One of the great myths of the 80s is that the Reagan Administration cut your taxes. In fact, Ronald Reagan signed the largest tax increase in US history (measured in constant dollars), which more than made up for his tax cuts (which-surprise-went disproportionately to corporations and the rich anyway). The difference is that was that while income tax rates were being lowered, Social Security taxes were being raised.In fact, Social Security taxes have been raised nine times since 1977. This has been a major factor in transferring the tax burden away from the well off. Social Security payroll taxes have a ceiling-currently set at $60,600-above which income is exempt from taxation. So somebody making $600,000 or $6,000,000 a year pays the same Social Security tax as somebody making $60,000.
This makes the Social Security tax one of our most regressive taxes. Most working people pay more today in Social Security taxes than they do in income taxes. In fact, between 1971 and 1991, a median-income family saw its combined bill from Social Security and income taxes go up by 329 percent, while a family making more than $1 million a year saw its combined tax bill fall by 34 percent.
Thus, a family at the 1993 median income of $37,800 paid out 7.65 percent of its income in Social Security taxes. A family making ten times that ($378,000) paid out 1.46 percent of its income. And a family making 100 times the median income ($3,780,000) paid out one-tenth of 1 percent.
These massive tax hikes for the non-wealthy were passed by bipartisan majorities, without much controversy or publicity. They were sold as a way of saving Social Security, one of the government's most popular and successful programs, from certain doom. The public was told that Social Security faced bankruptcy when the the huge Baby Boom generation began to retire, around the year 2011. Thus it was necessary for the Social Security trust fund to begin racking up huge surpluses, beginning in 1977.
The problem with that explanation is that the trust fund was immediately raided by other government agencies, which borrowed the money and replaced it with IOUs. So instead of covering the Boomers' retirement years, the surpluses were used to pay for other things-like income tax cuts for the wealthy, and corporate welfare programs. If Social Security and other trust funds are to meet their obligations in the next century, over $1 trillion, plus interest, will have to be repaid.
This shell game not only allowed politicians to claim they were cutting taxes, it also allowed them to understate the size of their annual budget deficits. The money the government borrowed from itself was used to minimize the obvious fact that we were spending more than we took in. The real deficits are considerably higher, and the aggregate debt is made higher still by these accounting gimmicks.
This kind of deception is nothing new. Before 1969, Social Security income and outlays were both treated as separate from the overall federal budget. The trust fund took in money and paid out benefits, and was not accounted for in the budgets passed by Congress and signed by the President. But beginning that year, the so-called “unified budget” was instituted. Social Security revenues were counted along with other taxes, which allowed President Johnson to claim that the US was running a surplus, even while financing the Vietnam War with deficit spending. To this day, the unified budget allows the Pentagon to claim that its percentage of federal spending is much lower than it actually is.
From the forthcoming book “Take the Rich Off Welfare,” by Mark Zepezauer and Arthur Naiman, to be published this fall by Odonian Press.