Unfairness of Taxing Social Security

When I talk to older taxpayers, some of them seem to revere President Ronald Reagan while others adore President Bill Clinton. However, most of them agree that they should not have to pay tax on their Social Security benefits and remain ignorant on how these two leaders affected their taxes. Over the years more and more Americans pay tax on this once tax-free benefit for retired American workers.

Many petitions are circulated to save Social Security for future generations and I applaud those efforts, but I never see any efforts to help older and disabled beneficiaries of this system hold on to the benefits they already receive. Quietly and subtly, the tax system erodes away the funds these recipients are able to use. When the tax on Social Security benefits was introduced, fewer than 10% of recipients were taxed on these benefits. Now, nearly 50% pay taxes on them and the tax is significantly higher.

I have written to organizations who claim to help older Americans and to legislators of my concerns about the impact of these tax laws on older Americans and disabled Americans, especially due to the fact that the impact of inflation was never considered when the exclusionary thresholds were put in place to avoid taxation of recipients with low to moderate incomes.

While one of the characteristics often assigned to tax law is unfairness, I believe that these laws are particularly unfair to a group with little political clout and limited earning potential; our older and less able citizens. Also, while it may be reasonable to reduce the benefits of wealthy Americans through taxation, the resulting funds should be channeled back into the system from whence it came in order to shore up the funding and help ensure the viability of this system going forward. These laws are often a way to take back Social Security Funds through taxes and penalties so that they can be used for other purposes.

I believe that the following six changes should be implemented to help preserve income for older and disabled Americans receiving Social Security benefits:

1. Eliminate the Marriage Penalty inherent in the law.

2. Correct the inequity caused by the lack of indexing in the original law.

3. Properly identify the 85% threshold level so that it is indexed to be higher than the original 50% threshold.

4. Ensure that taxes collected from Social Security benefits are used to fund Social Security rather than some other purpose.

5. Require future tax legislation to clearly document and disseminate the impact to Social Security recipients in clear language.

6. Eliminate all tax related penalties resulting from the taxation of Social Security benefits since these are going to the general fund rather than back into the Social Security system.

I realize that these issues are rarely mentioned in the news, but I assure you that all Social Security recipients encounter one or more of these issues in their lifetime. You can view a monograph I composed on this topic here .