Education, Social Studies, History, Civics, Current Issues

Civics Era 10 – The Great Depression and the New Deal (1929-1945)

New Jersey Council for the Social Studies

www.njcss.org

Engaging High School Students in Global Civic Education Lessons in U.S. History

The relationship between the individual and the state is present in every country, society, and civilization. Relevant questions about individual liberty, civic engagement, government authority, equality and justice, and protection are important for every demographic group in the population. In your teaching of World History, consider the examples and questions provided below that should be familiar to students in the history of the United States with application to the experiences of others around the world.

These civic activities are designed to present civics in a global context as civic education happens in every country. The design is flexible regarding using one of the activities, allowing students to explore multiple activities in groups, and as a lesson for a substitute teacher. The lessons are free, although a donation to the New Jersey Council for the Social Studies is greatly appreciated. www.njcss.org

Era 10 The Great Depression and the New Deal (1929–1945)

The beginning of the 20^th century marks the foundation of the transformation of the United States into a world power by the middle of the century. In this era economic prosperity and depression, the ability of our government to provide for the needs of people experiencing economic hardship, and the rise of dictators attacking innocent civilians and threatening the existence of democratic governments leading to a second world war dominate the narrative of this historical period. The development of the new technologies of electricity, transportation, and communication challenged our long-held traditional policies of limited government, neutrality, and laissez-faire capitalism.

Activity #1: Father Charles Coughlin, BBC and ABC: Can the ruling political party use public media to advocate for its policies?

In the 1930s, Father Charles Coughlin, a Roman Catholic priest, had a weekly radio program with millions of listeners in the United States. In 1926 he broadcast weekly sermons but as the economy shifted into a recession and depression, his broadcast became more political and economic. They also reflected anti-Semitism with verbal attacks on prominent Jewish citizens. His broadcast following Kristallnacht on November 10, 1938 was particularly divisive. The owner of WMCA, a New York station, refused to broadcast Father Coughlin’s messages

The owner of WMCA, the New York station that carried his program, refused to broadcast Coughlin’s next radio message. The Nazi press reacted to the news with fury: “America is Not Allowed to Hear the Truth” declared one headline. “Jewish organizations camouflaged as American…have conducted such a campaign…that the radio station company has proceeded to muzzle the well-loved Father Coughlin.” A “New York Times” correspondent in Germany noted that Coughlin had become for the moment “the hero of Nazi Germany.”

In the United States the Federal Communications Act of 1934 and subsequent additions regarding television and quiz shows mostly protects licenses, ensures equal access to all geographic areas, and provides for a rapid communications system regarding emergencies and national defense. It protects First Amendment rights regarding content, with some restrictions regarding profanity or inappropriate sexual content or images. The absence of specific content regulations allowed Orson Welles in 1938 to produce “War of the Worlds” over the radio leading to a panic by many citizens regarding their fear of an alien invasion. The Fairness Doctrine of 1949 requires broadcasters to allow responses to personal attacks and controversial opinions. In 1969, the U.S. Supreme Court’s decision in Red Lion Broadcasting Co., Inc. v. Federal Communications Commission challenged the constitutionality of the Fairness Doctrine allowing the popularity of political radio and television talk and news programs.

Federal Communications Act of 1934

Broadcast Media Policy in the United Kingdom

The use of public media in the United Kingdom has specific statues to balance the perspectives of opinions and to prevent or limit the public broadcast media as a platform to present the views of the government, propaganda, or to advocate for a particular point of view on a controversial issue. The diversity of opinion in the United Kingdom for the BBC must respect opinions reflecting urban and rural populations, age, income, geography, culture, and political affiliations. There are also reasonable guidelines regarding the editor’s judgment to exclude a particular perspective. Facts and opinions must be defined and clearly stated. Section 4 Impartiality: 4.3.14 BBC Editorial Policy

Questions:

How is broadcast media (radio and television) substantially different than print, telegraph or telephone media?
How is social media substantially different than radio and television broadcasting?
Does the U.S. Constitution allow for government regulation of content?
To what extent is self-regulation effective or ineffective regarding news, weather, traffic, programs, and ethical standards?
Are the regulations of content justified when their protect the mental health of people and prevent false or misleading statements and prohibit explicit sexual images and content determined to be pornographic?
To what extent is censorship a problem in the publication of information. Should restrictive editorial policies be considered a form of censorship?

