Does AARP support the idea of no taxes on Social Security benefits?

[RichardV792104]

I'm interested in the idea of no taxes on Social Security benefits.  I understand that this is a campaign promise by a presidential candidate but feel it is something that AARP should support.

[MichelleS55732]

If you vote not to have taxes on social security, understand that you will be drying up social security because social security is funded by taxes. If you have not axes on it, it is estimated that the fund will run out of money in 5-6 years.

[RonC10078]

Social Security is primarily funded through payroll taxes collected from workers and their employers, known as FICA (Federal Insurance Contributions Act) taxes. These taxes are allocated to two main trust funds: the Old-Age and Survivors Insurance (OASI) fund and the Disability Insurance (DI) fund, which provide benefits to retirees, disabled workers, and their families.

[GailL1]

@MichelleS55732 

Yes, your are right about the taxes but I don’t know about the timing of insolvency.

In 2023, taxes on benefits added $ 51 BILLION to the Trust Funds and the WEP/GPO elimination passed at the end of last year is gonna cost the Trust Fund a minimum of $ 200 BILLION and that is low - so yes, the Trust Funds are bleeding money all because Congress wants to look good.

Think, folks, Think !!!  

[roachme]

@GailL1  Everything I've read bases the $200 Billion on the additional benefits paid to people who applied for benefits that were reduced by WEP or GPO.  I don't think it includes the people who never applied because they were told they wouldn't receive anything, or people, like my wife, who never applied for spousal because we knew the benefit would be zeroed out by the GPO.  Personally, I believe WEP/GPO were both valid reductions in SS benefits.  The people who are eligible for their own SS mostly paid less than half of the SS FICA taxes a person who worked 35-50 years paid.  My wife paid a little over $3500 in SS FICA taxes in her lifetime for her first 9 years working and military service before government service.  Her FRA amount, without WEP applied, would be about $650/mo so she would've collected all taxes back in 5 months and over $125K more over her lifetime.  WEP would've made that payment about $150/mo or less.  Now with WEP/GPO gone she can collect spousal on my record, which is substantially more. GPO zeroed out any spousal and survivor benefits because her pension is twice the amount of my SS.   Now when I die, she gets my full benefit plus her own pension which could grow to 2.5 times my SS by the time I die.  By 85, she could collect over $400,000 in spousal support alone without any COLA, and over double that if I died tomorrow because I have a 9% DRC.  I don't think the GAO figured people like her into their cost factor for the WEP/GPO elimination.  All I can do is shake my head at Congress' utter ignorance on what they were doing.

[GailL1]

@roachme 

I completely agree with you - it is like those in Congress never learned how to add and subtract and they didn’t understand how all of this worked within the Social Securiity program.

Let’s call it like it is - a law change that bought votes.

The thing is there were proposals from both sides of the isle that would have changed the way the formula was done for the WEP/GPO.  Those proposals were shot down and a completely elimination past and now we shall reap the financial consequences of this action.  

Remember this when 2032-2035 comes around and we are all informed that the 20% of AUTOMATIC deductions to our benefits will begin.  

This was a HUGE mistake especially for those conditions as you described - I know many people that never filed for these Spousal or Survivors Benefits because of the GPO - if this condition was included in the CBO estimate then it was just a big guess on their part of what it would be - I think it is gonna be a massive amount.  

A lot of people are now understanding this and agree - but I see nothing to change it forthcoming.  

It is what it is -

Now they want to get rid of taxes on benefits - 🤯   WHO ARE THESE PEOPLE IN CONGRESS - they all need to take a test on how specific programs work so they can at least make informed decisions instead of just thinking about their job.

[roachme]

@GailL1   In the beginning, for a year or two, I thought WEP/GPO were wrong until I read the reasoning behind it.  I based my erroneous reasoning on the fact a stay at home spouse never pays in but collects benefits.  Then reading and logic hit me that a non-SS tax spouse was bringing money home to the household and would get a pension in place of SS, which the stay at home spouse wouldn't.
My favorite description of WEP is it implemented cuts with a chainsaw when it required a scalpel.  The WEP needed revision, not repeal.

The 2024 Trust Fund data is out.  Taxes on benefits brought in $55 Billion.  If they screw around and repeal SS benefit taxation, the loss in income due to the current shortage plus the loss of benefit income tax will be over $122 Billion and increasing.  The benefit income tax revenue increased 9.7% from 2023 to 2024, and the overall income shortage increased 61.7% from $41.4 Billion to $67 Billion.  The income gap keeps getting larger each year.  Congress will wait until the SS Trustees predict we have 3 years left before the Trust is empty before they start working on it and I don't think the 2030 Congress will be as smart as the 1983 one was in making changes.

