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Member since: Sun Dec 25, 2016, 04:42 AM
Number of posts: 2,465

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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?
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