Activity #2: The Federal Deposit Insurance Corporation in the United States and Bank Deposit Insurance in Other Countries

In the United States, deposits in most banks are protected up to $250,000 for each investor. This protection restored confidence in American banks during the Great Depression and is an important reason for a sound financial system in the United States. Investments in stocks and bonds fluctuate with market conditions. Every bank in the United States also has deposits that are not insured. Investments in stocks, mutual funds, and corporate bonds are not insured by the Federal Deposit Insurance Corporation.

The Federal Reserve Bank establishes a reserve requirement, currently 10%, for banks to maintain to ensure adequate funds for withdrawals. The Federal Reserve Bank also monitors the member banks in the Federal Reserve System. Banks are assessed on all of their deposits quarterly and a formula is used to calculate their insurance payment. The FDIC is self-insured, although backed by Congress in the event of a catastrophic collapse of the banking system.

The Banking System in Japan

In Japan, the Deposit Insurance Act was enacted in 1971. The DIA fully insures deposits that do not earn interest. In the United States amounts in checking, savings, money market accounts, and Certificates of Deposit are insured. Deposits that earn interest in Japan are insured up to 10 million yen, or about $70,000.

The most recent crisis in Japan is the exposure of the Aozora Bank to bad loans and investments in the United States. In 2024, it posted a net loss of 28 billion Japanese yen or about $191 million in U.S. dollars. A major earthquake in Japan, effects from extreme weather, or a military conflict would likely present major risks to Japan’s banks.

Examples of countries without any defined deposit insurance are China, Egypt, Israel, Pakistan, and South Africa. Perhaps one-third of the countries in the world do not protect deposits in their banks.

Failed Banks in the U.S. by Year (Forbes)

Federal Deposit Insurance Corporation

Video: FDIC (13 minutes)

Japan’s Banking Crisis in the 1990s (Video)

Questions:

There are about 6 million households in the United States without bank accounts. If you consider this a concern, what can be done to address this situation?
What is the role of banks in the macroeconomy?
Does the deposit insurance system in the United States provide sufficient protection?
Are some banks too big to fail? If yes, then is the federal government justified in using taxpayer dollars to protect a large bank from failure or takeover?
To what extent should pension investments, property and homes, investments in government bonds be protected? Should insurance for these investments be paid for by the depositor or the bank?
Is the primary purpose of federal deposit insurance to protect the banks or its depositors?

Activity #3: Governor Huey P. Long and Health Insurance in the United States and other Countries

Huey P. Long is a challenging person for historians and educators. His ‘Share the Wealth’ program, use of the media, authoritarian actions, and criticisms of voter manipulation provide for diverse perspectives. However, he improved healthcare in Louisiana by expanding the Charity Hospital System, creating the Louisiana State University Medical School, reforming institutions to care for the disabled and mentally challenged, and providing free health clinics and immunizations. As a result, many lives were saved.

As governor, Long tripled funding for public healthcare. The state’s free health clinics grew from 10 in 1926 to 31 in 1933, providing free immunizations to 67 percent of the rural population. By building bridges and paving new roads, he made it possible for the rural poor to have access to medical and dental health care and hospitals. In the long historical timeline toward universal health care insurance in the United States, Huey P. Long is a pioneer.

Before Huey Long’s reforms, patients at the Central Hospital for the Insane were locked in chairs during their ‘recreation’ time. from Every Man a King by Huey Long; reproduced by permission.

