Now comes word that over half of Social Security recipients anticipate being taxed on their payouts this year. According to The Senior Citizens League, a senior advocacy organization.
According to the report, 49 percent of people expect to pay the tax. Last year, 47 percent of beneficiaries reported having paid the tax.
The Social Security tax is an open and obvious scandal. It’s a hidden tax on middle-income seniors that wasn’t supposed to touch them. It’s also a blatant case of double taxation, because the people who paid taxes on the benefits also paid taxes on the money they put into the system.
Furthermore, it’s actually worse than that. Your money is not invested like conventional pension money while it is in the trust fund. Instead, it is lent to Uncle Sam at cheap interest rates so that he can spend it on government projects.
If the president wants to boost his falling popularity while also aiding the middle class and doing the right thing, he should lower or raise the tax thresholds.
The key point to remember about Social Security benefit taxes is that it was only implemented in 1984, thanks to a commission chaired by Alan Greenspan, and the tax thresholds were never updated for inflation.
Never, ever, ever index for inflation. This year, if your annual income exceeds $25,000 (or $32,000 for joint filers), your benefits will be taxed.
The figure in 1984, when the tax was originally implemented, was $25,000 per year for single filers and $32,000 for joint filers.
Wages and consumer prices have tripled in the 38 years since. And the thresholds haven’t budged. As a result, a tax that once only affected the wealthiest 10% of Social Security claimants now affects over half of them.
It is no surprise that the median family income in 1984 was around $26,000, or near the poverty line. It’s now worth around $80,000.
“Unlike other federal income taxes, Congress has never altered the income criteria that subject Social Security benefits to taxation since the tax’s implementation in 1984,” Senior Citizen’s League analyst Mary Johnson adds.
Worse, when the tax was implemented, it only applied to half of your benefits. However, because of additional tax increases enacted in 1993, it now rises to 85 percent of your benefits, and it does so quickly. Once your annual income exceeds $34,000, or $44,000 for joint filers, you are in the 85 percent tax bracket.
This is not a minor matter. According to the trustees’ most recent report, this double (or triple) tax cost seniors $41 billion last year.
This year is anticipated to cost them $44 billion. Worse, the Social Security Administration expects the tax take to more than double over the next seven years, reaching $100 billion per year within a decade.
One of Social Security’s dirty secrets is that the government is banking on inflation to bail out the system, and one of the main reasons for this is that it drives individuals into higher tax bands, both for payroll taxes when you’re working and for this tax on benefits when you retire.
The argument for taxing 50% of benefits has some sense to it. In theory, your company pays half of your Social Security contributions, which they can deduct from their corporate income tax. But that’s only 50%, not 85%, so the greater rate is just a sham.
Furthermore, considering it, even charging 50% of benefits is an outrage. It essentially means that you are paying a portion of your employer’s corporate income tax.
With provisions like those in the tax code, it’s no surprise that being a stockholder has long been preferable to being a working stiff.
- The IRS Most Recent Schedules K-2 and K-3 Guidance Is Available Here. The Burden Has Been Lightened, but It Has Not Been Eliminated
- How Russia’s Invasion of Ukraine May Affect the Southern California Economy
- Introducing the Reintroduction of the Social Security Identity Theft Act
(And Social Security recipients receive no advantage from this because this is the world’s only pension fund that does not invest your money productively in the stock market.)
Because of the previously mentioned triple tax, Social Security recipients receive no advantage from this. It’s the world’s only pension fund that doesn’t invest your money productively in the stock market, but instead lends it cheaply — to the guy administering the fund.