Guns or Butter

by Bernstein, Irving;

  President Kennedy had persuaded Congress to enact significant FLSA amendments in 1961. The wage for already covered workers was moved up from $1.00 to $1.15 in 1961 and to $1.25 in 1963, while coverage was extended to 3.6 million new workers. Their minimum would be $1.00 for three years, $1.15 in the fourth, and $1.25 in the fifth year.

  On May 18, 1965, President Johnson proposed two amendments to FLSA. He would extend coverage to 4.6 million new workers in construction, laundries and cleaning establishments, hotels, motels, and restaurants, hospitals and nursing homes, logging, taxis, and food processing. At the urging of Secretary of Labor Wirtz, he also suggested increasing the current overtime penalty of time and a half to double-time for hours worked in excess of 48 per week. While there would be problems of administration, Wirtz hoped that “overtime can be reduced … [as] an important source of new jobs.” On the wage itself the President offered this homily:

  As average wages rise, the minimum wage level should be increased periodically.

  The question is not whether the minimum wage should be increased but when and by how much. The Congress should consider carefully the effects of higher minimum wage rates on the incomes of those employed, and also on costs and prices, and on job opportunities—particularly for the flood of teen-agers now entering our labor force.

  Thus, Johnson’s package without a minimum wage was a horseman without a head. The risk was that someone else would propose the wrong head.

  The administration bill and another that would cover farm workers by the minimum wage were referred to the General Labor Subcommittee of which Representative Jimmy Roosevelt of California, a loose cannon eager for labor support, was chairman. He held hearings between May 25 and July 21, 1965. On August 4 the subcommittee by an 8 to 1 vote reported out a “Roosevelt” bill beside which the administration measure was conservative: coverage would be greatly extended to 7.9 million new employees, certain farm workers would have a $1.25 minimum, and the wage for non-farm people would move up in two steps to $1.75.

  This bill shook up the Johnson administration. Otto Eckstein, filling in for Ackley as chairman of CEA, was beside himself. The higher minima, he wrote, would directly raise the wages of 6 million workers and of millions more indirectly to preserve differentials. By 1970 labor costs would be 10 percent higher. This would hamper industrialization in the South and economic progress in depressed areas. Roosevelt blithely informed Larry O’Brien that his bill would raise wages only 1.5 percent, well within the guidepost. O’Brien said, “My arithmetic must be off.” His calculation came to 12 percent annually. Wirtz informed the President that the coverage extension “may result in killing the entire bill.” His fear was that the rogue bill would clear the full committee and carry on the floor. He strongly recommended to Johnson that the measure be stopped at once, but “privately.” In October 1965 the Roosevelt bill died in the House Education and Labor Committee.

  This farce in the House compelled the White House to get its act together. On December 1, 1965, the President asked Wirtz, Ackley, and Commerce Secretary Connor to recommend “a basis for a realistic bill, with an Administration provision for a minimum wage level, consistent with our guidelines for wage-price stability.” This, at least, had the virtue of focusing on the main issue, the minimum wage. But the composition of the group guaranteed that Wirtz, who alone strongly favored a minimum beyond 3.2, would be in the minority. The result was two antagonistic proposals.

  Ackley and Connor would impose the 3.2 percent guidepost. They would move the 26 million workers who had been covered before 1961 from the present $1.25 to $1.40 in 1966, $1.50 in 1968, and $1.60 in 1970. The 3.6 million brought under coverage in 1961 would receive $1.35 in 1966, $1.40 in 1968, $1.50 in 1970, and $1.60 in 1972. The 4.6 million who would be covered for the first time in 1966 would advance from $1.25 in that year to $1.40 in 1968, $1.50 in 1970, and $1.60 in 1972.

  Wirtz denounced this mechanical linkage to the guidepost. He pointed to the inconsistency with the Council’s position in the 1963 Economic Report, which called for “faster increases in wage rates in an industry that … currently pays wage rates exceptionally low compared with those earned elsewhere by labor of similar ability.” He also favored compressing the time required to reach the maximum. For those covered prior to 1961, he would grant $1.40 in 1966 and $1.60 in 1967 and for the other groups he would start at $1.25 and $1.35 and move to $1.60 within four years.

