The Reagan Era of Voodoo Economics

Editorials

Jan 21

Take a look at the meme in the opening image. I found it online and thought to myself that when it comes to misinformation, sometimes both side participate.

This is how I responded to the posting on Facebook:

First, the timeline is a bit off. Under Reagan, the top marginal tax rates were lowered from 70%-50% in 1981, but didn’t drop to 28% until the Tax Reform Act of 1986. Meanwhile, the tax on Social Security was instituted in 1983, not because of the tax cuts but for other reasons.

Claiming Reagan imposed the tax on Social Security benefits ignores that it was a widespread bipartisan effort, passed easily and quickly with overwhelming support by a Democratic House and Republican Senate.

By 1975, Social Security expenditures exceeded revenues and it was anticipated that, without legislative action, it would not have been possible to continue paying benefits on time beginning in July 1983. Remember, SSI is supposed to be self-funded, not take from the general fund. This was the impetus behind making changes to the program, which became the Social Security Amendments bill of 1983.

Some changes included slowly raising the age for full benefits and delaying cost of living adjustment raises. They also made 50% of SS benefits part of taxable income for higher income recipients (at the time over $25,000/yr or $32,000 for couples). This additional revenue would go to the SS trust fund.

Left out of the meme is that this tax was again increased in 1993 under Bill Clinton and a Democratic Congress. Instead of 50% of SS benefits for “high income earners” being taxed, 85% of their benefits were now taxed and the 50% began to include modest earners. Every House Republican voted against this, although it was part of a massive Omnibus Reconciliation Act which included various other tax increases like increasing the top marginal rate to 36%. The bill was deadlocked in the Senate, with none other than VP Al Gore breaking the tie.

The meme is simply wrong with its claim that this was to make up for Reagan’s tax cuts. The tax on SS benefits was always meant to address the shortfall for that specific program, and the revenues went to the trust fund, not general fund. It also raises a fairly small amount of revenue. In 2018, $35 billion was raised from this tax, just 3.4% of SS’s total funding. In comparison, $885B came from payroll taxes.

This is a disgusting attempt to distort history.

First off, the amendments passed by Reagan were opposed by Democrats for so long that the SS fund was running dangerously low on funds, forcing the Democratic Party to concede and sign onto this new tax in order to ensure people still keep getting benefits. Their hand was forced. Stating the bill had ‘bi-partisan support, is not just misleading, it’s downright deceptive.

And as for the claim that the new tax wasn’t to replace the old tax, it’s pretty obvious that’s what happened. Before the income tax cut, the SS fund was overflowing. They cut income tax and it dried up, so they introduced the SS tax and it evened out again. That’s literally the timeline of it.

“The amendments embodied in this legislation recognize that social security cannot do as much for us as we might have hoped when the trust funds were overflowing [referencing the fact the SS fund was once full] . . . . “Just a few months ago, there was legitimate alarm that social security would soon run out of money.”

 

Reagan referencing that the fund was about to run dry before he forced the dems to play ball leveraging poor peoples benefits against the dems in order to get them to sign.

See? All it takes is a very quick study to realize you people on this page are sooo full of BS! You pretend to monitor memes for accuracy or whatever but you’re so clearly biased towards republicans it’s disgusting.

Hell, he even mentions how this bill is ‘rescuing’ social security even though he acknowledges that before he was in office SS fund was overflowing. “The social security system must be preserved. And rescuing the system has meant reexamining its original intent, purposes, and practical limits,” Reagan acknowledged.


Now, aside from this historically accurate meme, Reaganomics did redistribute wealth upwards, and as we point out in our article A Short Course in Economics, cutting taxes below 50% disincentivized business owners and the wealthy to re-invest in their companies and their employees, which led to the enormous income gap of today.

And since today’s date is January 21, 2023, tax season is upon us and I thought I’d leave you with some tax humor I’ve gathered.

Tax Humor

“People who complain about paying their income tax can be divided into two types: men and women.” — Anonymous

“I’m not going to pay taxes. When they say I’m going to prison, I’ll say no, prisons cost taxpayers a lot of money. You keep what it would have cost to incarcerate me, and we’ll call it even.” — Jimmy Kimmel

“In order to simplify tax collections the IRS has a new, easier to use tax form with only two lines:

“How much money did you make this year?

“Please send it in.” — Anonymous

“The trouble with the IRS is that 90% of its members give the rest a bad name.” — Anonymous

“This (filing taxes) is too difficult for a mathematician. It takes a philosopher.” — Albert Einstein

“When it comes to taxes, there are two types of people. There are those that get it done early, also known as ‘psychopaths’, and then the rest of us.” — Jimmy Kimmel

“Trying to do your own taxes is like a do-it-yourself mugging.” — Anonymous

“The best way to teach your kids about taxes is by eating 30% of their ice cream.” — Bill Murray

“Don’t forget to do your taxes this year so the government can give it to people who don’t work as hard as you.” — Anonymous

“I’m proud to be paying taxes in the United States. The only thing is, I could be just as proud for half the money.” — Arthur Godfrey

“When there’s a single thief, it’s robbery. When there are a thousand thieves, it’s taxation.” — Vanya Cohen

The tax collector must love poor people, he’s creating so many of them.” — Bill Vaughan

“I put all my money into taxes.  They’re the only thing that’s sure to go up!” — Anonymous

“For every tax problem, there is a solution which is straightforward, uncomplicated and wrong.” — Anonymous

People who save their money for a rainy day end up getting soaked by the government.” – Anonymous

“If Patrick Henry thought that taxation without representation was bad, he should see how bad it is with representation.” — Me

“Tax day is the day that ordinary Americans send their money to Washington, D.C., and wealthy Americans send their money to the Cayman Islands.” — Jimmy Kimmel

“Government’s view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.” — Ronald Reagan

“65% of people say that cheating on your income tax is worse than cheating on your spouse. The other 35% were women.” — Jay Leno

“Yesterday the IRS announced that obese Americans are entitled to certain tax breaks. Apparently, under the new rules, you’re allowed to claim two or more chins as dependents.” — Conan O’Brien

“The best things in life are free, but sooner or later the government will find a way to tax them.” — Anonymous

“It is a good thing that we do not get as much government as we pay for.” — Will Rogers

Why does a slight tax increase cost you two hundred dollars and a substantial tax cut save you thirty cents?” — Peg Bracken

“I just filled out my income tax forms. Who says you can’t get killed by a blank?” — Milton Berle

“On my income tax 1040 it says ‘Check this box if you are blind.’ I wanted to put a check-mark about three inches away.” — Tom Lehrer

“I have always paid income tax. I object only when it reaches a stage when I am threatened with having nothing left for my old age – which is due to start next Tuesday or Wednesday.” — Noel Coward

“I’m spending a year dead for tax reasons.” — Douglas Adams

“The Government that robs Peter to pay Paul can always depend upon the support of Paul.” — George Bernard Shaw

“The only difference between death and taxes is that death doesn’t get worse every time Congress meets.” — Will Rogers

“Definition of ‘Capital punishment’… The income tax.” — Jeff Hayes

“It’s fitting that April 14 is National Pecan Day because today, we recognize nuts. And tomorrow, on April 15, we pay our taxes to support them.” — Craig Ferguson

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