Old-Age and Survivors Insurance: Coverage Under the 1950 Amendments by GEORGE J

Old-Age and Survivors Insurance: Coverage Under the 1950 Amendments by GEORGE J. LEIBOWITZ* The first large-scale extension of old-age and survivors insur- basic means of livelihood. It also ance coverage in the lb-year history of the Federal social secu- avoids collecting contributions that rity program occurred when Congress enacted the Social Secu- might never result in benefits. rity Act Amendments of 1950. Many workers, however, are still The excluded professional groups not covered. In thefollowingpages the new coverageprovisions are lawyers, physicians, dentists, oste- are examined and the purposes behind the continuing exclusions opaths, chiropractors, naturopaths, are explored. Christian Science practitioners, op- tometrists, veterinarians, professional engineers, architects, funeral direc- HE Social Security Act Amend- In amending the law, Congress pro- tors, and certified, registered, licensed, ments of 1950 extend the provided coverage for at least a portion or full-time practicing public ac- ,T tection of old-age and surviv- of all the major groups previously ex- countants. In each of these cases, ors insurance so that, in an average cluded. It is the purpose of this article Congress made it clear that the exclu- week, a possible 10 million persons, to describe the extent to which cover- sion reflected an attempt to comply previously excluded, will be covered by age is provided for the previously ex- with what it believed were the wishes the program. Of these, 7.7 million are cluded groups and to explore some of of the group itself. Unfortunately, to be covered on a compulsory basis the reasons underlying the current many of these groups had been con- and 2 million on the basis of voluntary limitations of coverage. fronted with a dilemma with respect coverage agreements. The addition to their desire for coverage. Faced of the newly covered groups to those The Self-Employed with the choice of being covered and protected under earlier legislation Under the amendments, 4.6 million not listed among professional groups brings the total coverage of the pro- self-employed persons are brought un- in the law, or of not being covered gram to about 45 million members of der the old-age and survivors insur- but receiving congressional recogni- the total labor force in an average ance program. This group includes tion of their professional status, most week. The new coverage will become such persons as proprietors (whether of them decided in favor of the latter. effective on January 1,195l. sole owners or partners) of retail Farm operators were excluded from Of the 14 million gainfully employed stores, service establishments, whole- coverage, mainly because few indi- persons not yet covered by the pro- sale and jobbing businesses, manufac- vidual farmers expressed a desire for gram, more than 7 million are covered turing plants, and transportation, coverage to their Congressmen and by some other retirement system, such communication, insurance, real estate, because the farm organizations were as the Federal civil-service, railroad, publishing, and financial enterprises. split on the question. While two of Armed Forces, and State and local It also takes in about 250,000 workers, the major farm organizations recom- government retirement systems. The such as part-time life-insurance sales- mended the coverage of farmers, an- remainder, comprising about 10 per- men, house-to-house salesmen, oper- other suggested that it would be de- cent of the Nation’s labor force, in- ators of leased taxicabs, and “news- sirable to get some experience with cludes 3 million farm operators net- boys” over age 18 who are excepted the coverage of other groups of the ting at least $400 in a year; 500,000 from coverage as employees but will self-employed before attempting to professional self-employed people; be treated as self-employed persons. include farmers in the program. and 2 million domestic and farm All persons in self-employment, in The coverage of the self-employed workers who, while they spend sub- fact, are covered except those whose was made practicable by the solution stantial time in their occupation, do net earnings from self -employment of a number of serious administra- not work steadily enough with a single are less than $400 in a year, those tive problems. First, a method of re- employer to meet the regularity test whose income is derived from agri- porting and contributing different required for coverage under the new cultural enterprises, and those whose from that used for employees had to law. These are the principal remain- income is derived from the practice be devised. Second, so that benefits ing groups who do not have protection of certain specified professions. The might be geared to income losses ac- under a government insurance pro- exclusion from coverage of persons tually due to retirement or death, the gram against the hazards of old-age whose annual net earnings from self- earnings to be reported and on which and death. employment do not reach $400 affects benefits