Taxes Part 2: The Tax on Social Security Benefits

Note to readers: Part one of this two-part essay was about FICA, and how a hidden tax affecting only people who work for wages is used to levy a heavy tax on those workers. Part of the strategy behind that tax is to hide half of it behind the employer, calling it a matching tax.

This part of the essay deals with another tax, this one not so hidden, but its creeping nature slowly taking more and more benefits from Social Security recipients each year. The means by which they accomplished this were diabolically clever.

This essay will be a bit more complicated than the one before, so if you find the calculations incomprehensible, merely skim them, as I will describe the  outcome in understandable terms.

As Johnny Carson used to say of comedy, “If you buy the premise, you buy the bit.” The premises behind taxation of Social Security benefits are two: (1) The program is in dire straits, and will soon run out of money, and (2) Recipients receive a gift in the form of the employer match, so that it is just to levy income tax on half of the benefits paid.

As can be judged from the first essay, the program is solid and safe for so long as the government chooses to keep it so, and the employer “match” is a feint, a hidden tax on the employee routed through the employer to make it appear that the employee is not the one paying  it.

With those two premises in place, Congress in 1983 for the first time in the history of the program enacted a tax on benefits. I won’t dwell on the 1983 law in great detail, even as it still stands, since it has been overshadowed by a new law in 1993. I will only describe it briefly: One-half of benefits became taxable (get it? That is the employer match) when certain thresholds were met by the taxpayer. When for a married couple one-half of benefits plus all other income exceeded $32,000, that excess became taxable. For single people the threshold was $25,000.

The law was written using the frog in warm water model. In 1983, hardly anyone made enough money to be affected, so the new tax slipped by unnoticed. Here is the key, the sleight-of hand: Congress did not index the thresholds for inflation.

I was naive about that, and even wrote to my senators complaining, thinking this was an oversight. The responses I got (if I got a response) were evasive, and it was clear to me that nothing would be done to fix the error. That is because it was not an error.

Slowly inflation eroded the value of our currency, and more and more people became subject to the tax. But I suspect Congress grew impatient, as it was not impacting enough people in a hard enough manner. So in 1993 they stiffened the law. At that time, while leaving the 1983 law in place, they enacted a new law saying that 85% of benefits would be taxable if certain new thresholds were met, this time $34,000 for single people, and $44,000 for married couples. Again, those thresholds were not indexed for inflation.

This law had teeth. It began to impact married couples immediately, and by 2010 single people were being hit hard as well.

Bracket Creep

Bracket Creep was widely discussed in the 1970s forward, as with a graduated income tax, just keeping up with inflation meant that people had to earn more money, but that money became taxable at higher rates due solely to inflation. Here, for instance, are the income tax bracket rates for the year 1993 for married people.

Tax Brackets 1993

It is easy to see that as inflation pushes incomes up (without adding purchasing power) that the government gets a percentage tax increase unless brackets are indexed for inflation. And they are indexed, and have been for decades. There is no point of comparison because Congress has so often monkeyed with the brackets, but the point stands, that Congress is aware of the impact of inflation and adjusts income taxes accordingly.

(FICA is also indexed for inflation, but oddly, that tax is bracketed to go up as inflation devalues the currency. This is done by adjusting the ceiling below which the tax is levied upward. In 1993 the first $57,600 was subject to FICA,  and in 2018 it is $128,400 – see how it works? FICA goes up each year.)

By failing to adjust the thresholds for the 1993 tax on Social Security benefits, Congress levied a tax on future generations, and escaped accountability at the time. Using the CPI as a guide, here is what the thresholds should be had they been indexed for inflation:

1983 1993 CPI

Now, for the impact of the failure to adjust the threshold – I am going to go through some calculations here, but if you find taxes obtuse, skip to below where I summarize.

Tax on 85% of benefits

Summary: If the thresholds had been adjusted  for inflation (to $57,640 single and $74,593 MFJ), as they are for all other taxes, in 2017 the tax on 85% of Social Security benefits would have been zero. Instead, a single person paid $550 and a married couple $2,572.

Now we need to work backwards. Here’s a comparison of benefits in 1993 and 2017, showing how the tax has affected those benefits.

Benefits adjuted to CPI

As you can see, by the mere failure to adjust the threshold of this tax for inflation, Congress managed to reduce benefits for married couple in 2017 by a whopping 13%!

This is no accident, of course. It was the intent of the sleight of hand. Congress could not arbitrarily reduce benefits by 13% without creating an uproar. So they went through the back door. The premise, that Social Security is in trouble, that we cannot afford the program, has allowed Congress to radically reduce the benefits of current beneficiaries through a back door approach.

I urge you write your senators and representatives about this, demanding that they treat the income thresholds underlying the taxation of Social Security benefits as all other taxes are treated, indexed for inflation.

I am kidding! Don’t bother. I tried that. I used the word “Congress” above euphemistically, as Congress no more sets policy than the student council sets policies for your local high school. The impetus for passage of laws comes from other places, ones to which we cannot write letters.

