Brief History
In the wake of the Great Depression, economic crisis overwhelmed traditional sources of aid for the jobless, aged, widowed, orphaned, and disabled. To help deal with this crisis; President Franklin D. Roosevelt announced his intention to provide a program for Social Security on June 8, 1934. Subsequently, the President created by Executive Order the Committee on Economic Security (CES), which was instructed to study the entire problem of economic insecurity and to make recommendations that would serve as the basis for legislative consideration by the Congress. The CES developed a Report to the Congress and drafted a detailed legislative proposal. The Social Security Act (SSA), which originally covered workers in commerce and industry, was signed into law by President Roosevelt on August 14, 1935. Today, approximately 95 percent of all workers or 135 million people are covered by social security.
The new Act introduced, besides several provisions for general welfare, a social insurance program designed to pay retired workers age 65 or older a continuing income after retirement. Payments to current retirees were (and continue to be) financed by a payroll tax on current workers' wages, half directly as a payroll tax, and half paid by the employer. Social Security Payroll tax is 6.2% of the first $90,000 (in 2005) of an employee's income paid directly by the employer, and an additional 6.2% of the first $90,000 (in 2005) deducted from the employee's paycheck, yielding an effective rate of 12.4% of an employee's income. Self-employed people are responsible for the entire tax. The income cutoff is adjusted yearly for inflation and other factors. A separate Payroll tax of 1.45% of an employee's income paid directly by the employer, and an additional 1.45% deducted from the employee's paycheck, yielding an effective rate of 2.9%, funds the Medicare program. This.........
