Opinion: Social Security’s COLA is no bonus

[Auburn85 438]

https://www.marketwatch.com/story/social-securitys-cola-is-no-bonus-11665664928

 

 

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Brett Arends

The real terms 'increase' in benefits is precisely zero.

The Biden administration wants credit for the huge 2023 hike in Social Security benefits, announced Thursday, as well as the planned cut in Medicare Part B premiums.

“For the first time in over a decade, seniors’ Medicare premiums will decrease even as their Social Security checks increase,” said press secretary Karine Jean-Pierre in a statement on Wednesday. “This means that seniors will have a chance to get ahead of inflation, due to the rare combination of rising benefits and falling premiums. We will put more money in their pockets and provide them with a little extra breathing room.”

Er…what?

Well, the 2023 Social Security benefit hike is nothing more than a cost-of-living adjustment to try to keep up with inflation, not get ahead of it. The real terms “increase” in benefits is precisely zero.

Then there’s the problem that the COLA, like all Social Security COLAs, comes a year after prices went up in the stores. Social Security recipients will get an inflation adjustment in 2023 to reflect price rises in 2022.

Oh, and there’s also the awkward point that Medicare B premiums are only being cut next year because this year they were hiked by too much.

“The federal government collected too much for Part B premiums in 2022,” Mary Johnson, policy analyst at the Senior Citizens League lobby group, tells me. “The 2022 Part B premium increase of 14.5% was one of the highest in the history of Medicare.” The reason, she says, was to provide contingency funding for the new Alzheimer’s drug Aduhelm. But in the event Medicare spent much less on the drug than expected. So they are giving some of the money back.

But, yes, let’s thank Uncle Sam for giving us back some of our own money.

Actually the situation with the Social Security cost of living adjustment is slightly worse than that. Social Security beneficiaries next year will get less overall than inflation, as in every year since 1984, because a growing percentage of their benefits will be taxed. Individuals earning more than $25,000 a year, and joint filers earning more than $32,000, will have to pay taxes on some or most of their benefits. As much as 85% of your benefits can be taxed, an absolute cheat because your contributions to Social Security were already made with after-tax money.

Oh, and when they introduced these taxes in the 1980s they didn’t even index the thresholds to inflation. As a result, the taxes which once hit only about 10% of Social Security beneficiaries now hit about half.

Social Security’s own trustees admit that the higher the inflation, the better it helps the trust fund at the expense of the beneficiaries. That’s because FICA taxes go up in real time, while benefits only get adjusted a year in arrears. And then the benefits get double taxed.

Jean-Pierre added that “MAGA Republicans” in Congress “continue to threaten Social Security and Medicare,” although cynics would suggest pretty much everyone in Congress is threatening Social Security, either by their actions or their inactions.

Brett Arends is an award-winning financial writer with many years experience writing about markets, economics and personal finance. He has received an individual award from the Society of American Business Editors and Writers for his financial writing, and was part of the Boston Herald team that won two others. He has worked as an analyst at McKinsey & Co., and is a Chartered Financial Consultant. His latest book, "Storm Proof Your Money", was published by John Wiley & Co.

 

 

[Auburn85 438]

Since 1984, the Social Security income threshold has been tinkered with only once.

 

https://www.ssa.gov/policy/docs/ssb/v57n1/v57n1p72.pdf

 

