Did Ronald Reagan Lower the Top Tax Rate from 70 to 28 Percent and Introduce Income Tax on Social Security Benefits to Offset It?

On July 21 2022, a Twitter user shared a meme claiming that former United States President Ronald Reagan lowered the top tax rate from 70 percent — and then introduced a tax on Social Security benefits to offset the cut:

A photograph of Reagan (watermarked “Patriotic Millionaire”) was bracketed with text reading:

In 1984 I lowered the top income tax rate from 70% to 28%. Then I imposed the first ever income tax on social security benefit to make up for it.

As is so often the case, the tweet didn’t include a link to information substantiating its claims.

The meme itself was not new in 2022; it was shared to Imgur in August 2021, Reddit’s r/PoliticalHumor in April 2021, and on Twitter in July 2018:

Reverse image search also located a variation in an undated gallery on the website for Patriotic Millionaires University — a group of “high-net worth Americans who share a profound concern about the destabilizing concentration of wealth and power in America.” Discussions attached to iterations of the meme typically expressed support for its content, but they rarely delved into its accuracy.

What is a ‘Marginal Tax Rate’?

Rates at which Americans are taxed frequently led to confusion in discussions about taxation.

Investopedia’s entry on marginal tax rates explained:

The marginal tax rate is the tax rate you pay on an additional dollar of income. In the United States, the federal marginal tax rate for individuals increases as income rises. This method of taxation, known as progressive taxation, aims to tax individuals based upon their earnings, with low-income earners being taxed at a lower rate than higher-income earners.

KEY TAKEAWAYS

• The marginal tax rate is the tax rate paid on the next dollar of income.
• Under the progressive income tax method used for federal income tax in the United States, the marginal tax rate increases as income increases.
• Marginal tax rates are separated by income levels into seven tax brackets.

Under a marginal tax rate, taxpayers are most often divided into tax brackets or ranges, which determine the rate applied to the taxable income of the tax filer. As income increases, the last dollar earned will be taxed at a higher rate than the first dollar earned. In other words, the first dollar earned will be taxed at the rate for the lowest tax bracket, the last dollar earned will be taxed at the rate of the highest bracket for that total income, and all the money in between is taxed at the rate for the range into which it falls.

Did Reagan Cut the Top Marginal Tax Rate from 70 to 28 Percent in 1984?

One of the first links to appear in related search results was the Wikipedia page “Reagan Tax Cuts,” under the heading “Historical Tax Rates.” That section read in part:

In response [to an attack on Pearl Harbor in December 1941], the Congress declared war on Japan and Germany and enacted an additional tax increase to help finance new war spending – raising the top marginal rate to its all-time-high of 94% on the $200,000th earned ($3.2M in 2021 dollars). Following the War, Congress reduced the top marginal rate to a low of 82.13% on the 200,000th dollar in 1949. The top marginal rate fluctuated between 70% and 92% on the 200,000th to the 400,000th dollar (the bracket on which the rate was charged was changed as well) over the following 20 years. During this time the Social Security Act created a Social Security tax, though because the Social Security tax is capped at ~$130,000 per individual this did not add to the overall top marginal rate. Under President John F. Kennedy the top marginal rate was decreased in the Revenue Act of 1964 to 70%. In 1980 Ronald Reagan was elected and promised to cut the top marginal tax rate. This he did, and the top marginal tax rate was lowered over his 8 years in office from 73% to 28% on incomes over just $29,750 – the lowest this rate had been since 1925.

That excerpt included a slightly different change to the top marginal tax rate under Reagan, from 73 percent to 28 percent. The year 1984 was not mentioned, and the last sentence linked to a list of historic individual tax rates and brackets on the fiscally conservative Tax Foundation’s website; it did not include specific detail or accessible information about the claim in question.

At the beginning of the entry, a summary described two distinct tax cuts during the Reagan administration. Neither occurred in 1984, and “1984” was only referenced once in the entry (with respect to that year’s Gross Domestic Product, or GDP):

The phrase Reagan tax cuts refers to changes to the United States federal tax code passed during the presidency of Ronald Reagan. There were two major tax cuts: The Economic Recovery Tax Act of 1981 and the Tax Reform Act of 1986. The tax cuts popularized the now infamous phrase “Trickle-down economics” as it was primarily used as a moniker by opponents of the bill in order to degrade supply-side economics, the driving principle used to promote the tax cuts.

• The first tax cut (The Economic Recovery Tax Act [ERTA] of 1981) among other things, cut the highest Personal Income Tax rate from 70% to 50% and the lowest from 14% to 11% and decreased the highest Capital Gains Tax rate from 28% to 20%.
• The second tax cut (The Tax Reform Act of 1986) among other things, cut the highest Personal Income Tax rate from 50% to 38.5% but decreasing to 28% in the following years and increased the highest Capital Gains Tax rate from 20% to 28%.

