Tuesday, March 12, 2019

Why Is There A 50 to 85 Percent Tax On Social Security? "Entitlement"? Don't Make Me Laugh!

Image result for brane space, elderly poor

Having just completed our 2018 taxes using Turbo-Tax, we had to check the numbers again to ensure we were not seeing things.  Sure enough, our refund had decreased by an astonishing 74 percent, from over $1800 to barely $465. Also, nearly all the decrease we had traced to an increased tax on our Social Security income - a portion now up to 85 PERCENT!  (Most at 50 percent).

 "Well, ya gotta be a rich senior if you're payin' that much, duh!"

Uh, NO!  According to the Weekend Colorado Springs Independent, the average income in the Springs is $58, 185.  For seniors it's slightly less: $55,000.   Our combined income - including with Social Security, immediate fixed annuities, pensions, is even less than that.  Let me just say if Obama had gone through with his original proposal to disallow taxes on Social Security for seniors with incomes of $50,000 per annum or less, we'd be ok. Okay?

What I'd like to know, really, is why : a) this atrocity exists at all, and b)  isn't more well known? We're hearing and seeing a lot in the financial press about low or no refunds this tax year  e.g.

Expecting a Big Tax Refund? Don't Be So Sure - WSJ


And how this is all to do with the GOP-Trump tax cuts and the fact people received them via incremental increases in their paychecks, but made no withholding adjustments.  A lot of the articles reference retirees, seniors - but nowhere is there any mention of  the impact of Social Security taxes, especially in conjunction with other (putatively sound)  financial decisions - such as purchasing annuities for increased financial security. 

What gives?

Well, I did find this chestnut of info from The Mottley Fool:

"Here are the rules regarding taxes on Social Security benefits, per the Social Security Administration (SSA):
  • If you file a tax return as Single, Head of Household, or a Widow(er) and your combined income is:
    • between $25,000 and $34,000, then you may be taxed on up to 50% of your benefits.
    • greater than $34,000, then you may be taxed on up to 85% of your benefits
  • If you file a tax return as Married Filing Jointly and your combined income is:between $32,000 and $44,000, then you may be taxed on up to 50% of your benefits.greater than $44,000, then you may be taxed on up to 85% of your benefits.
Again, this is an absolute atrocity.  For reference and perspective, according to FORBES:

"The 37% marginal tax rate is currently applied to the super-rich group"

FORBES defined this group as making $10,000,000 per year or more. Ten MILLION a freaking year with marginal tax rate 37% while wifey and myself  (and millions of other seniors) are being socked at 50 percent, or 85 percent!  What the hell is wrong with this picture!?  Even capital gains taxes, which generally affect the wealthy more than income taxes, are like the gift that keeps on giving for the rich. Especially as they can write off stock market losses.  (Long-term capital gains tax rates are 0%, 15% or 20% depending on one's taxable income and filing status. They are generally lower than short-term capital gains tax rates.)

Sure, according to the Mottley Fool rubric, one can avoid paying taxes on Social Security. Well, provided one lives at the level of a monk or hermit, or one of those "FIRE" people (who grow their own lentils and tomatoes and fix their own cars, etc.)  So yeah, if as a couple you can keep income down to the base level of $32,000 a year you're A-ok.  And for more perspective, that amount is just a tad below 200 % of the federal poverty level for a household of two ($32, 920) E..g

 Four grades over poverty level  means: no dining out or very little, no traveling to speak of,  no concerts or even movies (okay maybe two per year) and using a bare bones budget which would also include cutting out a big chunk of charity donations.  Can many oldsters live on  32 grand a year? I am sure they could, but I don't see why those who wish to have more ought to be so punitively taxed, as at 50 percent and 85 percent, respectively.  Certainly, no senior ought to be taxed at a higher marginal rate than the richest billionaires! To say this taxation is unfair is surely understatement, but it is also to recognize how it penalizes savers. Just like the Federal Reserve's low interest rates have - in fact, worse!   

Thus, we consciously decided to enhance our long term financial security by purchasing immediate fixed annuities rather than staying in the stock market. The benefit is that we obtained a stable monthly source of income, that was independent of the DOW's volatility and enabled us to account for (and spend)  income in a more stable environment.  However, that additional $1100 a month firmly pushed us into the 50 percent Social Security tax category (and also into the 85%, i.e. with pensions added).  Whichever way you cut it, we are being penalized  for making sound financial decisions.  

This is simply not right!  It also leads me to exhort the Democratic field of presidential candidates to inveigh on seniors' behalf (and once again we are not talking about rich seniors!).  This is to eliminate the taxes on Social Security,  at least for those getting up to $50,000/ year or less. Unless,  perhaps, one is also earning a job income separate from the S.S. benefit.  This is even more crucial now - as per a notice from a seniors' action group - that the Social Security Administration is to begin using the draconian Chain-Weighted CPI (instead of the CPI - E) to determine Social Security COLAs for all seniors from 2020.

It's bad enough we've had a parade of  administrations, from LBJ to the current vipers,  who've consecutively raided the Social Security Trust Fund to the tune of over $3 trillion.  Now they have to gouge out even more in ridiculously exorbitant taxes from millions of moderate income seniors. I mean think of it! A tax hit of 50-85 percent -  compared to the measly 37 %  income tax, or max 20 % capital gains tax,  on the "super rich"!

So there you go, the gov't giveth and the gov't taketh back.  And neither of us is even working any more! I suppose we ought to be thankful for small mercies, i.e. that we aren't getting much more than $44,000 in income! Meanwhile, it looks to me like the entitlement game is all on the gov't side.  (And now Dotard wants to also cut $845m from Medicare to add insult to injury.)

Readers can learn more here:


No comments: