The Townsend Plan and Its Failures of Math

https://historycms2.house.gov/uploadedImages/Collection/Listing/2007/2007_241_002-1.jpg

Although the “Green New Deal” is rather old news now, I’ve intended for some time to make a post about another impractical plan that caught the attention of many Americans when the nation was at its most economically troubled.

At the onset of the Great Depression, physician Francis Townsend (1867-1960) of Long Beach, California, was facing great financial burden: he had lost his job as a public health officer in June 1933 and was reliant on his wife’s work as a nurse for income. As historian William E. Leuchtenburg wrote, he “…had less than a hundred dollars in savings. Disturbed not only by his own plight but by that of others like him – elderly people from Iowa and Kansas who had gone west in the 1920’s and now faced the void of unemployment with slim resources” (Spartacus Educational). Shortly after losing his job, he crafted with real estate promoter Robert Earl Clements a plan that seemed to be a miracle cure for the poverty of the elderly and the Great Depression: impose a 2% national sales tax to fund a guaranteed $150 (later revised to $200) a month to every citizen 60 and older who didn’t have a criminal record (the average monthly wage in 1935 was $100 a month). This 2% tax would be applied to every transaction, thus it acted like a Value Added Tax. To receive the money, recipients would be subject to a few conditions: first, they would have to quit their jobs so younger workers could take their place, and second, they would have to spend all the money they received within the U.S. in a month. Beneficiaries didn’t have to pay into this system and there was no means testing for it, so anyone regardless of wealth could receive the payments provided the conditions were met. This would theoretically serve to not only solve the poverty problem among the elderly but also to stimulate the economy by requiring the benefits be spent. Advocacy for this plan skyrocketed with Townsend clubs sprouting up across the nation, within two years “there were over 7,000 “Townsend Clubs” with over 2.2 million members actively working to make the Townsend Plan the nation’s old-age pension system” (DeWitt). These clubs were complete with meetings with elaborate rituals and fans could be found of the plan from both the political left and right, despite nearly all mainstream economists dismissing the plan as a crackpot scheme. Its appeal to the right largely stemmed from the plan being an alternative to communism and Dr. Townsend himself pushing a socially conservative agenda, stating himself the movement was for people “who believe in the Bible, believe in God, cheer when the flag passes by, the Bible Belt solid Americans” (Spartacus Educational). Dr. Townsend gained an ardent supporter in the influential and demagogic Huey Long of Louisiana. By 1935, President Roosevelt was growing concerned with the growth of advocacy in the Townsend Plan as well as Huey Long’s obvious desires for his office: 56% of the public at the time supported the Townsend Plan. Roosevelt thus pushed Social Security, which paid between $10 and $85 a month. Notably, a significant number of House foes of Social Security were California Democrats, who preferred the more generous Townsend Plan.

Although many Americans were satisfied with Social Security as the substitute, advocacy for the Townsend Plan continued and many of FDR’s allies were keen on countering advocacy for this plan. Economists estimated that the plan would require federal expenditures one and a half times the size of all local, state, and federal spending in 1932. Future Senator Paul Howard Douglas determined that retail prices would have to increase by 75% and worker wages could be cut by up to 50% for the plan to be implemented. 40% of national income would ultimately be diverted to 9% of the population under the Townsend Plan. In 1936, Democratic Representative C. Jasper Bell of Missouri chaired hearings into the Townsend Plan that exposed that the plan was outrageously poorly thought out. Dr. Townsend performed poorly in the hearings, with his own economist admitting that the plan couldn’t be funded with a 2% transactions tax, with the total revenue under the most ideal conditions being between $4-9.6 billion, covering a mere third of what would be required for $200 monthly in benefits payments. Thus, the real transaction tax rate would be between 6-14%. Townsend walked out of the hearing despite threat for arrest for contempt. Although he was sentenced to thirty days in jail, President Roosevelt commuted the sentence to counter political opposition to him.

That year, Townsend turned against Roosevelt and the New Deal and asked his supporters to back either the Union Party candidate William Lemke (a progressive North Dakota Republican) or Republican candidate Alf Landon of Kansas. Like his plan, Townsend’s advocacy here failed. Townsend had a minor success in California in 1938 when Senator and former Secretary of the Treasury William G. McAdoo was defeated for renomination by Townsend Plan champion Sheridan Downey, who would serve two terms. In 1939, the House voted on his plan, but it failed miserably on a 97-302 (D 40-194; R 55-107) vote. Support for the plan proved strongest in the west, with representatives from these states voting 32-11 in favor. In 1940, Townsend endorsed Republican Wendell Willkie and in 1948 he backed Henry Wallace of the Progressive Party. Despite these setbacks and the existence of Social Security, Townsend clubs continued to exist until 1978, eighteen years after Dr. Townsend’s death.

Although the Townsend Plan was a conceptual failure, it did push public support for the establishment of national old-age insurance, resulting in Social Security. The same may prove true of the Green New Deal and climate legislation in the years to come.

References

DeWitt, L.W. (December 2001). The Townsend Plan’s Pension Scheme. Social Welfare History Project.

Retrieved from

https://socialwelfare.library.vcu.edu/social-security/the-townsend-plan/

Francis Townsend. Spartacus Educational.

Retrieved from

https://spartacus-educational.com/USAtownsendFE.htm

Townsend Plan. Encyclopedia.com.

Retrieved from

https://www.encyclopedia.com/history/united-states-and-canada/us-history/townsend-plan

“To Pass H.R. 6466, “The Townsend Plan.”. Govtrack.

Retrieved from

https://www.govtrack.us/congress/votes/76-1/h53

 

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