Ronald Reagan and Social Security Taxes
by Laurence M. Vance: Soldiers
revere Ronald Reagan almost as much as they revere (but
rarely follow) the Constitution. Some libertarians are fond
of Reagan as well, pointing to the famous photo of him reading The
I don’t share
There are many
things I could say about Reagan: criminal,
economic and foreign interventionist, drug warrior, deficit-spender,
debt increaser, expander of government and government power. He
only looks good when he is standing alongside of Republican presidents
like George W. Bush.
For the complete
and utter evisceration of Reagan, see Murray Rothbard’s "The
Reagan Phenomenon," "Ronald
Reagan, Warmonger," and "Ronald
Reagan: An Autopsy."
I just want
to briefly focus on taxes, Social Security taxes. As part of the
"American Tax Relief Act of 2012" recently passed by the
lame-duck Congress to avert the "fiscal cliff," the temporary
two percent reduction in the Social Security tax rate that was in
effect for two years was allowed to expire. This means that the
taxes of every working American just went up, even the 50 percent
or so who pay nothing in federal income tax.
like what happened under Reagan.
But I thought
Reagan was a great tax cutter? True, but he was also a great tax
over large, necessary, and beneficial reductions in federal income
tax rates. For this we can praise him. But he also presided over
three destructive tax increases related to Social Security.
Security tax rate in 1937 was 2 percent on the first $3,000 of income.
Then, as now, employers and employees each paid half. The rate had
doubled by 1954, and doubled again by 1969, sometimes increasing
every year. By 1990, the rate was up to 12.4 percent (where it stands
today) on a "contribution and benefit base" of $51,300
(now up to $113,700).
in the blame for this.
I have criticized
Reagan in several articles (e.g., here
because the Social Security tax rate rose from 10.7 percent when
he took office in 1981 to 12.12 percent when he left in 1989. To
be fair to Reagan, that is not exactly true. Although the rate was
10.7 percent when he took office and 12.12 percent when he left,
he was not responsible for raising it from 10.7 percent but
he was responsible for raising it above 12.12 percent after
he left office. Let me explain.
The 1977 amendments
to the Social Security Act advanced the scheduled increases in the
Social Security tax rate. For 1979-80, the rate increased to 10.16
percent, for 1981, the rate increased to 10.7 percent, and for 1982-1984,
the rate increased to 10.8, or at least it was supposed to. The
1983 amendments to the Social Security Act – signed into law by
Reagan in April of 1983 – increased the rate for 1984 to 11.4 percent,
and kept it there until 1987. For 1988-89, the rate increased to
12.12 percent. The 1983 amendments – which Reagan signed – also
mandated that the rate increase to 12.4 percent beginning in 1990.
So Reagan was responsible for raising the rate from 10.8 percent
to 12.4 percent – a 14.81 percent increase. That is actually more
of an increase than I was criticizing him for (13.27%). In fact,
it is a larger increase than the recent increase in the top income
tax rate (10%) that Obama wanted and got from the Congress. But
also, could the automatic Social Security tax increases scheduled
to take effect in 1981 and 1982-1984 have been stopped? Of course
they could have. Just like Congress must vote every year to stop
a congressional pay raise from taking place.
Security "contribution and benefit base" was $29,700 when
Reagan took office and $48,000 when he left. Does he share in the
blame for this? From 1937 to 1971, Congress increased the wage base
on an ad-hoc basis from $3,000 to $7,800. The 1972 Social Security
amendments increased the wage base to $9,000 in 1972, $10,800 in
1973, and $12,000 (further raised by legislation to $13,200) in
1974. Subsequent increases were to be indexed to changes in the
national average wage index. However, the 1977 amendments not only
increased the Social Security tax rates, they also raised the wage
base to $22,900 in 1979, $25,900 in 1980, and $29,700 in 1981. Since
then the increases have been due to automatic wage indexing. Could
these automatic Social Security tax increases have been stopped?
Of course they could have. Just like Congress must vote every year
to stop a congressional pay raise from taking place.
was also under Reagan and the 1983 Social Security amendments that
Social Security benefits began to be taxed. So even though income
tax rates didn’t go up, some people on Social Security paid more
in income tax because their Social Security benefits were now counted
as income. Up to 50 percent of Social Security benefits were taxable.
That figure is now up to 85 percent.
that Social Security taxes were raised under Reagan and lowered
under Obama. How ironic indeed.
M. Vance [send him mail]
writes from central Florida. He is the author of Christianity
and War and Other Essays Against the Warfare State, The
Revolution that Wasn't, Rethinking
the Good War, and The
Quatercentenary of the King James Bible. His latest book
War on Drugs Is a War on Freedom. Visit his
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