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It would be nice, quite a windfall.
However, we didn’t pay for our benefits. In the aggregate, beneficiaries pay for about 15% of all benefits received, hence maximum 85% of benefits being taxable. I checked my records a found that within six years of starting, I collected benefits (including spousal benefit) equal to all the taxes I and employers paid since 1959.
The law says the benefits are taxable income, but given the standard deduction, a lower income retiree may pay very little or no actual taxes on the benefits received.
The income taxes paid go to the Social Security and Medicare A trusts, not general revenue. Both trusts are underfunded and being depleted in a few years.
How do the programs make up the lost tax revenue? We have yet to hear of a plan to make either Social Security or Medicare sustainable.
So, is it fair, prudent or necessary to make Social Security benefits income tax free?
I have asked many people and overwhelmingly the answer is yes, benefits should be tax free – while they also demonstrated a total lack of information or understanding of the issue, with many still believing Congress stole the trust funds or they could have done better investing on their own without paying SS payroll taxes. Oh my. 😱
If specific sources of income are to be untaxed then those taxes must be collected elsewhere. I’ve always considered a tax, any tax, as being a part of the cost of living and I think of my life as akin to running a business. I have been self employed. As I recall that meant I paid my share, my employer’s share as well as any Medicare tax. Oh, and let’s not forget about Worker’s Compensation insurance (there’s a story there). My first paycheck upon which I paid SS tax was 1964 and my last was 2023. That’s a span of 59 years. What I’ve earned in SS benefits as a retiree outweighs what I paid in, but it pales when compared to the benefits of some of the public service workers I know. I now provide my services without pay as I no longer want to bother with the federal forms and tax payments, etc. I suppose one could say that by donating my services I am contributing to the demise of the entire social security system. LOL.
Wow, 6 years. Fascinating! I never would have imagined that. Way to put a sharp pencil to this.
As the old saying goes: “There is no free lunch.” If we exempt SS benefits from taxation, the taxes that would otherwise be collected on these payments will not be available to fund future SS benefit payments.
Which reminds me of another old saying: “Robbing Peter to pay Paul.” If we exempt SS benefits from taxation, the retirement fund’s reserves – absent other needed changes – will simply be exhausted sooner, leaving many current and future recipients with less than they earned or were promised.
There is great need to address the ongoing funding of the SS program, but across the range of possible options to address this need, eliminating taxation of current benefits should be seen as little more than the political stunt that it represents.
It would be more honest to take any taxes collected on social security income and pay them into the SS trust fund. Instead, politicians take the funds, allocate to general revenue and then spend them as they wish.