From the desk of the lonely tax preparer, here are a couple of items that need fixing, but never seem to be on any agenda – least of all AARP’s:
1. Tax on Social Security recipients: Ronald Reagan was a man for the little guy – that is, whenever he got a chance, that’s who he stuck it to. One of his legacies is the income tax levied on Social Security benefits. For single people, the tax starts at when a person’s income (without excruciating detail) reaches $25,000, and for married couples, $34,000. Up to 85% of benefits are taxable.
The Reaganites in 1983 were upset that employees were never taxed on that 1/2 of FICA payments that the employer pays. After much negotiation they compromised, and levied a tax against benefits for only the wealthiest people of that time – those making more than $25,000 or $34,000 or so. The tax, which IMHO should not even exist in the first place, has never been indexed for inflation, and today reaches just about every senior citizen who has any income outside Social Security. To keep pace, the thresholds today should be $53,750 single, and $73,100 married.
I just did a 2008 tax return for an old gent who got a bill from the IRS for $1,334 for failure to report Social Security benefits. Every dollar of that amount represents a Reagan tax increase. (And before J’accuse, my bill was $0.00.)
(Interestingly, and again without excruciating detail, it is also a back door way of taxing supposedly “tax free” interest – to calculate the amount of taxable income, you must add in any “non-taxable” interest you earned. That is, they are taxing it.)
There is no talk of fixing this anywhere – AARP doesn’t discuss it, nor do those representatives that are responsive to ordinary citizens in other areas. It’s an onerous tax on those least able to afford it, and ought to be eliminated in full, in my opinion. I’ve done too many tax returns for seniors who are perplexed that after retirement their Social Security gets taxed. At the very least, it should be indexed back to 1983. (I tell them to thank The Gipper.)
2. Medicare supplemental insurance: Insurance companies were not as powerful in the 1960’s as they are now, but at the time that Medicare was passed they did manage to wrangle out a provision that Medicare would only cover 80% of medical costs for seniors. To get the other 20% covered, seniors have to buy supplemental policies from private companies.
As you might expect, seniors now spend more on Medicare supplements for the uncovered 20% than they do on Medicare itself. Medicare supplemental insurance is a major profit center for health insurance companies – they now have “Medicare Advantage” – a heavily subsidized private alternative to Medicare – that is even more lucrative. (Even though it’s technically illegal, insurers work subtly and slyly behind the scenes to peel the healthiest seniors off Medicare to M.A.)
Here’s why Medicare supplements are a joke – all of the screening for reimbursement of costs is done by Medicare. If Medicare approves 80%, they will pay 20%. If Medicare does not cover something, neither does the supplemental policy. Their overhead is virtually nil.
I hate to say this about our noblest legal persons, our health insurance corporations, and few would believe it, but they are free-riding on Medicare. (AARP makes a pile on these policies too, partnering with United Health against the best interests of its own members.)
Piece of Mindful 