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July 26, 2016

The Right Way to Increase Social Security Benefits


One Democrat after another speaking at the National Convention in Philadelphia is calling for increasing Social Security benefits. Well, there’s a simple way to do that that would likely receive wide bipartisan support: Eliminate the income tax imposed on Social Security benefits. 

Social Security retirement benefits are not a government handout; workers qualify for them by paying FICA taxes for at least 10 years—and for most people, 40 years or more. Thus, Social Security benefits are simply the government returning taxes workers have paid. 

According to the Social Security Administration, the Advisory Council on Social Security (1979) and the National Commission on Social Security Reform (1983) recommended that some Social Security benefits be included in taxable income. And Congress agreed in 1983 by passing a law requiring “beneficiaries whose total annual income exceeds certain thresholds [to be] required to pay income tax on up to 50 percent of their Social Security benefit income.” 

Ten years later Congress “established an additional higher threshold, above which up to 85 percent of Social Security benefits are taxable.” 

In other words, Congress deemed it appropriate to tax a previous tax it was returning.  

By now you may be thinking, that tax only hits the high-income people, right?  Actually, the thresholds are quite low: 

  • For singles it’s “the lesser of one-half of the amount by which modified AGI exceeds $25,000 or one-half of their benefit income.” 

  • For marrieds filing jointly it’s “the lesser of one-half of the amount by which modified AGI exceeds $32,000 or one-half of their benefit income.” 

No one would describe seniors with AGI incomes of $25,000 as wealthy.  

To be sure, eliminating the Social Security tax would not affect seniors with the lowest incomes. The Pension Rights Center says that the median household income for those age 65 and older is $36,895 (2014). So the tax cut would probably affect around half of senior households.  

But that’s a good start and it would only require cutting taxes, not raising them.


  • TaxBytes-New

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