  The White House through Henry Wilson, who was in charge of congressional relations, firmed up leadership on the Hill. John Dent, a steady Pennsylvania liberal, replaced Jimmy Roosevelt as chairman of the House subcommittee. But the chairman of the parent committee, Adam Clayton Powell, was certain to cause trouble. Wilson persuaded Majority Leader Carl Albert to oversee the progress of the bill.

  The difference between Ackley-Connor and Wirtz on the wage remained and Califano got the tough job of reconciling them. Ackley and Connor refused to budge. The former wrote in a memorandum to the White House:

  An excessive rise in the minimum wage will have a serious effect on business’ confidence in our non-inflationary protestations. This will be true even for businesses whose wage rates will not be affected by any minimum wage increase so far proposed.

  Above-guidepost increases in the minimum wage will benefit some poor workers. But they will injure other workers who are also poor. They will be inflationary. The contribution of minimum wages to poverty reduction is not sufficient to justify raising minimum wages by more than the amounts we have recommended.

  Connor echoed these views.

  Wirtz was trapped. On February 12, 1966, he wrote two memoranda to the President, one marked “CONFIDENTIAL,” the other “PERSONAL.” In the first he made a concession, asking for $1.40 in 1966 and $1.60 in 1968. He had argued for 1967 for the second step. “I am persuaded, however, that a 20 cent jump in one year—which would be more than in any previous year in the history of the Act—would move it too fast.” This might be inflationary and might threaten passage of the bill. In the second memo Wirtz wrote the President that “I want to be sure that you know all the facts”:

  My personal view is that the $1.60 rate should be adopted for 1967 instead of 1968. I have expressed this view in previous memorandums and have pressed it as strongly as I could in discussions with Califano, Jack Connor, Gardner Ackley, and Charlie Schultze. …

  My support for the $1.60 in 1967 position has been so strong that the position taken in the accompanying memorandum, supporting the $1.60-in-1968, has to be understood as an acceptance of the result of “negotiations” which I got all out of (in terms of my own convictions) I could.

  But this interchange still did not resolve the issue. Califano, who may have expressed the President’s view, was ambivalent. On the one hand he felt that the administration must stick to the guidepost, but, as he wrote Johnson, “Running through this, of course is Wirtz’ feeling (which I share) that a wage of $1.40 or even $1.60 ($3200) a year) is so low that it is difficult to see how people can live on it.” More important, the AFL-CIO refused to accept the Ackley-Connor formula. Meany and Andy Biemiller, the legislative representative, might have gone along, but David Dubinsky of the International Ladies’ Garment Workers and Jacob Potofsky of the Amalgamated Clothing Workers refused to do so. Both unions struggled with runaway union shops that fled high northern wages for the low wages of the South. Strong supporters of LBJ, they sought a higher federal minimum to push up southern pay scales. Thus, they insisted on $1.60 in 1967 and the administration refused to go along.

  In early March 1966 the sharp pencils at the Council of Economic Advisers, which had lain unused in drawers, came out to devise several alternatives that were submitted to Johnson. He liked this one: $1.40 in 1966, $1.50 in 1967, and $1.60 in 1968. On March 9 Ackley came up with another alternative. The President’s favorite would take effect in September of each year. The new idea was to have the 1966 and 1968 increases take effect in February. This formula would be lower than the othe
r in payout in the early stages, but would surpass it by 10 cents at the end. Over the whole 24 months, Ackley noted, “it is distinctly lower.” Further, he liked higher rates at the end “when we can hope that inflationary pressures will have abated.” (Economists, like the rest of us, have never shone as prophets.) In any case, both the Democrats on the committee and the AFL-CIO bought the CEA proposal. The committee members were “highly favorable,” Wilson wrote, “with the predictable exception of Mrs. [Edith] Green. If she didn’t find some occasion to take exception with what we are doing, the Committee and the House would consider the situation abnormal.”

