After the low tax rates of the 1920s and the boom of

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After the low tax rates of the 1920’s and the boom of the United States economy during the same time period, the emergence of the Great Depression began to take hold of the country. In an effort to help to try to prevent the widespread poverty of the Great Depression from happening again, especially among senior citizens, FDR’s New Deal introduced Social Security into the American system. The idea of Social Security was to provide Americans a source of income after they have retired and have stopped earning income. The way that the program would be funded would be through a tax that was placed on an employee’s wages when earned. FICA, or the Federal Insurance Contributions Act tax was instituted to fund Social Security. At first, the FICA tax amounted to 1% of earnings taxes to both the employee and employer. The tax would apply to only the first $3,000 of earnings. Gradually both the rate and the amount of earnings that would be tax was increased to eventually the numbers we are at today (www.ssa.gov). Once the taxpayer reached a certain age based on the year he or she was born, they will start receiving payments from the program. Social Security, as mentioned earlier, is funded through taxes that are levied on the wages of employed individuals and self-employed individuals. Employers withhold a part of the Social Security tax. Along with this, they will also match whatever they withhold from an employee’s wages. (IRC Section 3101-3102). For the year 2013, the rate for an individual is 6.2% of wages not exceeding the Social Security Wage base. Self-employed individuals also have to pay the tax which for them is equal to 15.3% of net earnings from self employment (IRC Section 1401).
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After World War II and the baby boom, the Johnson administration during the 1960’s implemented the programs Medicare and Medicaid. As Americans were living longer, many did not have access to health insurance or funds to pay for medical procedures or anything medical related. In order to rectify this problem Medicare was instituted in 1965. What Medicare does is provide a government funded health insurance program to Americans age 65 and older. Not only does it cover elderly Americans but it also covers people with certain disabilities or health conditions (www.ssa.org). This was the first government run healthcare system in the country’s history. There had been several instances in the past where a President had asked for such a program to be instituted especially by President Truman in the 1940’s. What is important about Medicare to this paper is where the funding for the program comes from. Today, Medicare is funded through two funds, the Hospital Insurance Trust Fund and the Supplementary Medical Insurance Trust Fund. The Hospital Insurance Trust Fund is funded by employees, employers, and those who are self-employed and pay the employment taxes. The supplementary insurance trust fund gets its funds by payments authorized by Congress and interest from trust fund investments.
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