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History of US taxation - John [entries|archive|friends|userinfo]

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History of US taxation [Jun. 3rd, 2012|04:34 pm]
Right now, there's this big debate... whether we should extend the tax cuts that President Bush pushed for.

Now, there's an important bit of history that keeps getting ignored by those who insist those tax cuts should be retained. What was the primary reason for those tax cuts?

Simple: the US was running a major surplus. In fact, we might have wiped out the national debt, and still had money left over. So, because of the surplus, these tax cuts were pushed as a good thing.

So, people should remember that.

But they should remember something else, too.

Why did we have a surplus? Were income tax receipts so high that they paid for all of the government's obligations, and more? NO!

The reason we had a surplus was because, during the Reagan administration, a compromise bill was passed to create a major hike to Social Security taxes - the money that hits all wages up to a bit more than $120,000/year. This is a highly regressive tax (affecting the poor and middle class more than the rich), but it was justified based upon the idea that this was paying for a very valuable benefit - a lifetime of retirement income. Anyway, the idea was that we'd buy government bonds with Social Security's surplus, and pay them off as time goes by, to keep Social Security solvent. It was an actuarially sound plan (which is why you should laugh and scoff at anyone who calls Social Security a "Ponzi scheme" - if it's actuarially sound, it's not a Ponzi scheme), but it didn't quite work because of changes in society (basically, people aren't getting paid as much as expected - it has nothing to do with longer lifespans, which were already baked into their planning).

Anyway, the only reason we had a surplus was because we were bringing in more money in Social Security taxes than we were spending. That was the "surplus" that was being drained. And what did the majority of that surplus go to? Paying for income tax cuts to the very wealthy.

Will the news media point this out? Not likely. But you should be aware of it, and make sure people you know understand it as well.

[User Picture]From: browngirl
2012-06-04 01:59 am (UTC)
I didn't realize all of this. Thank you for the explanation!
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