  Once the administration, AFL-CIO, and the congressional leadership agreed on the provisions, passage was assured and came swiftly. The Education and Labor Committee adopted an amendment offered by Philip Burton of California to include 700,000 federal employees, expanding new coverage from 7.5 to 8.2 million. The committee reported the bill on March 29. After desultory debate the House adopted it 303 to 93 on May 26, 1966. The Senate Labor and Public Welfare Committee accepted the House bill 15 to 0 on August 23. The Senate approved it 57 to 17 on August 26. The conference quickly resolved minor differences and reported on September 6. The next week the House 260 to 89 and the Senate 55 to 38 accepted the report. President Johnson signed the 1966 amendments to the Fair Labor Standards Act on September 23, 1966.

  These improvements were without parallel in the history of the statute both as to amount and coverage. The minimum wages were as follows:

  The Labor Department noted on coverage: “The latest amendments almost fulfill the original act’s commitment to eliminate substandard working conditions in interstate commerce.” A number of important low wage industries heretofore exempt were now brought within the reach of the statute: hospitals and nursing homes, schools, hotels and restaurants, laundries, food processing, and big farms. Since these industries were large employers of black workers of both sexes, especially in the South, they would be among the main beneficiaries of the 1966 amendments.2

  When the Social Security Act was passed in 1935 both President Roosevelt and the Congress insisted that the benefits be kept low to protect the solvency of the fund. Thus, in 1940, when the first old-age pensions were paid, the average retired worker received $22.60 per month. While there had been five increases in benefit levels between 1940 and 1965, only three had been across the board and in the aggregate they had failed to compensate beneficiaries even for real losses due to rises in the cost of living. By the mid-sixties, therefore, everyone concerned with Social Security was convinced of the need for a big boost in benefit levels.

  But there was a complication. Between 1961 and 1965 the White House under both Kennedy and Johnson and HEW, particularly its Social Security Administration, were tied up with the passage of Medicare. For the next year Social Security was deeply involved in establishing the health care administration for the elderly. It was, therefore, mid-1966 before the Johnson administration could start thinking seriously about retirement benefit levels and 1967 before a bill could be introduced. By that time the President had lost control over Congress to the southern Democratic-Republican bloc. As a result the bill that would have pranced through the 89th Congress created a donnybrook in the 90th.

  This did not dishearten Johnson. When Wilbur Cohen brought in a proposal for a 10 percent increase, the President said, “Come on, Wilbur, you can do better than that.” According to Cohen, Johnson reacted with “passionate spontaneity” because he really cared about helping the aged.

  This was an opportunity that Cohen had ached for, and during the second half of 1966 he and his team worked furiously to draft a comprehensive improved benefits program. In the summer they determined the most needed changes and worked out the financing. During the fall Cohen devised the specific benefit changes and their funding, which he submitted to the White House in two wide-ranging memoranda on December 15, 1966. They were the basis for the President’s program submitted to Congress after the turn of the year.

  He submitted a special message on older Americans on January 23. The recommendations for Old Age, Survivors, and Disability Insurance effective July 1, 1967, were as follows:

  1. A 20 percent overall increase in benefits.

  2. A 59 percent rise for the 2.5 million now at minima to $70 for an individual and $105 for a couple.

  3. At least 15 percent for the remaining 20.5 million beneficiaries.

  4. An increase in the minimum monthly benefit to those with 25 years of coverage to $100 for an individual and $150 for a couple.

  5. Special benefits paid to more than 900,000 persons 72 or older who made little or no contributions would rise from $35 to $50 for individuals and from $52.50 to $75 for a couple.

  6. Special benefits for 200,000 who were 72 or over who had never received them before.

  Johnson said these payments would cost $4.1 billion in the first year, but he did not say where the money would come from. He estimated that they would lift 1.4 million people out of poverty. He also proposed benefit improvements for welfare recipients under Aid to Families with Dependent Children.

