer find employment. They wanted to protect workers' dependents by providing insurance to make the death of a breadwinner more financially manageable. They wanted to put an end to the poorhouse by distributing program income so as to provide at least a minimally adequate benefit for everyone regularly contributing. And, foreseeing the inevitability of change—including the eventual need to insure against other major risks such as disability and illness—they sought to design an institution based on sustainable principles.
Accordingly, they took the long view. They gave major emphasis to estimating program income and expenses over a much longer period than was customarily done in other countries, and this is still true today. The time frame of 75 years that is now used for Social security estimates is much longer than that used in almost all other contexts, from foreign social insurance programs to federal budgeting. The point, then and now, was not to try to pretend that anyone could really know precisely what would be happening in 75 or 25 years; the point was that the planners of Social Security in making exceptionally long-term commitments, wanted always to be looking far enough ahead to anticipate necessary improvements and make needed changes in ample time to preserve the integrity of the program.
That approach has served well. The legislation of 1935 and 1939 created the basic design of Social Security, and all major legislation since then can be seen as building on that design: extending coverage to more and more workers, improving the level of protection, adding protection against loss of income from long-term and total disability, providing protection for the elderly and disabled against the increasingly unmanageable cost of medical care, protecting against the erosion of income by inflation, and abolishing all statutory differences in the treatment of men and women.
These and many other accomplishments and adjustments have taken place within a framework consisting of nine major principles. Social Security is universal; an earned right; wage related; contributory and self financed; redistributive; not means tested; wage indexed; inflation protected; and compulsory.
As with any framework, the stability of the entire structure depends on the contribution made by each part, so it is useful to review these principles and see how they work together.
1. Universal: Social Security coverage has been gradually extended over the years to the point where 96 out of 100 jobs in paid employment are now covered, with more than 142 million working Americans making contributions in 1997 [154 million in 2003]. And the goal of complete universality can be reached by gradually covering those remaining state and local government positions that are not now covered.
2. Earned right: Social Security is more than a statutory right; it is an earned right, with eligibility for benefits and the benefit rate based on an individual's past earnings. This principle sharply distinguishes Social Security from welfare and links the program appropriately, to other earned rights such as wages, fringe benefits, and private pensions.
3. Wage related: Social Security benefits are related to earnings, thus reinforcing the concept of benefits as an earned rights and recognizing that there is a relationship between one's standard of living while working and the benefits level needed to achieve income security in retirement. Under Social Security, higher-paid earners get higher benefits, but the lower-paid get more for what they pay in.
4. Contributory and self-financed: The fact that workers pay ear-marked contributions from their wages into the system also reinforces the concept of an earned right and gives contributors a moral claim on future benefits above and beyond statutory obligations. And, unlike many foreign plans, Social Security is entirely financed by dedicated taxes, principally those deducted from workers' earnings matched by employers, with the self-employed paying comparable amounts. The entire cost of benefits plus administrative expenses (which amount to less than 1 percent of income) is met without support from general government revenues.
The self-financing approach has several advantages. It helps protect the program against having to compete against other programs in the annual general federal budget—which is appropriate, because this is a uniquely long-term program. It imposes fiscal discipline, because the total earmarked income for Social Security must be sufficient to cover the entire cost of the program. And it guards against excessive liberalization: contributors oppose major benefit cuts because the have a right to benefits and are paying for them, but they also oppose excessive increases in benefits because they understand that every increase must be paid for by increased contributions. Thus a semi-automatic balance is achieved between wanting more protection versus not wanting to pay more for it.
5. Redistributive: One of Social Security's most important goals is to pay at least a minimally adequate benefit to workers who are regularly covered and contributing, regardless of how low-paid they may be. This is accomplished through a redistributional formula that pays comparatively higher benefits to lower-paid earners. The formula makes good sense. If the system paid back to low-wage workers only the benefit that they could be expected to pay for from their own wages, millions of retirees would end up impoverished and on welfare even though they had been paying into Social Security throughout their working lives. This would make the years of contributing to Social Security worse than pointless, since the earnings paid into Social Security would have reduced the income available for other needs throughout their working years without providing in retirement any income greater than what would be available from welfare. The redistributional formula solves this dilemma.
6. Not means tested: In contrast to welfare, eligibility for Social Security is not determined by the beneficiary's current income and assets, nor is the amount of the benefit. This is a key principle. It is the absence of a means test that makes it possible for people to add to their savings and to establish private pension plans, secure in the knowledge that they will not then be penalized by having their Social Security benefits cut back as a result of having arranged for additional retirement income. The absence of a means test makes it possible for Social Security to provide a stable role in anchoring a multi-tier retirement system in which private pensions and personal savings can be built on top of Social Security's basic, defined protection.
