Taxing Social Security and politics

Prior to 1983, social security was not taxable. In 1983, Joe Biden voted in favor of taxing 50% of social security – and it passed. In 1993, Joe Biden doubled down and was the deciding vote in raising the percentage taxed on social security from 50% to 85%.

The higher taxes from the 1993 change are directed to the Medicare trust.

One could see all this as a negative and indeed some people will use it against Biden in 2020.

In fact those changes (or other changes) were needed then to keep Social Security paying full benefits.

Nearly thirty years later we are worse shape and still Congress has not acted to fix Social Security finances. Instead, every proposed fix or change is categorized as cutting benefits, used for political purposes and assures nothing happens.

9 comments

  1. I am guessing that you are very happy with your life choice and retired anyway? I don’t mean this is a negative way. Good for you. I am happy that things have worked out for you too.

    But my question is that when you retired, were you counting on getting COLAs to survive in retirement? Was that your financial plan, COLAs and hoping by luck that you were going to stay healthy?

    My first year in retirement I torn my meniscus in my knee. That was not planned either but I had planned for the unexpected medical emergencies and got through the cost without a problem. I planned my retirement without getting a raise in my pension, because I won’t. Since high school in the 1970’s, I planned that social security would not be there when I retire. Lucky for me they put a bandaid on it in 1983. There still is a 50/50 chance if Congress doesn’t get its act together, that I will not get what was stated on my last SSA statement. That is my plan. I am not counting on getting any COLAs. I am just hoping that in 4 to 9 years when I start collecting that I’ll get back at least what I put into it. In fact one life goal is to live long enough to collect at least one social security check.

    In 1981, as an apprentice printer without a pension, I joined the NJ Air National Guard in the hope that after 20 years I might get $200 / month pension. Inflation in 1980 was 13.5%. Even then, I knew that in 2046 that $200 / month might only buy a loaf of bread. But I had to do something. Lucky for me, I took classes, got a better job with a pension and inflation became reasonable. I did my enlistment and got out because even as an E-5, taking the time for guard weekends was costing me big money in lost overtime, which conbrituted to my 401K and my pension, plus day to day expenses.

    What I have not planned for nor can I afford is years of nursing home care. I am rolling the dice on that one.

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  2. Initially the SS income tax affected “rich” seniors. But the income threshold used for taxing SS was never indexed for inflation. So now even lower income seniors must pay it. Democrats now have a bill pending that will increase the income threshold.

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  3. richard
    have to respectfully disagree with your comments today regarding social security taxation

    1- while it was passed in 1983, it didnt go into effect until 1984

    2-the deciding vote to pass the 85% taxation was actually cast by al gore, not joe biden with the passage of OBRA

    source – https://www.ssa.gov/history/InternetMyths2.html#:~:text=The%20taxation%20of%20Social%20Security%20began%20in%201984,Congress%20in%201983%20on%20an%20overwhelmingly%20bi-partisan%20vote.

    regards
    david m

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    1. I stand correct. I should have doubled checked as I typically do. It was not the deciding vote. In any case my point was not criticizing Biden, but pointing out that raising the taxes was necessary.

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  4. In the end we need politicians to have the guts to do what is best not to simply pander for votes. The idea of raising the age or taxing higher incomes is always difficult but in light of where the SS fund is these things do need to addressed. The current admin lowered taxes on the wealthiest and effectively raised them on the middle by limiting the property tax deduction while giving some crumbs to the lowest wage earners all to satisfy his base but has done nothing to correct the SS Fund. A change is needed soon and I hope the coming admin has a congress that will take the difficult step and do the right thing.

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  5. Yes I would love to use anything I can against Biden. He didn’t cast the deciding vote. Vice President Al Gore did as Senate President breaking a 50-50 tie. President Clinton then signed the bill to tax your social security up to 85% on 10 Aug 1993. (per the SSA website).
    Also there have been 19 amendments to the social security law dating back to its inception so there is plenty of blame or success to go around for both parties depending on your point of view.
    I am all in favor of them to stop taxing social security and take away COLAs and put that money to medicare. But I suspect that they get more money by taxing and Congress would never actually put the “extra” money into medicare. I never understood why the government gives you money only to tax the same money that they had given you which they got through taxation. Why not give less money in the first place and avoid the administrative costs of taxation?
    https://www.ssa.gov/history/InternetMyths2.html

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    1. @Dwayne Gartner – Get rid of the COLA, are you off your meds? Price inflation is lowering our standard of living every year, no matter what the COLA. See link below. I retired from the USAF in 1995 with a pension of $1,026 it is now $1,726 a 70 percent increase. The lot rent where my paid for mobile home sets has gone from $175 to $413 a 136 percent increase. I am now spending more to feed 2 people than I did feeding 6 people in 1995. The only thing that has gone down in the last 25 years are electronics and gasoline, which I buy very little of those two items. My wife and I are now on SS with a total income of $37,104 per year, but it only has the buying power of what $21,456 did in 1995.

      The one thing that needs to be done with the taxing of Social Security income is index it to inflation as the $25,000 for single and $32,000 thresholds for a married couple has stayed the same as incomes rise more people have to pay the tax. It is not our fault that the government did not tax us and our employers more to pay for our benefits that we are now paid. It is way past time for Congress to act to insure the promise to current and future retirees are met. With record corporate profits it is time to raise the FICA tax on employers, since real wages have been kept low over the last 40 years.

      https://www.investopedia.com/ask/answers/101314/what-does-current-cost-living-compare-20-years-ago.asp

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      1. Why should anyone expect their social security or pension to be index for inflation? The day I retired, I knew exactly how much I was going to get until the day that I die. I had to decide if I would be able to live on that or not retire. Anybody who lived through 1979 to about 1983 knows about inflation and should be prepared for it at all times. The Federal Reserve’s target goal for decades has been 2%. That is why you must retire with other sources of income because social security was never meant to be a total income replacement. It says so right on their statements.

        Of course, the government buys votes and indexes some government pensions and social security for inflation by using COLAs. Most people live long enough to get paid more money than what they paid into social security. Certainly they did not contribute towards their COLAs when they were working since nobody can predict what the value of future COLAs will be.

        My main point is why get a COLA and then tax that same money that you get. How about just putting that money directly into medicare instead of raising your medicare premiums? Everybody complains about the cost of healthcare, put it there. Does it make you feel better that a politician bought the senior vote by giving them 1-2% “raise” in social security only to tax it and have you contribute more money to medicare? Why not cut out the middleman and the inefficient government bureaucracy administrative costs and just properly fund medicare. Both medicare and social security have become entitlement programs now instead of benefit plans that we contributed to.

        I rather make 4-6% in the market to cover inflation. What I don’t like is that the Feds have said this week that they plan to keep their interest rate close to 0% until 2023. That will affect seniors for decades to come. They will not be able to cover inflation in low risk funds. Their money will not grow for at least two more years.

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      2. Stay healthy and limit your healthcare costs. My blood work numbers were the same at 60 as they where when I was 40. I have been to the doctor 5 times in the last 25 years. I go in every 5 years now to have a checkup and will go more once I am on Medicare if I have an issue I cannot resolve myself. . My out of pocket costs each year for myself and my wife do not even hit the $400 deductible for each of us before the insurance pays anything. I keep seeing ads on TV to make sure you get your annual “FREE” checkup, no wonder Medicare premiums go up each year as many run to the doctor to get that “FREE” exam or for other issues, that I run to Walmart for and buy over the counter medications.

        “I rather make 4-6% in the market to cover inflation.” – That may be fine for you, But I worked from 1971 to 2009, starting at $1.85 per hour and ending at $18 per hour. Never had any extra to invest but lived a good life raising 4 children, never having to be on any government assistance programs. I purchased used cars from 1986 to 2020, the most expensive was $4,000, fixing them myself. In March of 2020 I leased a brand new Ford Edge SEL for $4,100 down and $351 per month for 36 months, I will have the cash to purchase at lease end $19,800. That means I will pay zero interest on the purchase and not have a car payment for 72 months.

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