Taxes

Taxes are one means of transferring money from the population of a country to its government.

Speech Relevance

Reagan talks about taxes frequently in both 'A Time For Choosing' and 'Encroaching Control'. Mostly, it is in regards to Social Security.

Tax Burden

No nation in history has ever survived a tax burden that reached a third of its national income. Today, 37 cents of every dollar earned in this country is the tax collector's share, and yet our government continues to spend $17 million a day more than the government takes in.

For comparison, the current average is 28 cents of every dollar earned and $3.5 billion per day than the government takes in. ($1,299 billion deficit for fiscal year 2011 divided by 365 days in a year).

Social Security: Insurance or Welfare Tax

We are for a provision that destitution should not follow unemployment by reason of old age, and to that end we have accepted Social Security as a step toward meeting the problem. But we are against those entrusted with this program when they practice deception regarding its fiscal shortcomings, when they charge that any criticism of the program means that we want to end payments to those who depend on them for livelihood. They have called it insurance to us in a hundred million pieces of literature. But then they appeared before the Supreme Court and they testified that it was a welfare program. They only use the term "insurance" to sell it to the people. And they said Social Security dues are a tax for the general use of the government, and the government has used that tax. There is no fund, because Robert Myers, the actuarial head, appeared before a congressional committee and admitted that Social Security as of this moment is $298 billion in the hole. But he said there should be no cause for worry because as long as they have the power to tax, they could always take away from the people whatever they needed to bail them out of trouble! And they are doing just that.

Reagan is making two assertions. One, that the government lied about Social Security being insurance...or about it being welfare. Second, that Social Security administrators themselves acknowledged that there really was no money saved away.

Medicare and Social Security

New America, the socialist magazine, has said, "The Forand Bill will not be paid for on insurance principles according to factors of estimated risk. It will be paid for through the tax mechanisms of Social Security. Once the bill is passed, this nation will be provided with a mechanism for socialized medicine." Well, he has mentioned the tax mechanism of Social Security. In 1935, Social Security called for a three percent contribution of $3000 of annual income. Today it calls for six percent of $4800 of annual income. And if the expansions now proposed are voted, including this medical program, by 1969 it will call for eleven percent of $5000 of income and again it is no secret that the proponents of this measure are openly advocating that there should be no limit that Social Security taxes and dues should be based on gross income with no ceiling.

As pointed out in the Social Security article, Reagan is completely correct with his past information. It was 3% of $3000 in 1935 and 6% of $4800 in 1961. His estimates of the tax and the income for 1969 are both incorrect, but in checking what is now historical data, we find that Reagan's numbers, outrageous at the time, are actually better than reality turned out.

Reagan said it would be 11% of $5000 by 1969, which comes to $550.

The actual numbers for 1969 was 9.6% (8.4% for OASDI tax and 1.2% for Medicare) of $7800, which results in $748.80 of taxes.

Social Security: Insurance or Welfare Tax Version 2

But this isn't the tone of the testimony uttered by the experts of Social Security recently in a lawsuit before the United States Supreme Court. In that lawsuit, the experts of Social Security said it is not an insurance program. It does not have to be based on actuarial principles because it has at its beck and call the tax mechanism of the country. It then went on to say that Social Security dues are a tax for the general use of the government and the payment of this tax does not automatically entitle any citizen to the payment of Social Security benefits.

A less-detailed retelling of the other Insurance or Welfare quote...

Excessive Taxation

But none of these extensions of socialism could be effected without money. The fodder upon which our government is fed and grown beyond the consent of the governed is the tax system which has only one real consistency and that is that any levy once imposed is never removed. During the Korean War, a excise tax was put on phones. We were told the government didn't need it for revenue, but it was put on to curtail our use of the telephone because of the war emergency. Now the war is long gone, but the tax lingers on. We suggest it be removed and government says we can't, we need the revenue. This tax plus the hundreds and hundreds of hidden and indirect taxes account for a third of your phone bill, one fourth of the cost of your automobile, a hundred of such taxes account for 50% of the price of a loaf of bread, a half of the gas and oil that you put in your car.

Research shows that phone taxes have been present going back as far as the Spanish-American War and only recently where they removed and people given a refund for the taxes. Makes you wonder about other taxes that should have been removed.

As for the "hundreds of hidden and indirect taxes" it's hard to figure where they all are.

