by Annie Biller

Created on: November 16, 2010

In an effort to broaden my knowledge and perhaps learn some new skills, I have enrolled in some free classes available on the internet. I learned a little more than I expected and awakened some concerns that I should have had long before now.

From a much-abbreviated history of Social Security provided in the first lesson of a free internet tax course offered by The Tax College,

www.thetaxcollege.com I pass along much of what the lesson tells about the creation of our Social Security system. I have been out of school for quite a long time, and if we covered this information when I was in school, sadly, it did not stick with me and has been long forgotten.

The Social Security Act was enacted by congress in 1935. At that time, a 2% tax was placed on the first $3000 dollars of an individual’s income. Half of the tax was withheld from the taxpayer’s paycheck and the other half was collected from their employers. In what was to be a fully funded program, taxpayers were to receive these collected funds in a lump sum payment at the time of their retirement from working for a living.

The web site I referred to above cites that the first reported lump sum payment went to an individual who retired one day after the program started. He received a total payment of seventeen cents. They go on to tell us that the average lump sum payment in that period was $58.06, and that the smallest payment recorded was for five cents.

The ‘fully funded’ program apparently went through some changes. Each person paying into the system no longer pays toward their own retirement but is funding payments for those already retired, disabled, or dependent on the Social Security system. Those still working and paying taxes now are in reality relying on payments from future generations to fund their retirements.

A Vermont citizen filed an unemployment claim on November 4, 1939. At that time claims were filed in batches of 1000 and each batch was placed on a Certification List. Those lists were then sent to the Treasury Department so payments could be dispersed. On January 31, 1940, the individual who filed on November 4 of the previous year received the very first monthly payment from Social Security. Her check was for $22.54. The taxes collected for her in the three years prior to her retirement totaled $24.75.

How is this important? This individual collected Social Security for approximately 35 years and received almost one thousand times the amount paid in taxes withheld

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