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Social Security Related Legislation in 1993
The first session of the 103rd Congress convened on
January 5, 1993, and adjourned on November 24, 1993 (Sen-
ate) and November 26, 1993 (House). During this session,
some 140 bills of interest to the Social Security Administration
(SSA) were introduced and 4 were enacted. This note de-
scribes the Social Security-related legislation that was enacted
during that session.
The Omnibus Budget Reconciliation
Act of 1993 (H.R. 2264), P.L. 103-66
(signed August IO, 1993)
Tax Provisions
Taxation of Social Security and Railroad Retirement
Tier I benefits.-The legislation increases the percentage of
Social Security and Railroad Retirement Tier I benefits that
may be subject to income taxes from 50 percent to 85 percent
for single taxpayers with incomes over $34,000 and for mar-
ried taxpayers filing jointly with incomes over $44,000. It
retains the present law, under which no more than 50 percent
of benefits may be subject to income taxes for single taxpayers
with incomes from $25,000 to $34,000 and for married taxpay-
ers filing jointly with incomes from $32,000 to $44,000. In-
come for benefit taxation purposes would continue to be the
sum of the taxpayer’s adjusted gross income, any tax-exempt
interest income, and 50 percent of the taxpayer’s Social Secu-
rity or Tier I benefits.
Revenues from the additional taxation of benefits will be
credited to the Medicare Hospital Insurance (HI) Trust Fund.
The provision is effective for taxable years beginning after
1993.

Here's a site stating the annual inflation rate

 

https://www.usinflationcalculator.com/inflation/historical-inflation-rates/

 

The Alternative Minimum Tax started in 1970. However, it has been patched numerous times as not to include middle class taxpayers. Here's what the income tax brackets looked like for single filers in 1970

Tax Year 1970 / Filed April 1971

Federal - 1971 Single Tax Brackets

Tax Bracket	Tax Rate
$0.00+	14%
$500.00+	15%
$1,000.00+	16%
$1,500.00+	17%
$2,000.00+	19%
$4,000.00+	21%
$6,000.00+	24%
$8,000.00+	25%
$10,000.00+	27%
$12,000.00+	29%
$14,000.00+	31%
$16,000.00+	34%
$18,000.00+	36%
$20,000.00+	38%
$22,000.00+	40%
$26,000.00+	45%
$32,000.00+	50%
$38,000.00+	55%
$44,000.00+	60%
$50,000.00+	62%
$60,000.00+	64%
$70,000.00+	66%
$80,000.00+	68%
$90,000.00+	69%
$100,000.00+	70%        https://www.tax-brackets.org/federaltaxtable/1971

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https://www.usatoday.com/story/money/taxes/2023/03/16/unadjusted-inflation-taxes-social-security-hurting-seniors/11465773002/

 

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Medora Lee

March 16

If you feel like your Social Security benefits aren’t going very far despite big cost of living increases the past few years, there’s a reason for it, and inflation’s only a part of the explanation. 

The government regularly adjusts many things for inflation: federal tax brackets;  contribution limits for retirement accounts; the size of the standard deduction; Social Security’s cost-of-living adjustment (COLA), among others.

But one thing that has never been adjusted for inflation is the federal income threshold to determine if you’ll have to pay taxes on your Social Security benefit. That means with each passing year, an increasing proportion of seniors have been reaching those low thresholds and having to pay taxes on their benefits. 

“This is a stealth tax,” said Jordan Gilberti, senior lead planner and certified financial planner at financial advisory Facet. "Everyone knows Social Security gets taxed, but rarely do they see how it’s taxed. People’s jaws would fall to the ground.” 

How is Social Security taxed and what are the tax thresholds? 

Depending on your so-called provisional income, up to 85% of your Social Security benefits can be taxed. Provisional income includes your gross income, excluding Social Security benefits, plus any tax-free interest you received like from a municipal bond holding and 50% of your Social Security benefits. 

If you’re single and this total is less than $25,000, or if you're filing jointly and it's less than $32,000, none of your Social Security is federally taxed.  

If it’s between $25,000 and $34,000 for single filers or $32,000 and $44,00 for joint filers, up to half your Social Security is taxed. These thresholds have remained the same since taxes on Social Security benefits were introduced in 1984. 

And up to 85% is taxed for anything above $34,000 for single filers and $44,000 for joint filers. These thresholds were added in 1993.  

For example, if you have $50,000 in income and get $1,500 a month from Social Security, you'll pay taxes on 85% of your $18,000 in annual benefits, or $15,300. 

