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Thu Mar 21, 2019, 12:28 AM

Should taxation of Social Security benefits be indexed for inflation?

Around 1986, during the Reagan administration, Social Security benefits were taxed at the federal level for the first time. The taxation started when 1/2 of the SS benefits plus all other income exceeded a certain level. The extent to which the total exceeded a predefined threshold would then be subject to tax.

The problem today is that these thresholds have not been increased to take into account cost of living inflation. For example, you take 1/2 of your SS benefits, plus all other income, and if that exceeds $25,000 per year (for single filers), then up to 50% of your SS benefits are subject to federal income tax. That formula has not changed since 1986! (in 1993, a higher threshold, $34,000, was added, at which point up to 85% of SS benefits could be taxed.

What this boils down to is ever increasing taxation of Social Security benefits for many recipients.

Using a simple cost of living calculator, the cost of living in America has gone up about 230% since 1986. This means that if the first threshold for SS benefit taxation had been indexed for inflation, the current first threshold should be about $57,536 instead of $25,000. The second threshold of $34,000 should be raised to about $78,250 today.

These are not trivial amounts, folks. These are substantial hits on retired senior income.

My question for the DU community: what can we do to get Congress to bring the SS benefit taxation thresholds back in line with actual cost of living increases over the years?

8 votes, 1 pass | Time left: Unlimited
Increase Social Security benefit taxation thresholds by 230%, and then do annual adjustments per COLA.
8 (100%)
Do nothing, and tax retired seniors into even greater poverty.
0 (0%)
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Disclaimer: This is an Internet poll

11 replies, 1620 views

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Replies to this discussion thread
Arrow 11 replies Author Time Post
Reply Should taxation of Social Security benefits be indexed for inflation? (Original post)
Rollo Mar 2019 OP
wasupaloopa Mar 2019 #1
Rollo Mar 2019 #4
Rollo Mar 2019 #2
k8conant Mar 2019 #3
msongs Mar 2019 #6
DFW Mar 2019 #8
VarryOn Mar 2019 #5
Rollo Mar 2019 #9
JCMach1 Mar 2019 #7
Voltaire2 Mar 2019 #10
JustABozoOnThisBus Mar 2019 #11

Response to Rollo (Original post)

Thu Mar 21, 2019, 12:48 AM

1. I owe tax every year because of this

 

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Response to wasupaloopa (Reply #1)

Thu Mar 21, 2019, 01:38 AM

4. The Reagan formula means that...

The average SS benefit for 2019 is $17,532. Half of that is $8,766. $25,000 minus 8,766 is $16,234. Add that to $17,532 and you get $33,736. That would then be the maximum one could receive in terms of SS benefits plus other income before the SS benefits start to get taxed for the average SS recipient. Of course the other income (retirement fund withdrawals, part time employment, investment income, etc, amounting to $16,234) is already taxed in full unless it's from a Roth-style account.

In summation, on average, one could receive about $33,000/yr in combined SS benefits and other income before the SS benefits start getting taxed.

These sums will vary according to your SS benefit, as well upon how much other income you have.

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Response to Rollo (Original post)

Thu Mar 21, 2019, 01:01 AM

2. The cost of living calculator can be found at:

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Response to Rollo (Original post)

Thu Mar 21, 2019, 01:35 AM

3. I think the Social Security benefits should not be taxed at all.

So I passed.

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Response to k8conant (Reply #3)

Thu Mar 21, 2019, 02:15 AM

6. exactly because it is already a tax in the first place nt

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Response to k8conant (Reply #3)

Thu Mar 21, 2019, 04:14 AM

8. I agree on that one as well.

I think another option should be added: if someone's income is enough (in their opinion) to let them live comfortably, I would include the option to donate any or all of the SS payments back to the government in lieu of an income deduction in an equal amount.

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Response to Rollo (Original post)

Thu Mar 21, 2019, 02:08 AM

5. They sure as hell have no problem raising the income limit before ss withholding stops for the year!

It takes longer and longer each year before I get to have a few paychecks with now ss withheld. Getting those paychecks with no ss withholding late in the year help pay for Christmas.

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Response to VarryOn (Reply #5)

Thu Mar 21, 2019, 05:19 AM

9. I sympathize with you, but...

If you're making more than the threshold for social security deductions... you're relatively lucky!

Currently that threshold is $132,900. Not too shabby!

Also, raising the cap on SS deductions is one of the ways proposed to keep SS solvent past about 2034.

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Response to Rollo (Original post)

Thu Mar 21, 2019, 02:36 AM

7. Just tax the non Social Security part

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Response to Rollo (Original post)

Thu Mar 21, 2019, 05:34 AM

10. Of course. The current regulation is bullshit.

Oh and pay for it by increasing taxes on the actual rich in current dollars, not some 1985 notion.

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Response to Rollo (Original post)

Thu Mar 21, 2019, 06:24 AM

11. Yes, but we need a different COLA calculation, one based on seniors' expenses.

For example, we are probably statistically less impacted by the cost of gasoline, because we drive less. We are more impacted by the cost of health care and health insurance.

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