Although the federal government has a great system to ensure the taxes they collect are not “cheated” by the inflation rate which eats away at the value of a dollar, to pay for their own salaries and benefits, they don’t apply the same principle to senior citizens who paid hard-earned money into the Social Security Trust Fund to be returned to them 50 years later.
The federal government has made the Social Security system so complicated, most seniors don’t realize that the money they earned working and that they put into the system over the past 50 years of working hard is being eroded by inflation and a failure to adjust the formula on how this money is taxed.
If your “combined income” is more than $25-34,000 as an individual or $32-44,000 filing jointly, you pay taxes on 50 percent of your Social Security.
If your “combined income” is more than $34,000 as an individual or $44,000 filing jointly, you pay taxes on 85 percent of your Social Security.
Those levels should be increased significantly. Here’s why.
The term “combined income” for calculations only includes half of your Social Security payments added to other income and non-taxable interest.
That taxation formulation has been in place for decades and is based on inflation levels dating back to the 1980s.
Over the past 40 years, inflation has pushed most seniors into the higher tax rating brackets as the cost of living has increased while the formula that the Federal Government uses to tax seniors’ Social Security has not changed.
What’s the difference between $1 in 1983 and $1 today? According to the Bureau of Labor Statistics consumer price index, $1 today only buys 33 percent of what it could buy in 1983.
In other words, you have to earn $3.05 cents today to match the $1 you made in 1983.
What that means is that to preserve parity for a Senior living in 1990 to a Senior living in 2023, the federal government should triple the amount people can earn before they have to pay social security to achieve parity.
That would mean, for example, if adjusted fairly, you could earn three times more today, compared to what you were allowed to earn in 1983, before your Social Security is taxed.
Here is how the tax index SHOULD be adjusted to reflect the inflation penalty that has undermined the value of Social Security:
If your “combined income” is more than $75-102,000 as an individual or $96-132,000 filing jointly, you would pay taxes on 50 percent of your Social Security.
If your “combined income” is more than $102,000 as an individual or $132,000 filing jointly, you would pay taxes on 85 percent of your Social Security.
In other words, you should be allowed to earn three times more income including Social Security BEFORE the 50 percent or 85 percent Federal tax should be applied.
The fact the “inflation punishment” on Seniors has not be adjusted in 40 years means that today, you are paying three times more in taxes on your social security than in 1983.
Some argue that Social Security payments today are higher than what they were in 1990. That’s true in the sense that the money earned by Seniors before they retired increased.
Social Security isn’t a freebie government giveaway like taxes taken to pay immigrants, asylum seekers, or people who don’t work. Why are Seniors at the end of the line?
Social Security is money Seniors earned through hard work, set aside to for their retirement. It was put into an annuity for them, but the government has borrowed it and continues to tax it far more harshly than when it was earned.
Many seniors want and can work. They don’t because they feel their extra income will erode their overall after-tax income.
And governors of each state should be advocating for this tax index adjustment because seniors who don’t work are becoming dependent on social welfare support, rather than working.
Since 2000, Illinois’ older population (60 years of age and older) has grown from 1.9 million to 2.8 million. It now represents 22% of the population in Illinois.
By 2030, it is estimated that the 60 years of age and older population will increase to 3.6 million and will represent 25% of Illinois’ population.
If we don’t help seniors today, the financial burden on future generations will be an even greater hardship. Seniors don’t want welfare. They want to be treated fairly.
(Ray Hanania covered Chicago City Hall from 1976 until 1992 and today writes political columns for the Southwest News Newspaper Group community newspapers. Read his columns at Hanania.com. Follow him on Tiktok)
Views expressed in this article do not necessarily represent those of Pakistan Week.