13 thoughts on “Taxes Part 2: The Tax on Social Security Benefits

  1. Due to personal health issues I was approved for SS disability in 2011, I was 60 years old. SS recipients were so lucky this year…after 2 or 3 years without a COLA (cost of living adjustment) we received a whopping 2% increase. I should have seen an additional $40 on my monthly stipend…..but, the cost of medicare increased by $20 a month, so I actually received an additional $20 each month….really sneaky bastards.

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    1. I didn’t mention it as this gets complicated enough anyway, but they use a different basis for COLA’s for Social Security, one that keeps benefits from expanding more than a light fraction.

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  2. “The impetus for passage of laws comes from other places…”? Do tell! Although that’s another endless and twisted rabbit hole, or rather, a labyrinth.

    “It’s never gonna get any better. Don’t look for it. Be happy with what you got. Because the owners of this country don’t want that. I’m talking about the REAL owners. The big wealthy business interests that control things and make all the important decisions.

    Forget the politicians. The politicians are put there to give you the impression you’ve got freedom of choice. You don’t. You have no choice.

    You have owners. They OWN you. They own EVERYTHING… They own all the important land. They own and control the corporations. They’ve long since bought and paid for:
    -The Senate
    -The Congress
    -The State Houses
    -The City Halls
    They’ve got the judges in their back pockets. And they own all of the big media companies so they control just about all the information you get to hear. They got you by the BA**S. They spend billions of dollars every year LOBBYING to get what they want.

    Well we KNOW what they want. They want MORE for themselves and LESS for everybody else. But I’ll tell you what they don’t want. They don’t want a population capable of critical thinking…

    They don’t want people who are smart enough to sit around the kitchen table and figure out how badly they’re getting f’ed by a system that threw ’em overboard 30 f’in years ago…

    …You know what they want? Obedient workers. People who are JUST smart enough to run the machines and do the paperwork and just dumb enough to passively accept all these increasingly shi**ier jobs with the lower pay, the longer hours, the reduced benefits, the end of overtime and the vanishing pension that dissappears the minute you go to collect it.

    And now they’re coming for your Social Security money.

    They want your f’in retirement money. They want it “back”. So they can give it to their criminal friends on Wall Street. And you know something? They’ll get it. They’ll get it ALL from you sooner or later. ‘Cause they OWN this f’in place.

    It’s a Big Club… and YOU ain’t in it!”

    George Carlin

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    1. Of course, Carlin misdirects us here when he said, “The big wealthy business interests that control things…”; no, there’s a puppetmasyer controlling those business interests, too.

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          1. yep, they all laughed at the “funny” comedian…not understanding that he was’t being funny…he was sharing a truth that very few understand to this very day

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          2. Obviously Carlin was given the behind the scenes go ahead to say that. The PTB wanted us to know.
            My elder family members get their SS and pension benefits, I feel they are the last generation with that luxury.

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        1. Humans tend to resort to laughter when faced with uncomfortable and unbearable truth, making them totally unconscious of that discomfort. Most people are so disconnected from their own inner selves, they simply don’t know any better. John Stewart’s Daily Show told more “truth” than the more sober news broadcasts did, and everybody just laughed at it. “Nervous laughter”, they call it.

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    2. absolutely spot on Carrie…but they have also created BigPharma that has created vaccines that cause autism (and much more) and they have at their fingertips a new workforce that can spend the day doing repetitive work, for very little pay, without complaint….they are fucking monsters

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      1. Ann…not only that, Big Pharma’s promises of miracle “cures” with their myriad of magick pills and potions are just as bad, if not worse. It’s like they put people under a spell with a witch’s brew of poison, and they just keep taking them until they need to go to back the witch doctors for another pill for another ailment. Every one I know who uses them ends up worse than they started. But, honestly, it’s the patients who want an easy fix, rather than do the hard work of healing themselves. Add to that the man-made electromagnetic fields from all the technology people in modern society are exposed to; I think that’s the real killer right there, the one very few people know or talk about.

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        1. Carrie, I couldn’t agree more. I have recently tapered completely from Efexxor antidepressants..it wasn’t easy, but it can be done…and I was never depressed, I was, at the time, angry at a curve ball life had thrown me.

          As a very young mother, almost 50 years ago, at the age of 18, my doctor prescribed Librium (precursor to Valium and other benzodiazepines ) in case I became anxious as a young, new mother. This was long before the internet, long before people could take their health into their own hands, do their on research and stop trusting the “white coat” doctors that are part of the medical/military nightmare.

          And, believe me, vaccines are the cause of many of these new diseases that never existed during our grand-parent’s lifetimes.

          I’ve been awake and aware for 6 years and have spent many hours researching, not just hoaxes like 9/11, Sandy Hook etc….but I harvest documents from NIH/NCBI and and my favorite search term, that can supply amazing information, is to check Mechanism of Action for any drug that a doctor might prescribe. All the information is available, but medical TV show propaganda makes fun of people that trust the internet over the professional doctor or nurse. Without doctors to prescribe these new “nightmare” drugs, the pharmaceutical industry would collapse. It is all a game to these “ass hats”. I’m so thankful that I know the truth.

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