Speaking of the Social Security Amendments of 1983 (see below), Reagan left another sour taste in the mouth – because of that act, many seniors now have to pay tax on their Social Security benefits, and (indirectly) pay tax on supposedly “tax exempt” income.
Here’s now it works – skip this paragraph if you don’t like numbers: A single Social Security recipient must take half of his benefits and add them to all his other income. If the result is more than $25,000, he must pay income tax on half the benefits. (The floors are higher for married taxpayers, but that’s the drift.) Worse yet, if half his benefits plus other income is more than $34,000, he has to pay tax on 85% of his benefits. For this purpose, “other income” includes interest on tax exempt bonds, in effect, taxing tax exempt bonds.
It gets worse. This provision was inserted in the 1983 act, and was not indexed for inflation. It has remained the same all these many years, each year hitting more retirees with no relief. Had the provision been indexed, the $25,000 and $34,000 floors would now be $47,500 and $64,600, respectively.
Simple tax justice demands indexing. I take it one step further – eliminate the tax on benefits. The original reasoning was that retirees were never taxed on the employer’s share of the tax paid in. I dispute that, and regard the employer’s share of the tax as merely a hidden tax. But let’s give them that point … at the very least, index the tax. Give our seniors a break.
Max Baucus chairs the powerful Senate Finance Committee. He’s the one to contact regarding this particular injustice. I’ll contact him if you will.
Piece of Mindful 