7. Wage indexed: Social Security is portable, following the worker from job to job, and the protection provided before retirement increases as wages rise in general. Benefits at the time of initial receipt are brought up to date with current wage levels, reflecting improvements in productivity and thus in the general standard of living. Without this principle, Social Security would soon provide benefits that did not reflect previously attained living standards.
8. Inflation protected: Once they begin, Social Security benefits are protected against inflation by periodic cost-of living adjustments (COLAs) linked to the Consumer Price Index. Inflation protection is one of Social Security's greatest strengths, and one that distinguishes it from other (except federal) retirement plans. No private pension plan provides guaranteed protection against inflation, and inflation protection under state and local plans, where it exists at all, is capped. Without COLAs, the real value of Social Security benefits would steadily erode over time, as is the case with unadjusted private pension benefits. Although a provision for automatic adjustment was not part of the original legislation, the importance of protecting benefits against inflation was recognized, and over the years the system was financed to allow for periodic adjustments to bring benefits up to date. But this updating was done only after a lag. Provision for automatic adjustment was added in 1972.
9. Compulsory: Social Security compels all of us to contribute to our own future security. A voluntary system simply wouldn't work. Some of us would save scrupulously, some would save sporadically, and some would postpone the day of reckoning forever, leaving the community as a whole to pay through a much less desirable safety-net system. With a compulsory program, the problem of adverse selection—individuals deciding when and to what extent they want to participate, depending on whether their individual circumstances seem favorable—is avoided (as is the problem of obtaining adequate funding for a large safety-net program serving a constituency with limited political influence).
2. Earned right: Social Security is more than a statutory right; it is an earned right, with eligibility for benefits and the benefit rate based on an individual's past earnings. This principle sharply distinguishes Social Security from welfare and links the program appropriately, to other earned rights such as wages, fringe benefits, and private pensions.
3. Wage related: Social Security benefits are related to earnings, thus reinforcing the concept of benefits as an earned rights and recognizing that there is a relationship between one's standard of living while working and the benefits level needed to achieve income security in retirement. Under Social Security, higher-paid earners get higher benefits, but the lower-paid get more for what they pay in.
4. Contributory and self-financed: The fact that workers pay ear-marked contributions from their wages into the system also reinforces the concept of an earned right and gives contributors a moral claim on future benefits above and beyond statutory obligations. And, unlike many foreign plans, Social Security is entirely financed by dedicated taxes, principally those deducted from workers' earnings matched by employers, with the self-employed paying comparable amounts. The entire cost of benefits plus administrative expenses (which amount to less than 1 percent of income) is met without support from general government revenues.
The self-financing approach has several advantages. It helps protect the program against having to compete against other programs in the annual general federal budget—which is appropriate, because this is a uniquely long-term program. It imposes fiscal discipline, because the total earmarked income for Social Security must be sufficient to cover the entire cost of the program. And it guards against excessive liberalization: contributors oppose major benefit cuts because the have a right to benefits and are paying for them, but they also oppose excessive increases in benefits because they understand that every increase must be paid for by increased contributions. Thus a semi-automatic balance is achieved between wanting more protection versus not wanting to pay more for it.
5. Redistributive: One of Social Security's most important goals is to pay at least a minimally adequate benefit to workers who are regularly covered and contributing, regardless of how low-paid they may be. This is accomplished through a redistributional formula that pays comparatively higher benefits to lower-paid earners. The formula makes good sense. If the system paid back to low-wage workers only the benefit that they could be expected to pay for from their own wages, millions of retirees would end up impoverished and on welfare even though they had been paying into Social Security throughout their working lives. This would make the years of contributing to Social Security worse than pointless, since the earnings paid into Social Security would have reduced the income available for other needs throughout their working years without providing in retirement any income greater than what would be available from welfare. The redistributional formula solves this dilemma.
6. Not means tested: In contrast to welfare, eligibility for Social Security is not determined by the beneficiary's current income and assets, nor is the amount of the benefit. This is a key principle. It is the absence of a means test that makes it possible for people to add to their savings and to establish private pension plans, secure in the knowledge that they will not then be penalized by having their Social Security benefits cut back as a result of having arranged for additional retirement income. The absence of a means test makes it possible for Social Security to provide a stable role in anchoring a multi-tier retirement system in which private pensions and personal savings can be built on top of Social Security's basic, defined protection.
7. Wage indexed: Social Security is portable, following the worker from job to job, and the protection provided before retirement increases as wages rise in general. Benefits at the time of initial receipt are brought up to date with current wage levels, reflecting improvements in productivity and thus in the general standard of living. Without this principle, Social Security would soon provide benefits that did not reflect previously attained living standards.