are to be based had to repre- mainly those whose self-employment sent as far as possible a return for *Division of Program Analysis, Bureau is either sporadic or supplementary work done rather than a return for of Old-Age and Survivors Insurance. to other income that provides their capital investment. Third, a retire- Bulletin, December 1950 3 ment test had to be devised under An individual’s self -employment in- son entitled to benefits throughout a which benefits would be paid if the come is ordinarily the same as his net year. self -employed person had substan- earnings from self-employment. In If the beneficiary renders substan- tially retired even though he con- three situations, however, it would be tial services during all 12 months of tinued to receive income from his different. First, if his net earnings the year, the effective ceiling on the business. are less than $400 in a taxable year number of benefits he can lose is the The contributing and reporting there is no self-employment income. amount of net earnings for the year. method is geared to the income-tax Second, a nonresident alien, regard- When such net earnings are, for ex- return filed by the self-employed less of his net earnings from a trade or ample, $830, he would lose five bene- person. The same schedule of the business carried on within the United fits, one for each of the four full $50- tax return in which the individual States, has no self-employment in- units of excess earnings and one for computes his earnings from a trade come. Third, if an individual’s net the remaining $30. or business will serve for both income- earnings, either alone or in combina- If the beneficiary’s annual net tax and social security purposes. The tion with his covered wages as an em- earnings are in excess of $1,150, there combined income-tax and social se- ployee, exceed $3,600 in a taxable year, are at least 12 $50-units of excess curity return will now be filed by the his self-employment income will be net earnings and the effective ceiling self-employed person at the same reduced to either $3,600 or an amount on the number of benefits he can lose time that the income-tax return equal to $3,600 less his covered wages. is the number of months in the year alone would have been filed. These provisions were designed to during which substantial services The basis for the self-employed avoid contributions that might never were rendered. If, for example, the person’s social security coverage is the result in benefits, to exclude a group beneficiary’s net earnings are $1,170 amount of his “net earnings from Congress did not wish to cover, and to and he renders substantial services in self-employment.” In essence, this avoid taxing earnings in excess of the his trade or business only from the is his net profit from his trade or $3,600 maximum. first day of July through October, he business as computed for income-tax The law makes it possible for a self- would lose only four benefits. purposes, with certain exceptions de- employed person to continue to own If the beneficiary’s net earnings are signed to exclude certain groups from his business and at the same time to $900 and he performs substantial coverage and to exclude investment be considered retired and therefore to services in 10 months of the year, both income from self-employment earn- draw retirement benefits. A benefi- earnings and services must be ex- ings. The term “net earnings from ciary aged 75 or over can receive bene- amined. In this case the number of self-employment” is specifically de- fits without regard to whether he benefits lost is determined on the basis Aned in the law and does not include works or the amount he earns. A of earnings since this limitation gives income from farming, from the prac- beneficiary under age 75 is permitted the more favorable result-six de- tice of certain specified professions, a certain amount of net earnings from ductions compared with 10 on the from the performance of service as a self-employment without any question basis of services. clergyman, or from the holding of being raised as to his retirement The law authorizes the Federal Se- public office. In addition, the term status. The permitted amount is curity Administrator to presume that also excludes the following types of computed by multiplying the number an individual has rendered substan- investment income: rentals from real of months in his taxable year by $50. tial services in any month unless the estate unless received by a real estate Since in the ordinary case the taxable individual shows otherwise, and to dealer in the course of his trade or year covers 12 months, a beneficiary prescribe, by regulations, the methods business, dividends and interest on may have $600 of net earnings from and criteria for determining whether stocks and bonds unless received by a self-employment in a year without or not an individual has rendered securities dealer in the course of his any question as to whether he worked substantial services with respect to trade or business, capital gains and or not.

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