Quote:
Originally Posted by Sidd Finch
You are missing the point completely. Reagan and Reaganites argued that he cut taxes for everyone (a paraphrase, but that's the gist). The reality is that Reagan cut income taxes, while raising payroll taxes. Unlike income taxes, payroll taxes are not progressive; in fact, they are regressive because of the cap on the amount subject to the tax.
Reagan and the Reaganites justified this by arguing that the payroll tax wasn't a "real" tax because it went into SS and Medicare, and people paying it would get it back. (Echoes of this argument are heard today, when people claim that x%% of Americans pay no taxes at all. It's bullshit.)
But, in reality, those payroll taxes went to cover the spending increases and income tax decreases that Reagan put into place.
In other woreds, it wasn't just that the stated deficit ballooned. Another, and possibly greater, problem was the "off-budget" deficit that came from "borrowing" -- really, stealing -- money from SS that came in as a result of the increased payroll taxes.
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The distinction between payroll SS taxes and income tax is not so easily brushed away. The people on whom that was raised do, in fact, receive that money back. The income tax you and I pay "goes to money heaven."
Yes, the payroll tax increases did eventually go to spending. However, technically (and yes, I appreciate your wincing at the arguable weakness of this point), the money is owed to the SS fund.
My criticism, however, remains. If Reagan hadn't borrowed or "stolen" that money through the payroll tax hike, where would it have come from? Do you suggest he'd have been able to fund that spending by keeping income taxes where they were? And recall, he entered office during a terrible recession. Even Obama agrees that retaining low taxes in a recession is a prudent move to avoid killing a recovery.*
If your criticism is that he should have cut back on govt spending, I'd say we're in agreement. Most economists, however, would disagree with us. Chiefly, Krugman.
*The present debate on the issue is on where to draw the line, not the effectiveness of the policy generally.
