Stop the Social Security benefits tax

Those seniors who worked and based their retirement savings on the assumption

that they would receive their full Social Security benefits in addition to

their taxed gains on private investments – whether these investments be via

company pension plans, personal savings or the mattresses on which they sleep –

are being treated by the government as suckers.

Because seniors worked hard

and did the right thing, our government rewards them with backdoor

means-testing of their Social Security benefits. This is true for today’s

seniors and mey be even more true for tomorrow’s seniors.

Under current

law, Social Security beneficiaries are required to pay income tax on 50 percent

to 85 percent of their benefits if their income surpasses modest levels. For

instance, a retired single woman surviving on $34,000 a year is forced to pay

income tax on up to 85 percent of her benefits, regardless of the money she

spends on food, utilities, the ever-increasing cost of prescription medication,

or even gifts for her newborn grandchild. She is hardly what anyone surviving

on that amount of money would call wealthy.

Even more outrageous is the

serious financial hardship this taxation creates on senior citizens who are

forced to work past retirement to maintain a decent standard of living. In this

new era of budget surplus politics, where tax-cut proposals are being seriously

considered, there is no reason the federal government needs to jeopardize the

retirement security of these senior citizens by continuing to tax their

benefits.

About 12.5 million seniors currently pay taxes on their Social

Security benefits. Until the taxation of Social Security is repealed, this

number will get bigger as the years go by, affecting the retirement security of

baby boomers, generation Xers and others. The income thresholds that trigger

benefit taxation are not indexed for inflation. Therefore, each year, more

seniors would be swept up in this effective means test because inflation pushes

them over this income threshold.

Social Security benefits taxation is a

form of means-testing in a system that was not intended to be means-tested.

Whether an individual is living the American dream and is as successful as Bill

Gates or just living above the poverty line, all benefits are calculated on the

same formula-not total income. By taxing benefits, the government makes fools

out of people who played by the rules: Retirees who planned their investment

and retirement strategies on the assumption that they would receive their full

promised Social Security benefits.

Even the 1994-96 Advisory Council on

Social Security unanimously agreed that Social Security should not be

means-tested. In its report, the council stated, “The council rejects the

further proposition that Social Security should also condition benefits on

assets or other income at retirement-conventionally known as means-testing.

“The fact that benefits are paid without regard to a beneficiary’s current

income and assets is the crucial principle that allows – in fact, encourages –

people to add savings to their Social Security benefits and makes it feasible

for employees and employers to establish supplementary pension

plans.”

Through the taxation of Social Security benefits, the government is

effectively punishing those who prepared for their retirement based on the

three-legged stool approach to retirement savings: Social Security,

employment-based pension plans and personal savings. Today’s workers are, ever

increasingly, working outside of Social Security to build retirement savings

through 401(k)s and other savings mechanisms. By basing taxation of one leg on

the performance of other legs, the government is reneging on a promise made in

1935.

Congress and the president should end the Social Security benefits

tax. Just because people work hard and prepare for their future, the government

should not be able to cut one of the legs of retirment security out from under

them.

Charles Hardin is president of Council for Government Reform, a

grassroots organization that claims more than 500,000 active, mostly senior

supporters. The organization can be reached at 3124 N. Tenth St., Arlington, VA

22201, (703) 243-7400 or www.govreform.org