Excerpted from Thom Hartmann’s newest book, Screwed; The Undeclared War Against the Middle Class -- And What We Can Do About It
What do you do when you want to screw only the working people of your nation with the largest tax increase in history and hand those trillions of dollars to your wealthy campaign contributors yet not have anybody realize you've done it? If you're Ronald Reagan, you call in Alan Greenspan.
Taxing Retirement Through the Golden Age of the middle class-- from 1940 to 1980-- the top income tax rate for the superrich had been between 70 and 90 percent. Ronald Reagan wanted to cut that rate dramatically, to help out his political patrons. He did this with a massive tax cut in the summer of 1981.
The only problem was that when Reagan took his meat ax to our tax code, he produced mind-boggling budget deficits. Voodoo economics didn't work out as planned, and even after borrowing so much that this year we'll pay more than $100 billion just in interest on the money Reagan borrowed to make the economy look good in the 1980s, Reagan couldn't come up with the revenues he needed to run the government.
Coincidentally, the actuaries at the Social Security Administration were beginning to worry about the Baby Boomer generation, who would begin retiring in big numbers in fifty years or so. They were a "rabbit going through a python" bulge that would require a few trillion more dollars than Social Security could easily collect during the same twenty-year period of their retirement. We needed, the actuaries said, to tax more heavily those very persons who would eventually retire; so instead of using current workers' money to pay for the Boomer's Social Security payments in 2020, the Boomers themselves would prepay for their own retirement.
Reagan got Daniel Patrick Moynihan and Alan Greenspan together to form a commission on Social Security reform, along with a few other politicians and economists, and they recommend a near doubling of the Social Security tax on the then-working Boomers. That tax created-- for the first time in history-- a giant savings account that Social Security could use to pay for the Boomers' retirement.
This was a huge change.
Prior to this, Social Security had always paid for today's retirees with income from today's workers. The Boomers were the first generation that would pay Social Security taxes to both fund current retirees and prepay for their own retirement.
And after the Boomers retired and the savings account-- called the Social Security Trust Fund-- was spent, the rabbit would have finished its journey through the python and Social Security could go back to a pay-as-you-go taxing system.
Thus within the period of a few short years, Reagan dramatically dropped the income tax on America's most wealthy by more than half and roughly doubled the Social Security tax on people earning $30,000 or less. It was, simultaneously, the largest income tax cut in America's history (almost entirely for the very wealthy) and the most massive tax increase in the history of the nation (which exclusively hit working-class people).
"You Can't Pay Benefits with IOUs" But Reagan still had a problem. His tax cuts for the wealthy-- even when moderated by subsequent tax increases-- weren't generating enough money to invest properly in America's infrastructure, schools, police and fire departments, and military. The country was facing bankruptcy.
No problem, suggested Greenspan. Just borrow from the Boomer's savings account-- the money in the Social Security Trust Fund-- and, because you're borrowing "government money" to fund "government expenditures," you don't have to list it as part of the deficit. Much of the deficit will magically seem to disappear, and nobody will know what you did until thirty years in the future when the Boomers begin to retire 2015.
Reagan jumped at the opportunity, as did George H. W. Bush, as did Bill Clinton (although Al Gore argued strongly that Social Security funds should not be raided but instead put in a "lock box"). And so did George W. Bush.
The result is that all that money-- trillions of dollars-- that has been taxed out of working Boomers (the ceiling has risen from the tax's being on your first $30,000 of income to your first $90,000 today) has been borrowed and spent. Left behind are a form of IOUs-- an unique form of Treasury debt instruments similar (but not identical) to the Treasury debt instruments our government normally uses to borrow money.
Paul O'Neill, former Bush Sr. Treasury secretary, recounts how Dick Cheney famously said, "Reagan proved deficits don't matter." Cheney was either ignorant or being disingenuous. It would be more accurate to say, "Reagan proved that deficits don't matter if you rip off the Social Security Trust Fund to pay for them and don't report that borrowing from the Boomers as part of the deficit."
As the Associated Press reported on April 6, 2005:
President Bush on Tuesday used a four-drawer filing cabinet stuffed with paper representing government IOUs the president said symbolized the Social Security Trust Fund's bleak outlook for meeting Americans' future retirement needs. . . . "A lot of people in America think there is a trust-- that we take your money in payroll taxes and then we hold it for you and then when you retire, we give it back to you," Bush said in a speech at the University of West Virginia at Parkersburg.
Thom, great article! You, as always, are deead on with an issue. To me,overcoming a GOP advertsing blitz to the sub-30 crowd is easy. While the GOP says that under 30 should not have to pay their fair share of SS for the elderly, the Dems could be saying that if you don't, look for mom, pop and the grandparents to be moving in with them. Close it with "What will affect your lifestyle more, a few extra bucks to Social Security or sharing your dream pad with gramps?"
by
denvan (0 articles, 0 quicklinks, 3 diaries, 28 comments)
on Sunday, October 22, 2006 at 10:48:37 AM
The Truth about the Trust Fund-- Destroying Social Security to Destroy the Two Party System
Well Thom, I like the title because it destroys the two party system. But I don't have the same vision you have with social security. Myself I am against representative government. I believe in Issue Resolutional Government. I think issues should be voted on by the people, instead of people voting for politicians to vote on the issues.
As far as social security is concerned, there is none. Our deficit has eaten that alive. We can not have social security unless we have a balanced and out of debt. budget. What we have today is a social security deficit. They have taken that money we give our elder peoples by issuing IOU's funded by China buying US teasury bonds.
This can only be changed when we get rid of the 2 party system, and give Americans the right to vote on issues essential to their lives. They have the right to decide where their tax dollars are used in government.
I advocate that our IOU's be used to buy National Deficit Life Insurance. Our obligation as elder people is to leave money in accordance to providing security to our nation. When I buy National Deficit Life Insurance and have the beneficiary as the Social Security Trust Fund...I invest in the furture of America, even upon my untimely death. I can use a portion of the social security to pay the premiums each year, and they are tax deductible.
The answers are there when we look for them. I think Americans are way behind educationally, in learning that the Party system of representative government is the problem, and will continue to haunt Americans for years to come. It is my hope they learn and see that their vote is their lifeline to their own representation, freedom, and security of the country.
by
Dom Jermano (20 articles, 0 quicklinks, 40 diaries, 930 comments)
on Monday, October 23, 2006 at 9:23:11 AM
Thom-
During your so called golden age of the middle class, the economy was stagnant. After Reagan cut taxes, our economy took off on the longest economic expansion in history (and it hasn't stopped). The tide came in and all ships rose. Look at a historical chart of the Dow - flat during your "golden age" and nothing but growth since Reagan cut taxes.
Mike
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Mike Williams (0 articles, 0 quicklinks, 0 diaries, 6 comments)
on Monday, October 23, 2006 at 10:00:41 AM
You fail to realize that the expansion is on borrowed money. Sure it is good for the elite rich politicians who have stocks in banks and will loan out that money against the the US. But frankly Reagan gave us nothing, but debt.
If you want to call preceding years his victory, I will disagree, because Bill Clinton years were able to rescue the country and pay off the Reagan debacle, until now another booby prize President Bush has returned the same bad policies back to deficits; making Reagan debts look like a stroll in Central Park to watch 911.
Reagan gutted the middle class, and Bush is trying to bury its corpse now, after it was showing signs of improvement.
by
Dom Jermano (20 articles, 0 quicklinks, 40 diaries, 930 comments)
on Monday, October 23, 2006 at 7:09:22 PM
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