You can file quarterly estimated tax returns with the IRS or ask Social Security to withhold federal taxes from your benefit payment.

What’s wrong with these Social Security tax thresholds? 

With such low income thresholds, a larger proportion of beneficiaries owe taxes on Social Security every year. In 1984, the average monthly check for an individual was $314 and $472 for joint filers. In 2023, it’s $914 and $1,371, respectively.

The percentage of all tax returns with taxable Social Security benefits grew to 33% in 2017 from 7.4% in 1999, and the Congressional Budget Office predicts that it will grow to more than 50% by 2046. 

If Social Security income thresholds were indexed to inflation, Johnson estimates the first thresholds of $25,000 for individuals and $32,000 for joint filers would be $73,000 and $93,200, respectively. At those levels, a lot fewer Social Security beneficiaries would probably owe tax on their benefits, she said. 

The scorching hot inflation from the past couple of years made things worse, too. Many seniors had to tap retirement funds or take part-time jobs to make ends meet, which boosted their income and meant they will likely have to pay taxes on their Social Security. 

“Seniors view this as discriminatory, double taxation,” said Mary Johnson, policy analyst at The Senior Citizens League advocacy group.

A recent survey by the league showed 58% of seniors want these thresholds adjusted for inflation, “and quite a few are in favor of getting rid of the tax altogether,” not that Congress has ever asked seniors what they want.  

“When they’re considering changes to Social Security and Medicare, they’ve never, ever turned to senior constituents or advocates as individuals to sit on commissions or in on negotiations,” Johnson said. “We’ve never been invited to the table.” 

Why hasn’t the government adjusted these thresholds for inflation? 

“To be responsible about it, there would be a need to find revenues to replace what would be lost,” Johnson said. This year, she estimates Social Security would receive $48.8 billion in revenue from taxing Social Security benefits. 

The Social Security and Medicare Boards of Trustees already predict Social Security trust fund reserves will become exhausted in 2034, and though President Joe Biden called for “protecting and strengthening” Social Security last week, he offered no plan to do so. 

A Social Security overhaul is also particularly difficult because of a divided Congress. Any overhaul of Social Secuirty would require bipartisan support. 

What can Social Security beneficiaries do to avoid taxes? 

Plan to reduce your provisional income.  

“Provisional income includes every type of income, from a job, IRA distribution, rental income, dividends, interest,” Gilberti said. “One of the only things that doesn’t count is Roth IRA distributions.” 

If you don’t already have a Roth IRA, consider converting some of your 401(k) or traditional IRA if your tax bracket is low to a Roth IRA before retiring. You would have to pay ordinary income tax on those conversions, but it might be worth it.  

“We also recommend doing those Roth conversions, if you can, by 63 (years old) because your Medicare premium, which will be taken out of your Social Security check, depends on your income from the last two years,” Gilberti said.  

 

 

 

[aubiefifty 18,429]

the repubs and dems both borrowed from the ssi surplus for other crap and this is why we are in such bad shape. they should pay back what they borrowed with interest. it stinks. i got a nice raise but i am still breaking even with trumps economy. i agree covid messed a lot up but the pols on both sides need to be honest and start telling the truth on why ssi is almost bankrupt. it stinks..............BOTH sides.

[Mikey 16,781]

16 hours ago, aubiefifty said:

the repubs and dems both borrowed from the ssi surplus for other crap and this is why we are in such bad shape. they should pay back what they borrowed with interest. it stinks. i got a nice raise but i am still breaking even with trumps economy. i agree covid messed a lot up but the pols on both sides need to be honest and start telling the truth on why ssi is almost bankrupt. it stinks..............BOTH sides.

You are losing ground in Biden's economy. Trump has been out of office for over two years. When Trump left office the inflation rate was 1.4%. The current ruinous inflation that hits low income people the hardest is Bungling Biden's creation. Biden broke it, Biden owns it.

https://www.usinflationcalculator.com/inflation/current-inflation-rates/