At the time, people weren’t substantially informed about the tax cuts, as an ABC News Poll in September 1986 showed that 63% of Americans didn’t know enough about the Tax Reform Act of 1986 to say if it was good or bad.

However, Wikipedia’s citation for those figures was the far-right, disinformation-heavy group the Heritage Foundation, in the form of a piece praising Reagan-era tax cuts. According to the Heritage Foundation’s piece (authored by economic advisor to Reagan and later Donald Trump, Arthur Laffer):

The most controversial portion of Reagan’s tax revolution was reducing the highest marginal income tax rate from 70 percent (when he took office in 1981) to 28 percent in 1988.

In other words, figures presented as criticism of Reagan were identical to those presented by the Heritage Foundation, which, again, is not a credible source. Although the excerpt above referenced when Reagan took office in 1981 and 1988, another portion noted:

Looking at the cumulative effects of the ERTA in terms of tax (calendar) years, the tax cut reduced tax rates by 1.25 percent through the entirety of 1981, 10 percent through 1982, 20 percent through 1983, and the full 25 percent through 1984.

A provision of ERTA also ensured that tax brackets were indexed for inflation beginning in 1985.

To properly discern the effects of the tax-rate cuts on the economy, I use the starting date of January 1, 1983 — when the bulk of the cuts were already in place. However, a case could be made for a starting date of January 1, 1984 — when the full cut was in effect.

An entry on History.com’s “This Day in History” for August 13 1981 (“Reagan signs Economic Recovery Tax Act [ERTA]),” a less openly ideological source, explained:

… Reducing marginal tax rates, the theory went, would help the economy grow faster through such extra efforts by individuals and businesses. The 1981 act, combined with another major tax reform act in 1986, cut marginal tax rates on high-income taxpayers from 70 percent to around 30 percent, and would be the defining economic legacy of Reagan’s presidency.

[…]

Economists have argued to what degree Reagan’s economic policy drove the boom of the 1990s, but his tax program undoubtedly set in motion powerful forces of change that would result in both short- and long-term economic gains. On the other hand, critics of so-called “Reaganomics” point out that his tax cuts and the effects of steady economic growth disproportionately benefitted the wealthy, and vastly increased the gap between the nation’s rich and poor.

Although the tax cuts referenced by the meme weren’t strictly tethered to 1984, a consensus held that the top marginal tax rate was cut from between 73 and 70 percent to 30 and 28 percent during the Reagan administration.

Did Reagan Impose the First Ever Income Tax on Social Security Benefits to ‘Make Up For’ Lowering Top Tax Rates?

In addition to the meme’s claim that Reagan lowered the top marginal tax rate from 70 percent to 28 percent, the meme also claimed he “imposed the first ever income tax on social security benefit to make up for” tax revenue lost in the cuts.

On the Social Security Administration’s website (SSA.gov), a page detailing the Social Security Amendments of 1983 included a bullet point about the taxation of Social Security benefits as income:

Beginning in 1984, includes up to one-half of Social Security benefits as taxable income for taxpayers whose adjusted gross income, combined with half their benefits and any tax-exempt interest they may have exceeds $25,000 for a single taxpayer and $32,000 for married taxpayers filing jointly. Benefits received by married taxpayers filing separately are taxable without regard to other income. Appropriates amounts equal to estimated tax liability to the Social Security trust funds.

An archival New York Times article from March 26 1983 (“Reagan Hails Plan [on] Social Security”) began:

President Reagan praised Congress [on March 26 1983] for passing a plan that he said lifted “a dark cloud” from the Social Security System.

“By working together in our best bipartisan tradition,” Mr. Reagan said at a White House news conference, ”we have passed reform legislation that brings us much closer to insuring the integrity of the Social Security System.”

Mr. Reagan, who is expected to sign the bill the week of April 10 [1983], said he was “gratified that great good sense did prevail over partisan concerns.”

The Times detailed elements of the legislation, reporting:

Retirees will pay income tax on half their Social Security benefits if their adjusted gross income plus half their benefits exceed $25,000 for individuals or $32,000 for couples.

Another page on SSA.gov noted that Social Security benefits were not taxed before 1983:

Since a pair of 1938 Treasury Department Tax Rulings, and another in 1941, Social Security benefits have been explicitly excluded from federal income taxation. (A revision was issued in 1970, but it made no changes in the existing policy.) This changed for the first time with the passage of the 1983 Amendments to the Social Security Act. Beginning in 1984, a portion of Social Security benefits have been subject to federal income taxes.

A third page on SSA.gov credited the introduction of taxes to the Greenspan Commission, a commission appointed by Reagan in 1981:

The 1983 Social Security Amendments are a major milestone in the legislative history of the Social Security program. They might fairly be described as the last major Social Security legislation of the twentieth century.

The 1983 Amendments grew out of a set of recommendations produced by a special Presidential Commission (informally known as the Greenspan Commission).

