Social Security And Medicare Taxes
As we discuss Social Security and Medicare Taxes, from the time it was enacted up until 1956, the Social Security System remained basically unchanged.
From then on though, when Disability Insurance benefits were added in 1956, Social Security began to change steadily with benefits increasingly being added to the program.
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Next was benefits for dependants of disabled workers in 1958; then widows and widowers could get disability benefits in 1967- and again in 1972, amendments were added for regular cost of living benefits that kicked in automatically.
In the meantime, with President Johnson’s landslide reelection, Congress passed “The Medicare Act of 1965.”
For people over the age of 65, despite their income levels, Medicare helped cover a good portion of their medical expenses.
Other Social Security Amendments added in 1965 provided people with few resources and low income additional medical assistance through a new program called “Medicaid.”
Naturally, new tax revenues were needed to pay for the creation of these two new programs, as well as the expansion of Social Security so the following years saw repeated increases in the payroll tax to help pay for all of it.
The payroll tax, which was just 2% in 1949, slowly but ultimately increased to 6% in 1962 and then with all of the programs added in 1965, payroll taxes increased even further in subsequent years hitting that by 1980, it was up to 12.3%.
To help put these increases in a more clear perspective, over 31 years from 1949 to 1980, the max Social Security tax burden climbed from $60 to $3175.00!
In spite of all of the increased payroll taxes over 30 years, by the early1980s all of the new benefits that Congress passed over the two previous decades, caused a severe program funding crisis, which eventually led Congress to make some minor changes to the program – and increase the payroll tax again to a whopping 15.3%!
As a result, the max Social Security payroll tax burden by 1990 was $7849.00, which had more than doubled in just 10 years.
Source: U.S. Department of Treasury
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In discussing the Reagan Tax Cuts, after Ronald Reagan became President in 1980, there was a basic change in federal income tax policy when the Economic Recovery Tax Act of 1981 was signed in to law - with strong bi-partisan Congressional support...