[RonC10078]

Social Security is primarily funded through payroll taxes collected from workers and their employers, known as FICA (Federal Insurance Contributions Act) taxes. These taxes are allocated to two main trust funds: the Old-Age and Survivors Insurance (OASI) fund and the Disability Insurance (DI) fund, which provide benefits to retirees, disabled workers, and their families.

[GailL1]

@RonC10078 -

You are talking about different taxes - You are talking about PAYROLL TAXES - where they take Social Security and Medicare (Part A) contributions out of your wages and then the employer matches them in all the years while you are working as an employee or self-employed.

This discussion is about Social Security taxes ON BENEFITS which many of us have to pay annually via our taxes - these tases are computed and shown on our yearly tax forms.  

The Treasury sends these monies - taxes paid on Social Security benefits - to the SSA for appropriate credit to whichever Trust Fund allocation.  

In 2024, the Social Security Trust Fund received 51 BILLION from these taxes on social security benefits.  Mine included.  

[CaptainObvious60]

AARP would never support anything President Trump supports even if it benefits the elderly! Very sad that AARP is so politicized!

Im curious to see how they will spin it though!

[JohnC728129]

The president can’t dismiss taxes on social security it must go through Congress. I feel if they can’t agree to end taxes on our benefits then they should at least consider increasing the tax table for inflation. It’s been 40 years for the 50% and 30 years for the 85% since the laws was past with no adjustments.

[DanL873126]

I agree. As an advocate for retired people, AARP should support this irrespective of partisan politics.

[CaptainObvious60]

They should but they won’t! Very Sad!

[DirkB349973]

Since taxes go back into the fund, collecting no taxes would exhaust the fund more quickly. Just something to consider.

[RonC10078]

Social Security is primarily funded through payroll taxes collected from workers and their employers, known as FICA (Federal Insurance Contributions Act) taxes. These taxes are allocated to two main trust funds: the Old-Age and Survivors Insurance (OASI) fund and the Disability Insurance (DI) fund, which provide benefits to retirees, disabled workers, and their families.

[CaptainObvious60]

We are 36 Trillion dollars in debt, Social Security is already exhausted! The interest payment is more than a trillion dollars a year now! 

[Tonster521]

@CaptainObvious60 I believe the debt stats that you posted are related to all federal government activities. The Social Security Program is a social insurance benefit funded by dedicated taxes predominantly FICA. The federal income taxes that some folks pay at the 50% threshold are returned to the SS Trust. Those monies are used to pay SS Benefits. The federal income taxes that some folks pay up to the additional 35% threshold are used to pay Medicare Part A - Hospital Insurance. So, none of those taxes remain in the Federal Government General Fund. Those taxes are returned to the SS Program and Medicare Part A. Currently, this amounts to approximately $50 Billion per year. How will that revenue be replaced? 

It should be noted that only 40% to 45% of the folks report SS Benefits as taxable income. The majority of folks, 55% to 60%, do not pay federal taxes on their SS benefits because their "combined income" does not exceed the thresholds. The 50% thresholds are $25,000 single and $32,000 married using only 50% of one's amount of SS Benefits. For example, a single receiving $20,000 in SS Benefits need to have more than $15,000 of additional income. Married folks receiving $30,000 in SS Benefits need to have more than $17,000 of additional income. Next, will that "combined income" exceed the Standard Deduction which in 2024 is $14,600/Single and $29,200/Married. There are additional deductions if you over age 65 and/or blind. 

So, eliminating federal taxes on SS Benefits will only benefit the higher income folks. Why should the federal government provide tax relief for higher income folks? It does not make any sense to me.

[roachme]

Glad to see I'm not the only person who tries to educate people on the difference between taxed and taxable SS income.  Many people don't seem to understand that the thresholds are just the points where a percentage of SS starts to become part of the taxable income but still may not be taxed.  There's one group of high income people who will never pay taxes on their SS, even when they do exceed the thresholds for SS to be taxable: those who get the majority of their other income from Roth accounts.  At some point I expect Congress will recognize this as an untapped revenue source and change the rules regarding the exclusion of Roth income in the MAGI.

