A Deeper Dive Into the Idea of Eliminating Seniors’ Tax on Social Security Benefits - The Detroit News/Bankrate
It often comes as a tax season surprise for new Social Security beneficiaries. For current beneficiaries, it’s an annual annoyance. No matter how it surfaces in your financial management process, it’s something you notice, and typically not in a favorable light. We’re talking about the inclusion of Social Security benefits as an income component for federal tax purposes, an inclusion that generated over $50 billion of revenue last year for Social Security.
This issue factored significantly in the 2024 presidential election campaign process, with Republican candidate Donald Trump famously declaring that “Seniors should not pay tax on Social Security.” While this declaration certainly rang positively in many quarters, it also led to many concerns about the impact that a significant loss of revenue would have on a program already facing insolvency in the not-too-distant future. Bankrate.com’s Kimberley Washington, CPA, in a post on The Detroit News, examines some of the details associated with this decades-old tax rule and how eliminating this revenue component would factor into Social Security’s precarious financial picture. Click here to read the post in full.
Ms. Washington’s post includes commentary from Garrett Watson, a senior policy analyst and modeling manager at the Tax Foundation, discussing the loss of revenue for Social Security’s Old Age, Survivors, and Disability (OASDI) trust fund and the Medicare Hospital Insurance trust fund. Watson’s concluding comment sets the stage for future debate on this recommendation: “…instead of eliminating taxes on Social Security, a more sound policy would be to adjust the income tax thresholds annually for inflation.” And as Ms. Washington notes, the issue highlights the complexity of Social Security’s many interlocking policy components.
Many organizations exploring Social Security’s long-term financial problems have taken positions on the tax issue as part of a multi-faceted approach to stabilizing funding for future generations. As an example of the leading thoughts on reforming Social Security, the Association of Mature American Citizens (AMAC, Inc.) believes Social Security must be preserved and modernized to meet the demands of 21st-century economics. AMAC believes this can be achieved without payroll tax increases via slight program modifications, including cost of living adjustments and payments to high-income beneficiaries. Echoing Watson’s suggestion, AMAC also supports increasing the thresholds where benefits are subject to income tax, along with indexing these thresholds annually to account for inflation. The AMAC position also calls for eliminating the reduction in benefits for those choosing to work before full retirement age and advocates for improved savings tools for future retirees. AMAC is resolute in its mission to preserve Social Security for current and successive generations. It has gotten the attention of lawmakers in D.C., meeting with many congressional offices and staff over the past decade.