Long by-passed the negative press by distributing his own newspaper, “The American Progress,” and he spoke directly to a national audience through radio speeches and speaking engagements. In a national radio broadcast on February 23, 1934, Huey Long unveiled his “Share Our Wealth” plan a program designed to provide a decent standard of living to all Americans by spreading the nation’s wealth among the people. Long proposed capping personal fortunes at $50 million each (roughly $600 million in today’s dollars) through a restructured, progressive federal tax code and sharing the resulting revenue with the public through government benefits and public works. In addition, he advocated for a 30 hour work week, four weeks of paid vacation for every worker, free college or vocational educational and limiting annual incomes to $1 million or about $60 million in today’s dollars. He also advocated for pensions and health care provided by businesses and the government.

Long believed that it was morally wrong for the government to allow millions of Americans to suffer in poverty when there existed a surplus of food, clothing, and shelter. By 1934, nearly half of all American families lived in poverty, earning less than $1,250 annually. He supported a health care system for all people using government funds. Long’s authoritarian use of power helped him achieve his goals until his assassination in 1935.

There are four basic health care models

The United States has one of the most expensive health care systems in the world. It invests in research,

However, in 2021, 8.6 percent of the U.S. population was uninsured. The U.S. is the only country where a substantial portion of the population lacks any form of health insurance. The U.S. has the lowest life expectancy at birth, the highest death rates for avoidable or treatable conditions, the highest maternal and infant mortality, and one of the highest suicide rates in the world. It also has the highest rate of people with multiple chronic conditions and an obesity rate nearly twice the average of other developed countries.

The current programs provided by Medicare (for people over age 65), Medicaid (for people with low incomes), and the Affordable Care Act (current program for most people) are each under attack because of the high costs associated with them and government regulation of the prices paid.

In your research and discussion consider the following models of health insurance and the programs Gov. Huey P. Long implemented in Louisiana in the 1930s.

The Beveridge Model

This model is named after William Beveridge, the social reformer who designed Britain’s National Health Service. In this system, health care is provided and financed by the government through tax payments, just like the police force or the public library.

Many, but not all, hospitals and clinics are owned by the government; some doctors are government employees, but there are also private doctors who collect their fees from the government. This system has the lowest costs per person, because the government controls what doctors can do and what they can charge. Great Britain, Spain, most Scandinavian countries, New Zealand, and Cuba are countries using this model or one that is similar.

The Bismarck Model

The Bismarck models uses an insurance system financed jointly by employers and employees through payroll deduction. Every person is covered. Doctors and hospitals are private operators. Although there are many payers to this model, costs tend to be regulated by the government. Germany, France, Belgium, the Netherlands, Japan, Switzerland, and some Latin American are countries that use this model.

The National Health Insurance Model

This system has elements of both Beveridge and Bismarck models. It uses private-sector providers, but payment comes from a government-run insurance program that every citizen pays into. Costs are considered low because there are no profits, no advertising, and claims are pre-approved. It is a single payer system and as a monopolist it is in a position to negotiate for the lowest prices. This system also has the ability to limit the medical services it will pay for, such as preventive care or what is considered elective procedures. Canada, Taiwan, and South Korea are countries using this model. For Americans over the age of 65, Medicare is similar to this model.

The Out-of-Pocket Model

Health insurance is mostly a benefit for industrialized countries. Of the 195 countries on planet Earth, about 40 or 25% have established health care systems. In countries using this model, the poor are neglected. This is a problem for hundreds of millions of people who have low incomes or are living below the poverty line.

Questions:

Does preventive care provide long-term savings for a country?
Who has the primary responsibility for physical and mental health care in a country?
Is government sponsored health care part of the vision of the Declaration of Independence and the U.S. Constitution?
Are there limits to what a government or business can and should provide for its populations?
Local communities finance public education with taxes and the salaries of educators and graduation requirements are controlled by local Boards of Education with some supervision from the state government. Should this model be considered for health care?
Which of the four models would you adopt or adapt for the United States?
How can the United States best address the health care crises it faces regarding obesity, mental health, cancer, and chronic conditions. (i.e. diabetes, hypertension)
Should health care models also include the costs of vision, hearing, and dental expenses?

Activity #4: Dr. Francis Townsend and Direct Payments to Citizens Living in Poverty and Income Transfer in the United Kingdom

In 2023, the official poverty threshold in the United States was $30,900 for a family of two adults and two children. Families can earn well over this amount and still find they cannot pay all of their bills.

