[Nfbf-l] Pro/Con, Taxing Social Security

[Patricia A. Lipovsky]

PRO / CON: TAXING SOCIAL SECURITY 

People who have started to receive Social Security payments but opt to continue working might be required to pay income tax on their Social Security benefits.
Some states have decided to stop taxing retiree benefits at all. 

Should the federal government follow suit?

By PHIL KERPEN
Most Americans will pay thousands of dol­lars per year in Social Security taxes dur­ing their working lives on the promise that they’ll receive a government
pension when they reach a certain age.

Their employers will contribute an equal amount.

When they finally become eligible for these ben­efits, however, they will learn another reality: If they or their spouse are still working and their earnings
exceed a certain threshold, the govern­ment will tax their So­cial Security benefits.

This double taxation is not only unfair and imposes punitive tax rates on seniors who choose — or are forced by economic circum­stances — to stay in the
work force, it also harms the economy. As our most experienced workers, seniors contribute greatly to workplace productiv­ity; discouraging their labor
force participation through punitive taxation harms everybody.

Social Security is in dire financial condition, al­ready operating in the red — eight years earlier than the program’s trustees expected. The pro­gram
must be reformed. But any reform should, for both simple fairness and to promote economic growth, repeal the 1993 tax on Social Security ben­efits.

Historically only 50 percent of Social Security benefits were taxable: the part paid by employers.

Since 1993, however, individual seniors with in­comes exceeding $34,000 and couples with more than $44,000 in income have been taxed on 85 per­cent of
their Social Security benefits. Because these threshold amounts aren’t indexed to infla­tion, the unfair levy hits more and more seniors every year.

For most Americans the 25 percent marginal tax rate kicks in this year at $34,000 — meaning they will pay $25 in taxes for every $100 they earn above that.
A senior earning the same $34,000 will pay a higher rate. For every additional $100 the senior earns, he or she will pay $25 in income taxes, plus an additional
$21.25 on the previously untaxed So­cial Security benefits — 25 percent of the 85 per­cent that are now taxable, or 21.25 percent overall.

This gives the senior an effective marginal tax rate of 46.25 percent.

This double-taxation creates a strong incentive for some of America’s most knowledgeable and productive workers to cut back or leave the labor force.

The Social Security system for the first time this year will send out more in payments than the gov­ernment collects in taxes. Some will argue that this
is good reason to continue double-taxing So­cial Security benefits. It isn’t.

Social Security’s premature financial woes have been caused primarily by the bad economy; end­ing the double taxation of Social Security benefits would
help give the economy a lift.

More taxes, fees or benefit cuts would only exac­erbate the biggest problem with Social Security, which is that it offers a meager return to workers who
deserve better.

The best way to finance the transition to a re­formed Social Security system is to reduce exces­sive federal spending, not punish seniors with an unfair,
discriminatory double tax.

Kerpen is vice president for policy at Ameri­cans for Prosperity, a conservative organiza­tion in Arlington, Va. 

YES: 

This amounts to double taxation. 

__________________________________________________________________________ 

By WAYNE MADSEN
Avast majority of the seniors who work past retirement age are comfortably up­per middle-class — not only owning their homes, but often a second one on
a golf course or near a beach.

Their stock portfolios alone — even account­ing for the market’s recent decline — far surpass the lifetime savings of most Americans.

Like latter-day Midases they continue work­ing not because they need more money for life’s necessities, but simply because they want to ac­cumulate more


wealth. Now at the time when the country’s official unemploy­ment rate is hold­ing steady at just under 10 percent and its real jobless number — the one
that in­cludes those who have given up looking for work — hovers at nearly 20 percent, rich seniors are prodding their conservative friends in Congress
to exempt them from Social Security taxes alto­gether.

Rather than give back some of their stockpiled treasures to help shore up America’s frayed so­cial safety net, the geriatric ungrateful look past the legions
of suffering poor like someone ignor­ing a wino panhandler on Park Avenue.

A destitute America struggling through the worst economic downturn since the Great De­pression simply can’t tolerate such haughty self­ind ulgence.

As the progressive Dean Baker and the con­servative Kevin Hassett pointed out recently in a brilliant column, the nation is in such woebe­gone straits
that it may well be time to embrace what once was an unthinkable concept: job shar­ing.

With the typical stretch of unemployment now lasting the better part of two years, they noted, this prolonged recession ‘‘clearly threat­ens to do permanent
damage to the careers of a generation of workers, and policy action is ur­gent.’’ In calling for national work-sharing, Has­sett and Baker suggest that
firms forgo simply laying off workers, but instead ‘‘spread a small amount of pain across many workers.’’ The poli­cy has been highly successful in protecting
jobs both in Germany and the neighboring Nether­lands, where companies routinely reduce the hours of work by 20 percent or more to avoid lay­ing off workers.

In both countries, wise governments have pro­vided those working fewer hours under work­sharing with unemployment benefits to cushion workers’ reduction
in pay.Shared sacrifice ought to be targeted at America’s most wealthy seniors as well. Rather than exempting them from Social Security taxes, Congress
should con­sider imposing a ‘‘blessings of liberty’’ surtax on those oh-so-comfortable seniors who have accu­mulated their own mini-Fort Knoxes, in part
be­cause they live in such an unfettered, free­market economy. The money collected from such winter patri­ots no doubt would run to the billions of dollars
— and could be used to alleviate the woes of the chronic unemployed and underemployed.

Even if they paid an extra 20 percent to 25 per­cent in taxes, America’s elderly rich would still be far wealthier than their counterparts in any other
country on Earth. Like Scrooge awaken­ing on Christmas morning, they might well find a profound joy in helping the unfortunate among us.

Madsen is a contributing writer to the pro­gressive Online Journal. 

NO: 

Share the pain in a tough economy.

 
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