Money Culture

Federal Taxes Have a Good Side Too

This Donald Duck cartoon, funded by the U.S. government in 1943, urged Americans to pay their income taxes to support the war effort. Paying taxes was a patriotic act, to build up the inventory of war planes and battleships to defeat the Nazis – “sink the Axis!” the narrator bellows.

Nobody liked paying taxes then, and they still don’t. Yet there was a growing awareness as the war played out in the 1940s that taxes – like saving your scrap metal – were necessary to advance the greater good.

Things are different today. There doesn’t seem to be as much room in the public conversation for the benefits that federal taxes bestow, such as Social Security, Medicare, Medicaid (nursing home funding) and the Part D prescription drug benefit for retirees, or for government investments in education, roads, and research – or about who would suffer more if deprived of these benefits.

“Most people who do in fact receive significant forms of economic security from the federal government don’t know it,” argued Molly Michelmore, an economic historian at Washington and Lee University, in a recent interview on New York public radio.

It might be more accurate to say we sometimes take our social programs for granted. After all, Congress passed Medicare way back in 1965, when baby boomers were in grade school or high school. The automatic annual cost-of-living increases for Social Security started in 1975 – the program was initially signed into law way back in 1935.

On the other hand, the public values its government benefits when lawmakers try to retrench, as seen during the recent debates over repealing the Affordable Care Act. The New York Times would soon report, health insurance enrollments “blow past prior years” on Healthcare.gov.

The bottom line: we value our benefits, but paying the price is a different matter. Indeed, three out of four Americans in a 2011 Gallup poll said the federal government “is spending too much on government programs.” Occasionally, a strong pro-spending consensus emerges. Echoing the 1940s war effort, President George W. Bush’s establishment of the Department of Homeland Security was a very popular response to terrorism on September 11, 2001, the worst attack on U.S. soil since Pearl Harbor.

Lawmakers and others have legitimate concerns about the increasingly expensive Medicare and Social Security programs, which are running long-term financing shortfalls. This brings us to the tax cuts winding through Congress now. Proponents advance a “supply side” argument: lower tax rates will put more money into investors’ and businesses’ hands and generate sufficient economic growth to offset the cuts.

But to the extent that the cuts increase the federal deficit, they will increase the pressure to curb Social Security and Medicare spending.

Perhaps the risk of reductions in these middle-class programs will shift the narrative back to more appreciation for how taxes, while unpleasant, benefit our lives.

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10 Responses to Federal Taxes Have a Good Side Too

  1. Dave G. says:

    I get a chuckle from those I work with who rail against too much govt. spending while drawing heftily from the well themselves. One pro-Trump couple has one spouse drawing Soc. Sec. disability plus Medicare while the other draws Soc. Sec. retirement. They don’t view these as “entitlements” which many think of as welfare. Their politics reflect social, racial and religious view, not economics. Still, they see a system rigged against the little guy and small business. Govt. to them makes life more complicated and expensive.

  2. Chuck Miller says:

    Government does a terrible job of telling taxpayers where their money goes…except for road construction. People don’t realize everything they get from government every day, from cleaner water to protection from terrorism. And everyone who complains about the government immediately turns to it when disaster strikes.

  3. Evelynn Newman says:

    The government needs to return the money it took from Social Security for other purposes. And I would like to see a more concerted effort put forth to rid these programs of fraud.

    • Mike says:

      It is a travesty reading about the Medicare fraud. I don’t understand why more effort isn’t made to root out the scoundrels that are stealing from the taxpayers.

    • John Dewey says:

      Evelynn Newman: “The government needs to return the money it took from Social Security for other purposes.”

      From its inception in 1938, the Social Security program was always required by law to “invest” its surpluses in government bonds. The intent of lawmakers then and in the ensuing eight decades was always to spend surplus FICA taxes on other programs. This was never hidden from the public. Current and recent Congresses broke no laws and were never underhanded in spending these funds.

      Where Congress, the White House, and, in particular, Democrats have failed the public is this: lying to us and telling us that the Social Security Trust Fund was available to fund SS benefits. They are still doing this today. What they are not telling citizens is that the bonds in the Trust Fund – the Trust Fund “assets” – are exactly balanced by the U.S. Treasury liabilities for those bonds. So, on net, the Social Security Trust Fund bonds are simply IOU’s from the Federal Government to itself.

      Evelynn, how would you suggest that government return the Social Security surpluses it has already legally spent? The only ways I see possible are:

      1. increase taxes on somebody;
      2. reduce spending – by a lot – on some other government programs.

      I think number 1 is not feasible. IMO, any attempt to increase taxes will cause jobs to be lost overseas or capital to flow out of the country or marginally employed workers to lose their jobs. When government taxes something – whether it be corporate profits or capital investment or earnings – the economy will get less of it.

  4. Mike says:

    Increasing the efforts to control the abuse and fraud of government programs and eliminating the many programs that have been created through porkbarrel politics and are no longer needed, and in some cases never needed, would go a long way in redirecting the monies that the government receives from the taxpayer.

  5. Denise says:

    In this whole discussion on taxes and spending, the extraordinary amount of money that we spend on the military is never up for debate. The military is the largest socialist organization in the world. There once was a time when enlisted recruits made little money. But today a mediocre high school graduate will make more money than a public school teacher with a college degree. An E4 with four years active duty makes about $31,000 before a tax and gets a free housing allowance of about $1,400 per month, depending on location. They have free or extremely low-cost medical insurance. They get a dependent housing and food allowance, free education access, free daycare, and discounted products at base exchanges. If they happen to marry someone else in the military, they both qualify for the tax-free housing allowance. Reenlistment bonuses allow 24-year-olds to purchase $45,000 trucks. The new tax bill only allows the military to deduct moving expenses. So much for increased mobility for the rest of us. We need to discuss the military of the future that we can afford, not the capital-intensive military of the past. Something has got to give and it’s not going to be Social Security.

  6. dan hylkema says:

    Very few if any teachers will be risking their lives for our country. The military soldier has pledged to give his life to protect our country. Denise, you seemed to forget this fact in your diatribe. Please give all the facts with your opinion.

  7. AL says:

    No insurance company could run the Ponzi scheme that is Social Security. Look at the statement you might get, they tell you that at some future date, benefits could be sharply curtailed. Every 10-15 years they change the rules — what insurance company could do that?

    And yes, Chuck, when there is a disaster, folks turn to the feds because they have collected money (taxes) for just that purpose. My quarterly taxes run about $23,000 for fed and state. You pay taxes also — so that is our money we use for disasters, and folks like me complain about taxes because of the waste involved. Let’s not forget the nice income earned by our federal workers with great pensions and all.

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