The egregious cousin

By Jim Terry

I recently fired off this letter to my congressthing and my two senatorthings. Probably not a good choice of words. OK. I recently mailed off this letter to my congressthing and my two senatorthings.

Dear Thing,

One of the president's campaign issues was reform of our tax laws. As I once told my congressman, you can reform the law or re-form the law. One may enhance the law at the favor of the government, the other at the favor of the owner of the government-the American citizen.

Unfortunately, in 1984, President Reagan went along with a Democrat proposal to save social security by taxing the benefits to recipients. By that act, President Reagan broke the promise of the government of the United States to never tax those benefits. President Reagan's precedent of making fifty per cent of social security benefits taxable led to the increase by President Clinton up to eighty-five per cent of those benefits subject to federal income tax. Again, a violation of the promise made to the taxpayers many years ago.

Over the years, as I have asked various members of Congress about cutting federal spending by eliminating some federal agencies, my questions were met with this answer, "Cutting federal agencies will not substantially cut the federal budget because their funding is small compared to the overall budget."

Presently, the revenues to the federal government from social security benefit taxes are only about four per cent of the revenues into the social security account. Since that is such an inconsequential amount, according to members of congress, the good faith of the United States government toward its citizens should be restored by elimination of the taxes on social security benefits. The long ago promise should be restored.

Former Dallas Morning News economic columnist, Scott Burns, wrote an excellent piece in 2015 titled, 'It's time to repeal tax on social security benefits.' He analyzed several scenarios on how people are affected by this tax. This conclusion from his analysis:

The taxation of benefits more than doubles middle-income tax bills. The typical retiree's tax bill was at least twice what it would otherwise be. The tax bill for a couple with $40,000 in benefits and $32,000 in other income increased from $933 to $2,454. That's an increase of $1,521, or 163 percent.

He also concluded that the tax on social security benefits penalizes those who have saved over the years.

My conclusion is that the tax on social security benefits is as equally egregious or more so than the alternative minimum tax, which is proposed to be eliminated in the president's plan.

Currently, about thirty per cent of seniors receiving social security pay taxes on their benefits. I suspect that will increase as future generations begin to retire.

An old judge in Dallas, a man of some means, once made the statement, "The wealthy have it made. The poor have it made. And the middle class pays for it all."

It is also time for Congress to cut the federal government spending.

I hope, as you consider the current proposal to reform tax laws and provide relief to Americans, you will consider the elimination of the taxes on social security benefits, and restore America's promise to its older citizens.

Sincerely,

Jim Terry

*****

Currently, fifty-eight million individuals receive social security benefits. Of those, forty-four million are over the age of sixty-five. As of 2014, the most current IRS statistics available, around nineteen million social security beneficiaries pay taxes on those benefits. And, according to a June 2017 article on Motley Fool website, the number of beneficiaries has risen beyond the expectations of Congress when it first passed the tax in 1983 for the 1984 tax year. Sound familiar?

When Congress passed the Alternative Minimum Tax (AMT) in 1979, it replaced an earlier add-on tax Congress imposed in the late 1960s when it was learned that 155 very high earning American taxpayers paid no taxes in 1966. Yet, over the years, taxpayers subject to the AMT rose into the millions. Congress occasionally passed patches to increase the amount of income exempted from the AMT. Yet, the number of Americans reeled in under the AMT continued to rise. Finally, in 2013, Congress passed a permanent change in the tax law to correct the anomaly.

Even after the permanent fix by Congress, nearly four million taxpayers are currently subject to the AMT. It is estimated that by 2027, almost six million taxpayers will be subject to the AMT.

What began as a plan to tax high earning individuals who paid no income tax, has evolved into a plan to gather more taxes from those who do pay income taxes on their high incomes.

As stated above, President Trump's tax proposal would repeal the AMT. Seems to me the same reasoning applied to repeal of the AMT should be applied to its equally egregious cousin, taxes on social security benefits.

A study of the taxation of social security benefits, 'Older Taxpayers' Response to Taxation of Social Security Benefits,' by Leonard Burman, Syracuse University and Tax Policy Center, Norma B. Coe, University of Washington and NBER, Kevin Pierce, Internal Revenue Service, Liu Tian, Syracuse University, makes this observation about the effects of taxation of social security benefits:

At the highest income levels, this can convert a modest 25 percent statutory tax rate into a 46.25 percent marginal rate. This is much higher than the top income tax bracket, but it applies to older households with relatively modest incomes.

I'm left to ponder why nearly twenty million older Americans sit idly by while many are subject to the highest tax rate of any individual taxpayer in the United States.

© Jim Terry