This meme from Patriotic Millionaires frequently makes the rounds on social media, but gets its facts wrong and misses much context.

Wrong Timeline

Under Reagan, the top marginal tax rates were lowered from 70%-50% in 1981, but didn’t drop to 28% until the Tax Reform Act of 1986. Meanwhile, the tax on Social Security was instituted in 1983, long before the Tax Reform Act was even considered. Additionally, this new Social Security tax wasn’t passed because of tax cuts, but entirely for different reasons.

Claiming that Reagan imposed the tax on Social Security benefits ignores that it was a widespread bipartisan effort, passed easily and quickly with overwhelming support by a Democratic House and Republican Senate. Why did it have such bipartisan support?

Social Security Amendments of 1983

By the 1980s, Social Security was in big trouble. Starting in 1975, SS expenditures exceeded revenues and its reserves were close to being exhausted. It was anticipated that, without legislative action, it would not have been possible to continue paying benefits on time beginning in July 1983.

Remember, SS is supposed to be self-funded, not take from the general fund. Being the third rail of politics, both parties had a vested interest in saving the program. This was the impetus behind the changes, which became the Social Security Amendments bill of 1983.

Some changes included slowly raising the age for full benefits and delaying cost of living adjustment raises. They also made 50% of SS benefits part of taxable income for higher income recipients. At the time this was over $25,000/yr for singles or $32,000 for couples, the equivalent of about $67K/85K today. For those seniors earning above this threshold, they’d be taxed on 50% of their benefits. This additional revenue would go to the SS trust fund.

Later Social Security Tax Increases

Left out of the meme is that this tax was again increased in 1993, under Bill Clinton and a Democratic Congress. Instead of the 50% tax on SS for “high income earners,” 85% of their benefits were now taxed and the 50% began to include modest earners. Every House Republican voted against this, although it was part of a massive Omnibus Reconciliation Act which included various other tax increases like increasing the top marginal rate to 36%. The bill was deadlocked in the Senate, with none other than Vice President Al Gore breaking the tie.

The Tax Reform Act of 1986

Again, the top tax rate was lowered to 28% in 1986, not 1984, by the Tax Reform Act of 1986 (though technically it didn’t take effect until 1988). Like the Social Security amendments of 1983, it also had bipartisan support. In fact, the bill was sponsored by Democrat Richard Gephardt. It also had strong bipartisan opposition.

While it lowered taxes on the rich, it also closed many popular loopholes, like depreciation and rental housing, which the wealthy often used to escape the prior high tax rates. It also raised the maximum capital gains tax from 20%-28%, and expanded the alternative minimum tax. For lower income earners, it expanded the earned income tax credit, the mortgage deduction, and both the standard and personal deductions. This effectively removed 6 million lower-income Americans from the tax base. It also si

There continues to be debate to this day about the merits and pitfalls of this tax reform, but it’s dishonest to portray it as only a cut for the rich. Lower income earners also got many breaks, and the effective tax rate actually fell most for the lowest tax brackets.

Verdict

The meme is simply wrong with its claim that this was to make up for the Reagan tax cuts. The tax on SS benefits was always meant to address the shortfall for that specific program, and the revenues went to the trust fund, not general fund. It also raises a fairly small amount of revenue. In 2018, $35 billion was raised from this tax, just 3.4% of SS’s total funding. In comparison, $885B came from payroll taxes.