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the IRS does it on form 1040. Actually, it's on a worksheet that people receiving SS benefits have to fill in to see if they need to pay any taxes on their benefits. Generally, half their benefits are taxable if their adjusted gross income exceeds $25,000, and the benefits are taxed progressively. In effect that is a means test. If someone has a very high AGI, their SS benefits will pretty much be taxed away.
That's another reason why personal savings accounts based on dividend and interest income will hurt the poor and help the rich. Bush is trying to end taxation on all such income, reversing the redistribution of wealth from bottom to top. It's like an earned income credit for the well-to-do disguised as a prop for individual ownership. Yes, lower mortals will own their own accounts, but naturally the biggest prizes go to those with the biggest hoards to begin with. What a coincidence that those people happen to be the same ones who are earning over 80K a year now.
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