A Social Security conundrum: Taxing Social Security benefits
Way back in the 1980’s and 1990’s, changes were made to the Social Security program which meant that if a recipient’s income level exceeded certain thresholds, a portion of their Social Security benefits would become taxable. An amendment passed in 1983 meant that up to 50% of benefits could be considered as taxable income, and another in 1993 bumped that up to 85% if an even higher income threshold was exceeded. That worked pretty well to help shore up the program’s financial status at the time, because the proceeds from taxing benefits go to the Social Security Trust Fund from which all benefits are paid. But those income thresholds have never been adjusted for inflation, which means that each year more and more people find themselves joining the ranks of those paying income tax on their Social Security benefits. Adjusting the income thresholds upward for inflation, or even eliminating the taxation of Social Security benefits entirely, would mean less revenue going into the Trust Funds and only exacerbate Social Security’s financial issues. So Congress is faced with the conundrum of wanting to ensure the program’s solvency many decades into the future, but knowing that reducing or eliminating the tax burden on recipients’ benefits would only make the program’s financial issues worse. This Motley Fool article by Sean Williams explains.
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To review the Motley Fool article by Sean Williams, click here.
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