FDR legacy molds policy of present

Roosevelt started Social Security, mass income tax

By David Woolner
For the Poughkeepsie Journal

How much government is too much government? Who is the better provider of services to the poor, the state or private charities? What is the proper function of government? Is it better for Social Security to be managed by private investment firms at the individual taxpayer’s discretion, or should the government invest this money on our behalf?

These are but a few of the questions that must be pondered as we wrestle with the serious business of trying to redefine the role of the state in preparation for the coming of a new century.

We must turn to Franklin D. Roosevelt, whose response to the two great crises of this century — the Great Depression and World War II — did more to shape our present government than the actions of any individual before or since.

On March 4, 1933, when FDR took the oath of office to become the 32nd president of the United States, America was a country in the midst of the worst crisis in its history.

Depression at peak

The Great Depression, initiated by the spectacular crash of the stock market in the fall of 1929, was at its peak. Between 1929 and 1933, more than $75 billion in equity capital had been lost in the U.S. stock market, the gross national product had plunged from a high of $104.4 billion to a mere $74.2 billion, and U.S. exports had fallen by more than 62 percent. On the street, unemployment stood at an incredible 24.9 percent, while the U.S. banking system, reeling from the closure of nearly 11,000 banks and the loss of 29 percent of its assets, had all but collapsed.

FDR’s response was to initiate the “New Deal” — a series of economic measures designed to alleviate the worst effects of the Depression, reinvigorate the economy, and restore the confidence of the American people in their banks and other key institutions. In the process, FDR would not only transform the nature of government in America, but would also bring about a fundamental shift in the attitude of the American people toward their government.

Franklin D. Roosevelt Library President Roosevelt greets "neighbors" on his front steps after winning his fourth presidential election in 1944.

Prior to Roosevelt, the federal government tended to be little more than a passive observer when it came to the social well-being of its citizens. After the New Deal, Americans took it for granted that it was one of the chief responsibilities of their government to ensure the health of the economy and the welfare of its citizens.

Consider some of the key institutions and reforms that had their origins in the New Deal. The establishment of the Federal Deposit and Insurance Corporation — which guarantees deposits in member banks — and the Securities and Exchange Commission — an agency established to regulate the investment industry — restored confidence in America’s financial institutions and dramatically improved the quality, integrity and efficiency of the financial markets; the establishment of the Federal Housing Authority, Federal National Mortgage Association and other agencies made it possible for private banks and other lenders to offer the standard 10 percent down, 30-year mortgage that has become the stalwart of the housing industry.

The New Deal also abolished certain types of child labor, established the federal minimum wage, and put in place such key regulatory agencies as the National Labor Relations Board, the Civil Aeronautics Authority, and the Federal Communications Commission.

The most famous measure of the New Deal was the passage of the 1935 Social Security Act, which led to the establishment of the Social Security Administration and the creation of a national system of old-age pensions and unemployment compensation. Social Security also granted federal financial support to dependent children, the handicapped, and the blind. It remains the most revered and reviled of all the New Deal measures, yet it is highly unlikely that it will ever be totally abolished.

All of these measures greatly expanded the size of the government. In 1933, for example, federal civilian employees totaled a mere 603,000. By 1945, the government was employing more than 3.8 million individuals. Not surprisingly, this led to a vast increase in annual expenditures - from $4.6 billion in 1933 to $98.3 billion in 1945 - as well as to a massive increase in taxes - from $1.9 billion to $44.1 billion during the same respective years.

FDR’s fiscal policies remain controversial. FDR preferred taxes that would not only raise revenue, but also enhance economic justice by redistributing the income of some of the wealthiest corporations and individuals - “not to destroy wealth,” he said, “but to create a broader range of opportunity.”

Between 1935 and 1937 FDR initiated a series of tax proposals designed to achieve these goals. But he was only partially successful. The incomes of the wealthiest Americans were reduced only by a modest amount and the corporate structure of the nation’s largest businesses was left intact.

As the 1930s drew to a close, FDR faced a second unprecedented crisis - the rise of fascist Germany, Italy and Japan and the determination of these three Axis powers to launch a war of conquest that threatened to destroy the very foundations of Western civilization. As had been the case with the Great Depression, the Second World War would transform America, rendering the nation the greatest single military power the world had ever seen.

This change in the shape and size of America’s military industrial capacity was nothing short of remarkable. In 1938, the United States had an Army of 160,000 men. By 1943, the total number of men and women serving in all three branches of the Armed Forces stood at 12 million. A military build-up of this size and magnitude costs a great deal of money, and it should come as no surprise that it was the war, much more than the New Deal, that proved to be most important in shaping the modern tax system.

Income tax expanded

Here, Roosevelt responded to the government’s vastly expanding need for revenue by instigating the first real mass-based income tax. Moreover, to ensure a steady flow of revenue, FDR also introduced withholding a certain percentage of income taxes from an individual’s wages. These proposals laid the foundations for the federal tax system that is still in place today.

The twin crises of the Great Depression and World War II also led to a major shift in the office of the presidency.

No longer was the president seen as the mere administrator whose chief task was to implement the will of Congress. Under his tutelage, the public came to expect that the president must above all lead the nation by summoning its strength and articulating the hopes and wants of the common people.

Franklin D. Roosevelt was not perfect. He made many mistakes in his struggle to cope with a world torn asunder by the twin evils of economic depravity and fascist ideology. The New Deal, for example, fell far short of its goal of putting all Americans back to work, and although the Allies did defeat the Axis powers, the onset of the cold war threatened world peace with equal force. But his response to these crises helped shape the state as we know it, and convinced most of us that our government must play a leading role in providing for the economic health and well being of Americans at home, and in promoting world peace and prosperity abroad.

David Woolner is the director of the Marist/FDR Library/Digital Library Project and assistant professor of history at Marist College in Poughkeepsie. He is also the editor of the book “The Second Quebec Conference Revisited” (St. Martin’s Press, 1998), and was named an Arthur Schlesinger Fellow by the Franklin and Eleanor Roosevelt Institute in 1996.