The Progressive Tax System

We were told in our lifetime that the income tax if adopted would amount to 2%, never more and that it would only be applied to the wealthy. Well today, in this lifetime, we've seen that law grow from 31 words to more than 440,000 words beginning at 20% now and rising to 91% of a man's earned income. This progressive income tax was spawned by Karl Marx a hundred years ago. The steepest rate of increase in the surtax brackets occurs through the middle income range where to be found the bulk of our small-businessmen, our professional people, our supervisory personnel and many of our farmers. It reaches 50% and incidentally, these are the people that Karl Marx said should be taxed out of existence. It reaches 50% at 16 or 18 thousand dollars of income. This is considered such a luxury and yet the New York Supreme Court has recently ruled that a man earning $14,000 a year is so poverty-stricken that he should be entitled to live in government-subsidized public housing. We accept the proportion...that this tax is proportioned again appealing to our sense of fair play but if there is no moral justification for the progressive income tax we find that proportionate tax is best described in our Bible. Both the old and new testament describe tithing as the economic basis of our Judaic and Christian religions. We are told that we give the Lord a tenth and we are told that if the Lord prospers us ten times as much, we give ten times as much. But when you start computing Caesar's share under our present tax system you'll find that the man of average income, if he has prospered ten times as much, his personal income tax goes up 53 times as much. And does it really help the little man? Those of us that believe that we are willing to pay a proportional amount in order to remove the burden from that man of lesser income. Take a man with a gross income of $3500 per year and a wife and two children. When he is finished paying the tax collectors, federal, state and local and all those hidden and indirect taxes at the end of the year, he will find the tax collectors share of his gross $3500 is $1059. Now some people tell us the answer to his problem is to soak those of a higher income even more. But how much leeway is left? If the government, tomorrow, started confiscating all income above $6000, all income, the increased revenue wouldn't pay the interest on the national debt. No nation in history has ever survived a tax burden that amounted to one-third of its people's earnings. Today, 31 cents out of every dollar earned in the United States goes to the tax collector. And of that 31 cents, 23 cents goes to the federal government, leaving 8 cents for the federal, county and the local community to divide up between itself. No wonder we have to turn to government and ask for federal aid in all of our projects. But wouldn't it make a lot more sense to keep some of that money here in the local community to begin with instead of than routing it through that puzzle palace on the Potomac where its returned to us, minus a sizable carrying charge?

There is a lot here to process...

1. The lie from the government that income tax would never rise about 2% and it would only apply to the rich.
2. The growth of the tax code, through exemptions, creating new taxes (not removing the old ones), the step-by-step progressive income tax.
3. The point that at $16,000-$18,000 per year you can be taxes at $50%, but thanks to the New York Supreme Court, even at $14,000 per year a person could qualify for public housing.
4. Reagan argues for a flat tax, citing the biblical example of 10% for tithing, then compares it to our current tax code (Caesar's share).
5. We hear the argument about "soaking the rich," which in the current political climate would be phrased as "paying their fair share."
6. There is the comment that all the money from all the rich people wouldn't pay the interest on the national debt. This is relevant still today as demonstrated by a video that appeared on YouTube in March of 2011 entitled Eat the Rich
7. Finally, Reagan covers the hypocrisy of how our taxes are divided by between the federal, state and local governments, stating money would be better used if it didn't have to first make its way to Washington DC before it was returned to the people.

The Role of Inflation in the Progressive Tax Structure

In 20 years, we know, all of use that it's shrunk to less than half its previous value. But we're told that we shouldn't worry because in this inflated market, our earnings have kept pace and we're earning two-for-one. But they forget the part played by that progressive income tax which is based not on the value of the dollar but on the number of dollars you earn. And so when you start earning two-for one to maintain your purchasing power, you find that you have to earn additional dollars, the vicious cycle begins. Additional dollars to pay your increased surtax as you have moved up through successive brackets. The $5000 a year man of 20 years ago today must earn $14,000. The $10,000 a year man must earn $31,000 and 12,000 of that represents his increased income tax. Would any of us care to project 15 years ahead, to 1975? The same gradual rate of inflation, keep the same tax system and pretend that then we shall have a free economy? When the $5000 a year man will have to earn $33,000. The $10,000 a year man, to break even, will have to earn $84,000. And any among us who are fortunate as to be at that lofty $50,000 a year plateau, well that fella's got earn $835,000 to break even.

Regan tells us the trick of inflation and the progressive income tax. He explains it so well himself, there's not much need to rehash it.

Source Links

US Federal Deficit by Year

IRS ends 3% Long Distance Telephone Tax

History of phone-based taxes