8. Inflation protected: Once they begin, Social Security benefits are protected against inflation by periodic cost-of living adjustments (COLAs) linked to the Consumer Price Index. Inflation protection is one of Social Security's greatest strengths, and one that distinguishes it from other (except federal) retirement plans. No private pension plan provides guaranteed protection against inflation, and inflation protection under state and local plans, where it exists at all, is capped. Without COLAs, the real value of Social Security benefits would steadily erode over time, as is the case with unadjusted private pension benefits. Although a provision for automatic adjustment was not part of the original legislation, the importance of protecting benefits against inflation was recognized, and over the years the system was financed to allow for periodic adjustments to bring benefits up to date. But this updating was done only after a lag. Provision for automatic adjustment was added in 1972.
9. Compulsory: Social Security compels all of us to contribute to our own future security. A voluntary system simply wouldn't work. Some of us would save scrupulously, some would save sporadically, and some would postpone the day of reckoning forever, leaving the community as a whole to pay through a much less desirable safety-net system. With a compulsory program, the problem of adverse selection—individuals deciding when and to what extent they want to participate, depending on whether their individual circumstances seem favorable—is avoided (as is the problem of obtaining adequate funding for a large safety-net program serving a constituency with limited political influence).
* * *
In the middle of the Depression it took courage to enact a system based on these principles. The depression was a time of enormous and immediate needs, but Social Security was designed to be a slow-growing tree, one that could not provide much shelter in the near term. The point, however, was that, once grown, it would be strong enough to weather bad times as well as good.A contributory retirement system takes a long time to develop, since by definition those who are already retired are not eligible for benefits. Fifteen years after the program was set up, only 16 percent of the elderly were receiving benefits, and it was not until the 1950s that politicians began to see much advantage in championing Social Security improvements. And it was only in the 1960s, three decades after enactment, that Social Security began having a major impact, paying benefits that were high enough and universal enough to significantly reduce poverty among the elderly, the disabled, and the survivors of beneficiaries. After the amendments of 1972 further increased benefits substantially and provided for automatic inflation protection, Social Security fully assumed the role planned for it as the all-important base of a multi-tier retirement system in which private pensions and individual savings are added to Social Security's defined protection.
The importance of that role would be difficult to exaggerate. Today Social Security is the only organized retirement plan—the only assured source of retirement income—for fully half of the total workforce. And it is the base upon which all who are able to do so can build the supplementary protection of pensions and individual savings.
Social Security continues to be the most popular and successful program in America's history because its guiding principles enable it to work exactly as intended: as America's family protection plan.
__________
* Copied on 2010 Sep 25 from
<http://www.socsec.org/feature.asp?issueid={3710AA73-A340-4380-8B60-2FFD70FD74C0}>. Also available at The Nine Guiding Principles of Social Security (See Part 1, Chapter 1.).
From Straight Talk about Social Security, by Robert Ball with Thomas N. Bethell (Century Foundation, 1998). Also available as Part 1, Chapter 1 in The Nine Guiding Principles of Social Security (See Part 1, Chapter 1.) at <http://www.springerpub.com/samples/9780826116147_chapter.pdf>.
Internet Links have changed.
The Nine Guiding Principles of Social Security, reproduced above, were copied on 2010 Sep 25 from <http://www.socsec.org/feature.asp?issueid={3710AA73-A340-4380-8B60-2FFD70FD74C0}>. The owner of the website with URL, <http://www.socsec.org/> was The Century Foundation. Recently, The Century Foundation reorganized their website and combined, <http://www.socsec.org/> into The Century Foundation website, <http://tcf.org/retirement>. As of 2012 Feb 09, the book is currently available at Straight Talk about Social Security, at <http://tcf.org/publications/1998/7/pb273/>. The web page contains a link to "Read The Nine Guiding Principles of Social Security, from the book", which is copied above.
I have used another source for Mr. Ball’s paper. The text is Mr. Ball’s paper and can be downloaded in the paper, Social Insurance and Social Justice: Social Security, Medicare, and the Campaign Against Entitlements, at <http://www.springerpub.com/samples/9780826116147_chapter.pdf>. The paper is reproduced in Part 1, Chapter; 1 in the paper beginning at PDF page 39.
- History: Changes are usually identified in the text with the date which facilitates searching by date. Edits are usually noted by add and
deletechanges.
- 2012 Feb 09 — Added to this weblog with updated internet links.
- 2010 Nov 30 — Revised and expanded on the origin of the Nine Guiding Principles. 2010 Nov 29 — Revised text concerning the reference to the Century Foundation publication.
- 2010 Nov 29 — Added reference to the Nine Guiding Principles from a SSA webpage.
- 2010 Nov 15 — Initial Post
- Links: The Nine Guiding Principles of Social Security at [http://curntbk.blogspot.com/2010/11/nine-guiding-principles-of-social.html]
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Copyright © Donald L. Nordeen. All Rights Reserved. See Copying Posts on This Weblog.
••• End of Post •••
Copyright © Donald L. Nordeen. All Rights Reserved. See Copying Posts on This Weblog.
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