Poverty is relative. Someone in your class, school, community, etc. will be in the bottom 25% of income earners. An individual earning an hourly wage of $20.00 an hour who works for 35 hours a week earns $700 a week or $36,400 a year. This total is reduced by state and federal taxes and a 7.65% tax on Medicare and Social Security. Although $20 an hour is higher than the minimum wage in every state, it is not considered a living wage.

About one in seven (14%) of children under age 16 are in poverty in the United States. This means that about 10 million kids in 2023 were living in households that did not have enough resources for basic needs such as food, housing and utilities. The poverty rate in New Jersey is 10% of the population or about 950,000. See the SPM child poverty rate in your state The highest rates of poverty generally occur for the youngest children — under age 5 — kids in single-mother families, children of color and kids in immigrant families. The numbers of children and adults living in poverty are increasing and they are a serious problem. The effects of living in poverty are the concern of your discussion as is the most effective way to reduce or eliminate it.

The effects of economic hardship disrupt the cognitive development, physical and mental health, educational success of children. Researchers estimate the total U.S. cost of child poverty ranges from $500 billion to $1 trillion per year based on lost productivity and increased health care expenses.

Poverty in the United Kingdom

In the United Kingdom, the poverty rate for children is 31% or double the rate in the United States. There is no single, universally accepted definition of poverty for the world. The United States identifies an income level for family categories and the United Kingdom uses a measure of disposable income (after taxes) below 60% of the median income (income of the largest group in the population) on an annual basis.

For example, the median income in the United States is $40,000. If we used this formula, the poverty level would be $24,000 (after taxes). If we consider a 20% federal tax, 8% FICA and Medicare tax, and a 5% state tax for a person employed in New Jersey making $40,000, their disposable income would be approximately $27,000 or similar to the measure used in the United Kingdom. If you consider the cost of rent at $2,000 a month, transportation costs at $200 a month, and food at $500 a month for a family or individual in New Jersey, these expenses are $2,700 a month or $32,400 a year. An income threshold of $30,000 a month is not practical.

The Townsend Plan

Dr. Francis Townsend, a medical doctor living in Long Beach, California, introduced a plan in 1933 to provide direct payments to people over the age of 60. The money would be raised through a national sales tax, which in some countries is labeled a Value Added Tax of VAT.

“It is estimated that the population of the age of 60 and above in the United States is somewhere between nine and twelve millions. I suggest that the national government retire all who reach that age on a monthly pension of $200 a month or more, on condition that they spend the money as they get it. This will ensure an even distribution throughout the nation of two or three billions of fresh money each month. Thereby assuring a healthy and brisk state of business, comparable to that we enjoyed during war times.

“Where is the money to come from? More taxes?” Certainly. We have nothing in this world we do not pay taxes to enjoy. But do not overlook the fact that we are already paying a large proportion of the amount required for these pensions in the form of life insurance policies, poor farms, aid societies, insane asylums and prisons. The inmates of the last two mentioned institutions would undoubtedly be greatly lessened when it once became assured that old age meant security from want and care. A sales tax sufficiently high to insure the pensions at a figure adequate to maintain the business of the country in a healthy condition would be the easiest tax in the world to collect, for all would realize that the tax was a provision for their own future, as well as the assurance of good business now.”

Dr. Townsend’s plan became popular with the people and became known as The Townsend Movement. Although it was criticized by President Franklin Roosevelt, the Social Security Administration is similar to what Dr. Townsend proposed. He published a newsletter, The Modern Crusader, to promote his plan. The Social Security plan is funded by a tax on incomes because the burden is shared proportionately by different income levels.

Welfare, unemployment compensation, Medicaid, Medicare, and Social Security are payments to United States’ citizens that are currently being discussed and evaluated. The average monthly payment is slightly less than $2,000. These are direct payments to people from the government, which also benefit local communities as the money is spent on food, housing, and basic needs, and provides a safeguard against bankruptcy and financial hardship. They may also increase the federal debt of a country in times of high unemployment or a pandemic.

