townsend-plan

Francis Townsend

[toun-zuhnd]

Dr. Francis Everett Townsend (January 13, 1867–September 1, 1960) was an American physician who was best known for his revolving old-age pension proposal during the Great Depression. Known as the "Townsend Plan," this proposal influenced the establishment of the Roosevelt administration's Social Security system.

Features of the Townsend Plan

The Townsend Plan called for a guaranteed monthly pension of $200 (a quite-considerable sum in 1930s, which would have enabled its recipients to have lived a relatively middle class lifestyle) to every retired citizen age 60 or older, to be paid for by a form of a national sales tax of 2% on all business transactions (in reality a concept somewhat akin to a value added tax), with the stipulation that each pensioner would be required to spend the money within 30 days. The idea was to end the Depression through consumer spending by way of ending poverty among the aged. Economists generally disdained this form of taxation as being unfairly advantageous to large, vertically integrated enterprises which produced goods from the raw material all the way to the finished, saleable product over intermediary operations which were involved in only one or two steps of this process. The main argument against the plan, however, was that the taxes would not be enough to pay for the high pensions, which would account for almost half the national income. Townsend and Clements, the co-founder of the organization and its motive force, quickly amended the proposal to pay out only as much as the tax would bring in. The Townsend Plan contested old-age policy in a serious way for more than a decade.

Promoting the Plan

Townsend and Clements employed the techniques of real estate salesmanship to gain support for the Townsend Plan. Soon there were organizers in almost every state seeking to create Townsend clubs and to sell Townsend Plan paraphernalia. The Townsend Plan, with a new corporation called the Townsend National Recovery Plan, Inc., pressed on and won back many of its previous supporters by the end of the decade and focused on gaining influence in Congress.

Influences

In 1935, partly in response to the continued growth of the Townsend Plan, President Franklin D. Roosevelt proposed his own old-age policy, which was less generous than Townsend and Clement's proposal. The president's policy included a program for poor older people with matching payments from the federal government, known as Old Age Assistance, and a national old-age annuity program that later was called by all Social Security. The president's programs were included in the Social Security Act, which passed in August 1935.

The Townsend Plan continued to agitate for higher benefits after the Social Security Act's passage and reached its peak of support in the months after it was enacted. The Townsend organization could plausibly claim that the benefits were far less than what the American public wanted. The average Old Age Assistance benefit was about $20 per month as late as 1939, and the program known as Social Security was not due to take effect until 1942, despite the fact that opinion polls indicated that the American public thought that $40 per month was fair for the elderly. Although the Townsend Plan was hampered by Dr. Townsend's personal control over his organization and his vendetta against Roosevelt, by continued political pressure, augmented by other pension organizations, such as California's Ham and Eggs, the Townsend Plan helped to induce amendments to the Social Security Act in 1939. These amendments greatly upgraded old-age benefits for both programs. Along with other pension organizations that promoted state-level Old Age Assistance programs, the Townsend Plan indirectly spurred the augmentation of Social Security in 1950, when it finally became a more generous program than Old Age Assistance. The Townsend Plan continued to exist in some form until the early 1980s, but had fallen into political insignificance during the 1950s.