Social Security and Tax Inequities:

$53 billion a year

excerpted from the book

Take the Rich Off Welfare

by Mark Zepezauer and Arthur Naiman

Odonian Press, 1996

Social Security and Tax Inequities - $53 billion a year

You remember Ronald Reagan, don't you? He was elected president in 1980 on a promise to cut taxes. ("When they insist we can't reduce taxes...and balance the budget too, one six-word answer will do: Yes we can, and yes we will." Of course that's seven words, but that's closer than he usually came.)

Reagan did reduce taxes...for the rich. For everybody else, he signed the largest tax increase in US history (adjusted for inflation), which far exceeded his tax cuts. How did he manage that? By raising Social Security tax rates while he lowered income tax rates.

Social Security tax is a major technique for transferring the tax burden away from the rich. One reason is that it only applies to "earned" income; income from investments is exempt. Another reason is that there's a ceiling-currently $62,700-on how much earned income is taxed.

Anyone who earns $62,700 or more pays the same Social Security tax Bill Gates does- needless to say, it amounts to a slightly higher percentage of their income. This makes Social Security one of our most regressive taxes. A family that made the (1993) median income of $37,800 paid 7.65% of its income in Social Security tax, while one that made ten times as much paid 1.46% and one that made a hundred times as much paid 0.1% (one-tenth of 1%).

Between 1971 and 1991, families making the median income saw their combined Social Security and income taxes go up 329%, while the combined tax bill of families making more than $1 million a year dropped 34%. As a result, most working people today pay more Social Security tax than they do income tax.

But the trust fund was just sitting there

The Social Security tax has been raised nine times since 1977. Because these massive tax hikes were sold to the public as a way of saving Social Security, one of the government's most popular programs, both parties supported them, without much controversy or publicity.

People have been told that the trust fund has to begin racking up huge surpluses or it will go bankrupt when the Baby Boom generation begins to retire. (Since the Baby Boom lasted from 1946 to 1964, the first boomers will start collecting Social Security in 2008, at age 62.)

The extra money doesn't just sit in the trust fund; the government borrows it to pay for other things, like military waste and corporate welfare-making Social Security tax, in effect, just another form of income tax. Over a trillion dollars, plus interest, will have to be repaid in order for Social Security, and other trust funds like Medicare, to meet their obligations in the next century. Can you guess who's going to repay it?

The government borrows money from itself to disguise the fact that it's spending more than it takes in. This shell game has been around for almost 30 years. Back when government was more honest, Social Security's income and expenditures were treated as separate from the discretionary part of federal budget (the part the government could spend as it wished). The trust fund took in money and paid out benefits, and it wasn't included in the budgets passed by Congress and signed by the President.

But in 1969, the so-called ''unified budget" was instituted. By combining Social Security with other taxes, President Johnson could claim that the US was running a surplus, even though it was actually being bled dry by the Vietnam War. To this day, the unified budget makes military spending look like a smaller percentage of discretionary federal spending than it really is.

Through the ceiling

Social Security tax receipts for fiscal 1996 are estimated at $426 billion, and outlays at $357 billion. If the wealthy had to pay Social Security tax on all their earned income, the government would have taken in an additional $53 billion.

In other words, if there were no ceiling, Social Security taxes could be reduced by $53 billion (assuming Social Security benefits stayed the same). That doesn't include investment income, all of which is exempt from Social Security tax, but let's be conservative and use $53 billion as our total for this category.

Take the Rich Off Welfare