Policy makers and economists must also consider public policies regarding the poor and senior citizens. The discussion questions below address the question of poverty for the young, disabled, and elderly and how to finance them.

Questions:

Do governments have a responsibility to provide financial assistance or a guaranteed living wage to individuals or families with inadequate finances for basic needs?
Are direct income payments a burden on a government or do they provide an efficient return on their investment over time?
Is the question of how to reduce or prevent poverty a matter of taxation or a a matter relating to the priorities of the federal budget?
When people with mortgages apply the cost of interest as a deduction on their income tax, should this be considered an income transfer policy of the government providing assistance to people who are able to own property or their own home?
Should income transfers be made in cash or in-kind benefits such as food stamps, vouchers for health care, etc.?
Should the government regulate the consumption expenses of people receiving income transfers?
Should income transfers be financed by income taxes, consumption taxes, or another method?
What will likely be the effects of our government ending its income transfers for Social Security, medical, and/or unemployment? What will be the short-term and long-term effects?

Resources:

https://www.ssa.gov/history/towns5.html (The Townsend Plan)

https://www.ssa.gov/history/towns8.html (Francis Townsend’s Autobiography)

https://socialwelfare.library.vcu.edu/eras/great-depression/townsend-dr-francis/ (Social Welfare History Project)

https://lordslibrary.parliament.uk/child-poverty-statistics-causes-and-the-uks-policy-response/#heading-2 (House of Lords Library)

President Ronald Reagan and the Economic Recovery Tax Act (Social Security)

The Impact of Economic Decisions by American Presidents Series

President Ronald Reagan and the Economic Recovery Tax Act

Most decisions by American presidents and other world leaders do not have an immediate impact on the economy, especially regarding the macroeconomic issues of employment and inflation. For example, President Franklin Roosevelt’s bank holiday, President John Kennedy’s tariff on imported steel, and President Ronald Reagan’s Economic Recovery Tax Act had limited immediate effects on the economy, but their long-term effects were significant. The accomplishments or problems of a previous administration may impact on the administration that follows.

For example, President Biden faced criticism about the economy during his administration. The jobs created with the Bipartisan Infrastructure Law and the interest rate policy of the Federal Reserve Bank to lower inflation did not show results until years later. The drop in Real Disposable Income from the administration of President Trump is another example. Real Disposable Income is a measure of income that is adjusted for inflation. The drop between the administration of President Bident and Trump is the result of extended unemployment benefits, people working from home during the pandemic when businesses were closed, and stimulus checks from the government. The economic transition following the end of the pandemic had a significant impact on the economy.

*President*	*GDP Growth*	*Unemployment Rate*	*Inflation Rate*	*Poverty Rate*	*Real Disposable Income*
*Johnson*	2.6%	3.4%	4.4%	12.8%	$17,181
*Nixon*	2.0%	5.5%	*10.9%*	12.0%	$19,621
*Ford*	2.8%	7.5%	5.2%	11.9%	$20,780
*Carter*	4.6%	7.4%	*11.8%*	13.0%	$21,891
*Reagan*	2.1%	5.4%	4.7%	13.1%	$27,080
*H.W. Bush*	0.7%	7.3%	3.3%	*14.5%*	$27,990
*Clinton*	0.3%	4.2%	3.7%	11.3%	$34,216
*G.W. Bush*	*-1.2%*	*7.8%*	0.0%	13.2%	$37,814
*Obama*	1.0%	4.7%	2.5%	*14.0%*	$42,914
*Trump*	2.6%	6.4%	1.4%	11.9%	$48,286
*Biden*	2.6%	3.5%	5.0%	12.8%	*$46,682*

This series provides a context of important decisions by America’s presidents that are connected to the expected economic decisions facing our current president’s administration. The background information and questions provide an opportunity for small and large group discussions, structured debate, and additional investigation and research. They may be used for current events, as a substitute lesson activity or integrated into a lesson.

In the case study below, have your students investigate the economic problem, different perspectives on the proposed solution, the short- and long-term impact of the decision, and how the decision affects Americans in the 21^st century.

