CRS Explains One of the “Secrets” Associated with Taxation of Social Security Benefits - ASPPA; CRS
Paying federal income taxes on Social Security benefits has drawn much attention and criticism over the years, so much so that legislation is still pending in the 118th Congress to eliminate the tax. For example, House Bills H.R. 3206 (Senior Citizen Tax Elimination Act) and H.R. 7084 (You Earned It, You Keep It Act) seek to cancel this tax code provision, and similar bills have been introduced–but not passed–in prior Congressional sessions.
Given Social Security’s precarious financial position, it’s a daunting financial issue. Total tax revenue flowing into the system in 2023 was $50.7 billion, which would need to be offset to avoid further deterioration of Social Security’s finances. To make matters even more intense, the proportion of beneficiaries subject to the tax is expected to grow substantially in the coming years as more tax filers exceed the decades-old thresholds.
So, what’s the “secret” hinted at in this post’s title? The fact that the thresholds for taxation have never been indexed since their original adoption, according to a post by the American Society of Pension Professionals & Actuaries’ John Lekel, is intentional. Citing comments from the Congressional Research Service’s “Social Security Benefit Taxation Highlights” report updated this week, Lekel reports that the original legislation avoided indexing the thresholds to ultimately get rid of them entirely. Here are the actual comments from the CRS report: “The intent behind using unindexed thresholds in the 1983 legislation was that eventually, over a long period of time, there would essentially be no thresholds, and all Social Security benefits would become subject to taxation.”
With this intent grounded in the 1983 Amendments in mind, legislative attempts to abolish the tax could face some headwinds beyond even the revenue offset issue. We’ll see as the Social Security reform issue gains momentum in the 119th Congress, but remember that running out the clock on reform will have two distinct outcomes–either abrupt and disruptive changes or a catastrophic reduction in benefits for vulnerable Americans.
In any event, you can read the ASPPA post in full here and the updated CRS report here.