A 2009 editorial authored by political historian Matthew Dallek provided an in-depth analysis of Reagan-era changes to Social Security in the political climate of the time:

Despite this and other differences, the bipartisan compromise on Social Security stands in hindsight as about as striking a breakthrough imaginable in the deeply polarized political atmosphere of Reagan’s first term. Reagan had a record of scorning Social Security as an involuntary, quasi-socialistic example of government running amok. In a nationally televised 1964 speech for GOP candidate Barry Goldwater, he argued that Social Security should become a “voluntary” program.

During his 1976 White House run, he declared that Americans—as long as they showed that “provisions” had been made “for their…non-earning years”—should be able to opt out of Social Security. Reagan’s opposition to the capstone of the New Deal produced bitter fruit in his first year in office. As the Social Security fiscal outlook darkened, Reagan’s Health and Human Services Secretary announced that the administration wanted to reduce Social Security benefits for people who had retired before they turned 65.

Republicans and Democrats alike reacted to the White House plan with a combination of disdain and derision. Reagan’s plan was overwhelmingly repudiated. The Senate voted 96 to none against while a large bipartisan majority in the House opposed it as well.

What happened next would have been hard for anybody to predict at that time. The White House agreed to establish a bipartisan commission to look into how to cope with the system’s long-term challenges and extend the solvency of the trust fund. Reagan appointed future Fed Chairman Alan Greenspan, and O’Neill appointed some of his own members to the Commission.

It offered a compromise that has had lasting effects on Social Security politics and policies. Some of the proposals were less than ideal; one that was ultimately enacted into law raised the regressive payroll tax, which hit working- and middle-class Americans harder than wealthier citizens. Nonetheless, the 1983 agreement did succeed in extending the trust fund’s solvency for a couple of generations by raising the retirement age to 67 from 65 (to be phased in by 2027); imposing a six-month delay in the cost-of-living adjustment; and requiring government employees to pay into Social Security for the first time. The compromise also cemented a new reigning political consensus on Social Security—Social Security, in historian Sean Wilentz’s words, was “untouchable” because it had become more than ever the “‘third rail’ of national politics.

Finally, a fourth page on SSA.gov collected Reagan’s many appeals to Congress and the public regarding Social Security reform, later enacted in 1983. One such letter to lawmakers in May 1981 began:

Over the past several weeks, all Americans have been proud of the bipartisan spirit that we have created in working on the nation’s economic recovery. Today I am writing to you to ask that we now bring that same spirit to bear on another issue threatening our public welfare.

As you know, the Social Security System is teetering on the edge of bankruptcy. Over the next five years, the Social Security trust fund could encounter deficits of up to $111 billion, and in the decades ahead its unfunded obligations could run well into the trillions. Unless we in government are willing to act, a sword of Damocles will soon hang over the welfare of millions of our citizens.

In July 1981, Reagan addressed lawmakers in another letter, again urging action on Social Security:

The highest priority of my Administration is restoring the integrity of the Social Security System. Those 35 million Americans who depend on Social Security expect and are entitled to prompt bipartisan action to resolve the current financial problem.

At the same time, I deplore the opportunistic political maneuvering, cynically designed to play on the fears of many Americans, that some in the Congress are initiating at this time. These efforts appear designed to exploit an issue rather than find a solution to the urgent Social Security problem. They would also have the unfortunate effect of disrupting the budget conference and reversing the actions of a majority of both Houses of the Congress. Such a result would jeopardize our economic recovery program so vital to the well-being of the Nation.

In order to tell the American people the facts, and to let them know that I shall fight to preserve the Social Security System and protect their benefits, I will ask for time on television to address the Nation as soon as possible.

During this address, I will call on the Congress to lay aside partisan politics, and join me in a constructive effort to put Social Security on a permanently sound financial basis as soon as the 97th Congress returns in September.

Historically, the tax on Social Security benefits was viewed as a bipartisan compromise initiated by Reagan’s Greenspan Commission.

Summary

A popular meme shared in July 2022 (dating back to at least 2019) held that President Reagan lowered the top marginal tax rate from 70 percent to 28 percent in 1984, and introduced a tax on Social Security benefits to “make up for” the cut. As was often the case with memes, its assertions described a broader and more complex set of circumstances.

As for a link between the two topics of the meme, that appeared to amount to the broader economic policies and priorities of Reagan’s administration. The meme was not necessarily inaccurate, but it oversimplified the effects of Reagan’s economic influence on American workers.

Nevertheless, surviving economic advisors for Reagan writing for the Heritage Foundation — which was then replicated on Wikipedia — lauded him for “reducing the highest marginal income tax rate from 70 percent (when he took office in 1981) to 28 percent in 1988.” Moreover, 1983 reforms to Social Security were often described as a bipartisan effort, and appeared to be a compromise initiated by Reagan’s initial disdain for Social Security.