President Roosevelt introduced Social Security as a transfer payment to workers who would retire at age 65 with a life expectancy of 70 years in 1940. The income of workers was taxed, and Social Security was generously funded by workers. Today, there are only two workers contributing to Social Security for every retiree receiving a monthly check. It is considered a transfer payment because the money received is spent locally on basic needs and part of the amount is taxed.

President Johnson expanded Social Security to include Medicare and Medicaid. President Reagan began taxing the benefits received, raised the retirement age to 67, and allowed for contributions from payrolls to Individual Retirement Accounts. President Trump raised the age from 70 ½ to 73 ½ regarding required minimum withdrawals from private retirement accounts.

The Economic Problem

Retirement is a relatively new concept in economic history. Social Security began in 1935, and American presidents have made significant changes to it, especially in the last 50 years. Defined pension plans were offered to employees in the first half of the 20^th century but became too expensive for most corporations. Today, many public service workers, teachers, police, fire) have defined pensions and receive a monthly distribution. Without monthly Social Security payments, it would be difficult for retired individuals to live above the poverty line.

The evolution of Individual Retirement Accounts began with President Gerald Ford in 1976, and presidents have made changes to it over the past 50 years. Most American workers have an IRA, which may be called a 401(k), 403(b), Roth or something else. Today there is $40 trillion invested in mutual funds and U.S. securities in IRA accounts of Americans. In this case study, you will analyze the economic importance of this money, which is about equal to the national debt of the United States government. Today, about 40% of American households have an IRA account. Most of the remaining 60% will depend on Social Security, personal savings and assets, or fall into poverty.

Questions:

How does having approximately 8% of your paycheck withheld for Social Security and Medicare affect the economy, stock market, and the quality of family life?
How do other countries provide support for their retirees? Is it valid to compare a large country (USA) with a smaller country with a higher ranking (Denmark)? Source
If you were an economic advisor to our current president, what reforms regarding Social Security and retirement income would you suggest?
What risks do current and future retirees face in the short term (next five years)?
Are the options for investing in retirement accounts reasonable, too risky, or too limited?

Report on the Economic Well-Being of U.S. Households in 2023-2024

Statement on Signing the Retirement Equity Act of 1984

Activity #1: The high cost of taxes

Use the table below to calculate the taxes that the average worker in the United States who owns a home pays in state and federal taxes.

Item	Percent of Taxes	$100,000 Example	$200,000 Example
Federal Income Taxes	12%, 22%, 24%, 32%, 35%, 37%	Use 12% or 22%	Use 24%
State Income Taxes (NJ)	3.5%, 5.5%,	Use 3.5%	Use 5.5%
FICA Tax with Medicare	7.65%	Use 7.65%	Use 7.65%
Local Property Tax on a $400,000 property (varies)	10%, 15%	Use 10%	Use 15%
Sales Tax (7% of spending)	Calculate as 2% of income	Use 2%	Use 3%
NJ SUI Taxes	1%	Use 1%	Use 1%
Total	36.15% to 55.15%

Compare these tax rates to those in a European country or Canada.
Find the average cost of what a family pays for medical insurance as a percentage of their income.
Deduct expenses for housing (rent or mortgage), food, vacation, medical, transportation, and savings (10%). How much is left?

Presidents and Congress Have Made Changes to Social Security Over the Decades

The Industrial Revolution sparked the first true need for retirement. Assembly lines and factories demanded constant energy from their workers. Pensions began in the 1800s for older workers to help keep productivity up. But during the Great Depression, older workers didn’t want to leave their jobs — and their paychecks — behind. In turn, FDR designed the Social Security Act, effectively birthing the Social Security program so that older Americans could retire financially. The act is the Federal Insurance Contributions Act (FICA) and was signed in 1935 but didn’t begin payouts until 1940. In 1939, Social Security was expanded to include women. When Social Security became law, workers contributed one percent of their income. Today, they contribute 6.2% and an additional 1.45% for Medicare. Employers match these contributions for a total of 15.3%.