  During January Cohen met with Wilbur Mills and other members of Congress to describe the financing. The new benefits would cost about one and a half percent of payrolls. Approximately half could be handled under the present law. The other half would come from an increase in the maximum earnings base from $6600 at present to $7800 in 1968, $9000 in 1971, and $10,800 in 1974 and from a rise in the contribution rate to 4.5 percent in 1969 and 5 percent in 1973. Mills hoped to hold hearings in February. The AFL-CIO strongly supported the legislation. Elizabeth Wick-enden, an old friend of both Johnson and Cohen, would coordinate support among the national welfare agencies. The National Council of Senior Citizens and the Senior Citizens Golden Ring Council in New York were happily on board.3

  Mills introduced the administration bill, H.R. 12080, on February 20, 1967. It went far beyond OASDI to add significant changes in Medicare, medicaid, welfare, and child health. It ran about 200 pages in length and would double in size before Congress was through with it. The Ways and Means hearings continued from March 1 to April 11, 1967, a forum for the testimony of an immense number of witnesses on all these topics.

  “Wilbur Mills,” Budget Director Schultze wrote Johnson on March 28, “is in no hurry to move it [the bill], since he doesn’t want to take up the 6% surcharge soon (and we agree he should not).” Budget, CEA, and Treasury were so concerned about the economy in the first half of 1967 that they urged the use of Social Security as an economic stimulus. They would try to persuade Mills and Russell Long, chairman of the Senate Finance Committee, to split Old Age, Survivors, and Disability benefits from the bill, reduce the average benefit increase from 20 to 12 to 13 percent, and make the new benefits retroactive to January 1, 1967. The lower benefit checks would go out in August. Cohen was not enthusiastic. He said 15 percent might work. Otherwise George Meany would accuse the administration of having “sold out.” The proposal died for lack of interest.

  The Republicans could hardly permit the Democrats to take full credit for a hefty increase for 24 million oldsters, most of them voters, without being heard from. Their coordinating committee on April 8 denounced the administration bill for imposing “burdens on the weekly paychecks of American workers.” They called for an increase in Social Security benefits retroactive to January 1, 1967, and for future automatic increases linked to the cost of living. But the Republicans declined to specify the amounts.

  Ways and Means, obviously in no hurry, considered H.R. 12080 for four months and reported it out on August 7. All 23.7 million OASDI beneficiaries would receive a 12.5 percent increase. The minimum monthly benefit would rise from $44 to $50. Financing would come from existing funds supplemented by higher tax rates applied to a larger taxable earnings base.

  But Ways and Means did not stress OASDI. Rather, its main fire was directed at administration proposals to increase Aid to Families with Dependent Children welfare benefits. A d
isproportionate number of recipients were black and the summer of 1967 was a dreadful time in race relations. There had been a series of black riots across the nation, most important, Newark on June 20 and the massive Detroit riot on July 22. In addition, Dr. George A. Wiley, a black militant, had formed the National Welfare Rights Organization, which was organizing black mothers to demand higher AFDC benefits, often by disrupting legislatures. These demonstrations only confirmed Mills and the other conservatives on Ways and Means to punish rather than reward black militants.

  They completely rewrote the AFDC program. The states would be required to compel adults and older children not in school to enter the labor market. Attendance at a job training program would become a condition of receiving assistance. Mothers must place their children in day care centers. Fathers must work or take training to qualify for welfare. The committee, concerned about the rapid growth in the size of the program, would impose a “freeze” on numbers to prevent future expansion.

  HEW Secretary Gardner issued a stinging attack on these proposals. He said that children would be required “to pay for the real or supposed sins of their parents.” Gardner also objected to coercion in job training since most of the people involved were mothers who would have to leave their children at day care centers. Some of the Northern liberals joined him.

  But Mills and the House of Representatives ignored Gardner. On August 16 Mills asked the House for a rule on H.R. 12080 that would foreclose amendments and limit debate to four hours. It passed 120 to 7. On August 17 Mills made a stern speech on the floor, saying that his welfare plan would make “taxpayers out of taxeaters.” With the freeze he intended to eliminate 400,000 recipients of AFDC by 1972. In a roll call that day the House passed the bill 416 to 3. Though this was supposed to be a Social Security bill, there had been virtually no discussion of OASDI. Further, the Johnson administration had disappeared as a legislative player.