By Dale Coberly No. It’s not. Here is why. The argument for ending the tax on Social Security benefits seems to be that “it is a tax on a tax”, double taxing, and not fair. Even the good guys believe this. But they are wrong. Consider, You pay income taxes on your ordinary income. Then you may take your after tax income and put some of it in a savings account which earns interest. Then you pay income tax on the interest you earn. Is this double taxation? This is exactly how Social Security works. You pay income tax on your ordinary income, then you put some of your after-tax money into Social Security which is a very safe savings account.* This account earns interest, which you collect when you start receiving benefits, Social
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by Dale Coberly
No. It’s not. Here is why.
The argument for ending the tax on Social Security benefits seems to be that “it is a tax on a tax”, double taxing, and not fair.
Even the good guys believe this.
But they are wrong.
Consider, You pay income taxes on your ordinary income. Then you may take your after tax income and put some of it in a savings account which earns interest. Then you pay income tax on the interest you earn. Is this double taxation?
This is exactly how Social Security works. You pay income tax on your ordinary income, then you put some of your after-tax money into Social Security which is a very safe savings account.* This account earns interest, which you collect when you start receiving benefits, Social Security does not call it “interest,” but that is what it is. That interest means you get about three times what you paid in back when you need it most when you can no longer work.
At first, Social Security income was not taxed, the same way ordinary income is not taxed for people with very small earnings. But it was eventually realized that not everyone getting Social Security benefits had very small earnings. So it was decided to tax PART of Social Security income for people who had a fair amount of outside earnings…enough to keep them out of poverty. This is just the way ordinary income is taxed on people who are not in the very low earnings bracket.
A little later it was decided that people who had even more earnings in addition to their Social Security should pay tax on a larger part of their Social Security benefits…just the same as ordinary income is taxed at a higher rate for people with higher earnings.
There is nothing unfair going on here. What has happened is that some paid liar called the tax on SS a tax on a tax, and people, always ready to believe they are being cheated glommed onto it and won’t let it go. What started as a tax break for the poor is now regarded by people who are not poor as unfair double taxation.
Removing the tax on part of Social Security income is wildly popular, But that tax is money that is returned to the Social Security Trust Fund and keeps the payroll tax a little bit lower than it would otherwise be. So removing the tax on benefits will result in a higher payroll tax or lower benefits, hurting the poor mostly, but not too good for the rich.
It is just another scheme by the liars to weaken Social Security by pretending to strengthen it. And no one will tell the people.
Most people who are retired understand what Social Security does for them. That is why politicians all say they are not going to touch the benefits of those already retired, or those close to it. Instead, they say, “but we are going to have to do something about Social Security for the young.” . . . because they know full well that the young know nothing about Social Security or even that they will become “the old” one day.
I have written elsewhere that we pay for our own Social Security in advance. That is the way the law is written and that is the way Social Security has always worked. But because the CASH that is paid to a beneficiary comes that day from a younger person paying for his own future benefits, the liars have convinced everyone that “the young” are paying for “the old.” So “the young” will be very happy if they don’t have to pay for Social Security. But when they get to be “the old” and no one has paid for their benefits, who will they look to? The then-young? who will say “not on your life grandpa!” *Yes, putting your money into Social Security is called “the payroll tax” because it is mandatory. But it is kept in an account with your name on it. And you get your money back about three times over thanks to the “effective interest” created by pay as you go financing. That makes it much more like a savings account and insurance policy than a tax.