As part of the “War on Poverty,” President Johnson signed the Social Security Act of 1965, which enacted Medicare and Medicaid under the Social Security Administration. In 2018, over 52 million people age 65 and older used Medicare for health insurance.

While President Reagan lowered income taxes, he was the first to make it possible to be taxed on your Social Security benefits in retirement, depending on how much you make. He also raised the full retirement age so that anyone born after 1960 would have to wait until age 67 to receive full benefits. The IRS under the Reagan administration also made it possible to have deductions taken out of employees’ salaries to contribute directly to their 401(k)s — something many workers rely on today.

President Clinton created another level of Social Security taxation, allowing up to 85% taxable benefits depending on how much you make. At the same time, he got rid of the retirement earnings test and prevented the Social Security Administration from blocking retirees from benefits based on earnings.

In 1990, the Older Workers Benefit Protection Act required employers to provide the same benefits for workers over age 65 as younger employees.

In the Unemployment Compensation Amendments of 1992, the rollover rules we know today were implemented. These new rules allowed women who often job-hop to keep their tax-qualified assets protected until retirement.

1993 ushered in the Family and Medical Leave Act (FMLA). This became one of the most important job protections for women after giving birth or providing care for a family member. Now, she could come back to her job and not lose her pay rate.

Although, some consider Social Security as an entitlement, it can be changed by Congress. When workers pay into Social Security, they are contributing to a trust fund instead of a personal account.

Because the combined OASI and DI Trust Funds have accumulated assets of over $2.5 trillion, the excess of program cost over current tax income will be covered by net redemption of these assets in the coming years. It is only when the reserves in the trust funds are exhausted that timely payment of full scheduled benefits becomes an issue. As shown in the chart, at the time of projected trust fund exhaustion in 2037, continuing tax revenue is expected to be sufficient to cover 76 percent of the currently scheduled benefits.

Questions:

Does the Social Security treat women fairly or equally with men? Do you recommend any reforms?
Should Social Security benefits be taxed or tax free?
What will happen to Social Security benefits when the trust fund has insufficient funds?

Treatment of Women in the Social Security System

Senior Citizens’ Freedom to Work Act

Activity #2

Research the impact of a decision by Congress to make Social Security benefits tax free. Research the impact this will have on the trust fund.
How does full employment and a sustained period of high unemployment above 7% affect Social Security and Medicare.
Calculate the amount of money a worker earning $100,000 pays into Medicare over a period of 40 years and the average costs of what Medicare pays for each person today. Medicare Spending and Finance
How have recent reforms under President Biden affected Medicare spending?
Discuss the impact of reduced Social Security benefits for people when the trust fund is depleted, around 2033.

How does Social Security Affect the Economy?

When a person receives their monthly Social Security check it is most likely deposited directly into their bank account. This allows it to earn interest immediately and to be used for expenses. Look at the Circular Flow of Money diagram below to see how government money is transferred to households and distributed through the local economy.

For example, whether a person receives a Social Security check for $1,000 or $5,000 some of the money goes to banks (financial institutions) and is used for loans to businesses, homeowners, students, etc., to purchase government bonds to support government spending (including Social Security), and for the bank to pay taxes, its employees, and operational costs. Since part of Social Security income is taxable, the federal government receives some of the money back in taxes. Perhaps the most important influence Social Security has on the economy is that people spend the money locally in supermarkets, stores, and restaurants and it saves the government money by keeping people self-sufficient and out of poverty. This is how money circulates in the economy and creates income for businesses, local and state governments, doctors, and others.

Money also has a Multiplier Effect. The diagram below illustrates the effect of one dollar. As each dollar enters the economy through the purchase of a bagel or donut, the local store expects that sales will continue to increase. As a result, they hire an additional worker, produce more bagels or donuts, and perhaps they will open a second store. As people buy more bagels and donuts, the store needs more flour, butter, cream cheese, coffee cups, etc. The newly hired employee also receives a paycheck for their work and spends it in the community. Basically, think of money multiplying ten times. For each $1.00 spent, the multiplier effect is that it circulated to different people ten times. If the effect of $1.00 is the spending of $10.00 over a month, imagine the impact of a $1,000 Social Security check ($10,000) or a $5,000 Social Security check.

Questions:

To what extent do government transfer payments (i.e., Social Security) pay for themselves?
What would be the economic effect on the economy if people at the age of 67 did not receive an incentive (Social Security) to retire?
Should people be allowed not to participate in Social Security as an employee?
If Social Security was discontinued, would the effect on the economy be positive or negative?

Activity #3

Calculate different scenarios if a person should collect their Social Security at age 62, 67, or 70. The scenarios should include individuals who are single, married, in excellent health, divorced, collecting benefits while still working, and for a spouse who did not work and make FICA contributions for the required ten years. Benefit Calculator

How do Private Individual Retirement Accounts Affect the Economy?

According to the Investment Company Institute, “there are more than 710,000 plans, on behalf of about 70 million active participants and millions of former employees and retirees. Savings rolled over from 401(k)s and other employer-sponsored retirement plans also account for about half of the $13.6 trillion held in individual retirement account (IRA) assets as of December 31, 2023.” https://www.ici.org/401k ($13.6 trillion is approximately 1/3 of the federal debt)

The IRA, originally offered strictly through banks, become instantly popular, garnering contributions of $1.4 billion in the first year (1975). Contributions continued to rise steadily, amounting to $4.8 billion by 1981.

The Economic Recovery Tax Act (ERTA) of 1981 allowed for the IRA to become universally available as a savings incentive to all workers under age 70 1/2. At that time, the annual contribution limit was also increased to $2,000 or 100% of compensation.

With the passage of the Tax Reform Act of 1986, income restrictions were introduced, limiting the availability of deductible contributions to the TIRA for individuals with incomes below $35,000 (single) or $50,000 when covered by an employer plan. In addition, provision was made for the Spousal IRA, wherein the non-working spouse could make contributions to a TIRA from the working spouse’s income.

1996’s Small Business Job Protection Act saw the implementation of the Savings Incentive Match Plan for Employees (SIMPLE IRA), which provided for employer matching and contributions to the employee plans, a viable alternative in many cases to the 401(k), although with more restrictive contribution limits.

With the Taxpayer Relief Act of 1997, the Roth IRA was introduced. In addition, phase-out limits were increased, plus the distinction was added for limits on deductible contributions if the taxpayer was covered by an employer-provided retirement plan. The Education IRA was also introduced, with features similar to the Roth IRA (non-deductible but tax-free upon qualified distribution).

In 2001 the Economic Growth and Tax Relief Reconciliation Act (EGTRRA), increased contribution limits with a “catch-up” provision for taxpayers aged 50 and older. An additional provision was the option to convert funds from a Traditional IRA to a Roth IRA, regardless of income level.

The Consolidated Appropriations Act of 2016 finally made Qualified Charitable Distributions (QCDs) permanent. This feature applies to individuals age 70½ or older and subject to Required Minimum Distributions. The Qualified Charitable Distribution allows direct distributions to charitable organizations (houses of worship, non-profit organizations, etc.) from their IRAs without having to include the amount of the distribution in gross income for the tax year. In 2019, the age for Required Minimum Distributions was changed to age 73½.

As of the most recent reports from 2021, the Investment Company Institute indicates 37% of all American households own an IRA account of some type (over 48 million households). Approximately 27.3 million households have a Roth IRA, holding roughly $1.3 trillion in assets, while traditional IRA are owned by 36.6 million households, holding approximately $11.8 trillion.

Questions:

How will the taxes paid by retirees on their IRA distributions affect the federal budget and national economy?
How does the flow of money from current workers contributing to their Individual Retirement Accounts affect investment firms and the stock market?
Should Social Security and Individual Retirement account changes be allowed or should changes only apply to people who are working and not retired?
Should anyone not participating in the labor force because they are caring for someone in their home be allowed to contribute to Social Security or an Individual Retirement Account?
Should money in an IRA account be allowed to be deposited in a traditional bank savings account of CD that is insured by the Federal Deposit Insurance Corporation?
Should Individual Retirement Accounts replace Social Security for anyone who has not started paying FICA taxes?