The Reagan Tax Debate Is a Distraction

On the subject of Social Security, there's one last thing worth mentioning about the alleged "deal" where we raised Social Security taxes, funneled money into the Treasury, used that money to cut taxes on the rich, created large deficits funded by money borrowed from rich people and repaid at generous rates of interest ... and thereby created an implied social contract to have the rich pay for Social Security later: It doesn't quite fit our tax history.

There's a kind of legend about the Ronald Reagan tax cuts in which the rich were supposed to have paid their "fair share" of taxes from the 1930s to 1980, then got Reagan to give them an unfair handout that persisted until Bill Clinton undid some of the worst of the damage, while still leaving a perversely unequal distribution of income and benefits. The story is a little more complicated than that. I'm not saying Reagan didn't cut taxes for higher incomes in the late 1980s, because he did. But that doesn't fully explain the Reagan budget deficits, and it certainly doesn't account for the Social Security surplus. The complications come from three factors: the broad nature of the tax cuts, bracket creep, and the difference between marginal and effective tax rates.