History, and history

When the Social Security Act was passed in 1935, it established a tax on jobs that would be paid by both employers and employees in order to provide payments to retired workers.

The law set the tax at 2 percent of wages, half paid by the employer and half by the employee, for employment during the calendar years of 1937, 1938 and 1939.

"The term wages means all remuneration for employment, including the cash value of all remuneration paid in any medium other than cash; except that such term shall not include that part of the remuneration which, after remuneration equal to $3,000 has been paid to an individual by an employer with respect to employment during any calendar year, is paid to such individual by such employer with respect to employment during such calendar year," the law stated.

In other words, only the first $3,000 of wages in any one year was subject to the tax, reflecting the generally held view that Social Security withholding was a kind of pre-payment for personal retirement benefits, and not simply another tax on income.

The law provided for the tax to increase every few years until 1949 when it capped at 6 percent, half paid by the employer and half by the employee.

Do you know what it is today?

The current Social Security tax rate is 12.4 percent, half paid by the employer and half by the employee, unless you're self-employed, in which case you pay the entire 12.4 percent all by yourself.

Medicare is an extra 2.9 percent.

And that $3,000 limit on wages subject to Social Security tax? For 2009 it's $106,800. There's no limit on the wages subject to Medicare tax.

But there's a problem.

The programs are still insolvent and projected to go bankrupt.

Social Security and Medicare are funded by a 15.3 percent tax on wages and it's still not enough.

Unemployment in this country is currently 10.2 percent according to official government statistics, so raising the payroll tax again and making it even more expensive to hire people is not an idea whose time has come.

What about cutting benefits? Good luck. When word came this year that there would be no cost-of-living increase in Social Security benefit checks, President Barack Obama proposed sending every senior a check for $250.00, just to help make up for it.

How will the government find the money to pay promised benefits? By taking on more debt. That will put financial pressure on future generations and make it harder and harder for them to save and invest for themselves. That's what has happened to us. We are paying a 12.4 percent tax that our great-grandparents were told would rise no higher than 6 percent. How much more will your children and grandchildren have to pay, and what will happen to their jobs and their economy and their retirement?

On Saturday night, between eleven o'clock and midnight, the House of Representatives congratulated itself on barely passing a health care reform bill after a day of hard lobbying by the President of the United States.

All day long, Democrats likened the legislation to the passage of Social Security in 1935.

They were trying to say it was controversial when passed, but universally acclaimed as a success today.

They may have said more than they intended.


Copyright 2009

.