Congress put the fixed taxation thresholds in place so the taxation of SS would incrementally increase the number of households affected each year until nearly all beneficiaries with other taxable income and tax-free interest would be taxed on SS.  It was seen as an unfair advantage to SS beneficiaries over those with pensions, whose pension amount is approximately 85-87% taxable income. SS pays back all of the personal SS taxes in 3-5 years and everything after that is income that hasn't been income taxed to the recipient.  The original 50% level was established because the employer contributions had never been taxed but they wanted to make sure low income people who lived on SS alone weren't affected so they adopted thresholds to exceed.  It was raised to the 85% level to bring it inline with the pension taxation levels.  I lose 20% of my SS back to the two trusts each year but I know in the long run I will collect so much more over my lifetime than I paid in.

[GailL1]

@Tonster521 

Again and Again and Again and Again . . .

Over and Over . . . 

Wonder how many more times this piece of factual information has to be posted here for people to understand the necessary need for these taxes on our Social Security benefits in order to HELP keep the Trust Funds - Social Security and Medicare Part A - going.

[RonC10078]

Social Security is primarily funded through payroll taxes collected from workers and their employers, known as FICA (Federal Insurance Contributions Act) taxes. These taxes are allocated to two main trust funds: the Old-Age and Survivors Insurance (OASI) fund and the Disability Insurance (DI) fund, which provide benefits to retirees, disabled workers, and their families.

[roachme]

Unfortunately, the information will have to be repeated constantly as new beneficiaries come in every day with a lack of knowledge about SS.

[Tonster521]

@GailL1 I agree that this issue will continue over and over. It doesn't help when tax advisors inform their clients that if SS Benefits were tax free, they would not pay any additional income taxes. As you know, most SS  Benefits are below the thresholds established and the Standard Deduction. However, it is the other taxable income that when added to SS Benefits increases their "combined income" above the  thresholds and causes their SS Benefits to be federally taxable. I am providing this for the other readers.

Years ago, Mitt Romney was questioned why he only paid federal taxes at 15%. He donated most of his income to the Church that he belonged. Many of the folks may do the same (church or charities) and reduce their "combined income". Depending on their donation(s), their SS Benefits may be tax free and they sent their money to an organization that they support.

Lastly, I agree with your comment on another  thread that our presidential candidates appear to be trying to buy votes and offer no solution as to how the approximate $50 Billion in SS revenue due to federal income taxes will be replaced. 

[BillWhitmire]

https://www.nasdaq.com/articles/how-much-money-has-congress-taken-social-security-2019-02-04   Many would like to blame ss recipients for what they say will result in the end of the the system completely. The SS program is not failing there is plenty of money in the fund, nearly $3Trillion. If there is a possibility of failure the problem is not retirees receiving too much in benefits, it is gross mismanagement by congress using the fund for other purposes than those for which it is intended to be used. The link above is worth reading i you're worried about it. There will always be those  who oppose the system. One man I was talking to called it welfare program before realizing I was a retiree. I believe that the social security system is what saves the country from a total collapse of our economy. Those benefts we recieve  are money that goes straight back into economy. I can't imagine the number of businesses that would fail or jobs that would be lost if not for the money we spend. AARP definitely should take a stand for preserving  SS!. If we are concerned, we should  cast our ballots for senators and representatives who will increase our benefits and eliminate tax breaks for people who have money left in their bank account at the end of the month.

[BalbonisMoleskine]

"If there is a possibility of failure the problem is not retirees receiving too much in benefits, it is gross mismanagement by congress using the fund for other purposes than those for which it is intended to be used. The link above is worth reading i you're worried about it."

Did you even read that article? The "The federal government hasn't pilfered a dime from Social Security" section completely refutes your claim.

[CaptainObvious60]

America is 36 trillion dollars in debt and currently its costing more than a trillion dollars each year to service this huge debt burden.

Im pretty sure not taxing social security isn’t going to break the country financially! It’s already broken!

[Tonster521]

@BillWhitmire I have read the article that you linked from Motley Fool and it appears to support Congress. It indicates that Congress has not mismanaged FICA revenue. In fact, the FICA tax money is allocated to Special Issue Treasury securities exactly how the SS procedures require. The procedures were created in 1960; and, in my opinion, follow more of a short investment strategy. The short versus long strategy probably could have provided more interest income for the SS Trusts. However, that additional interest income would not have solved the depletion of the SS Trusts in 1983 and the projected depletion fpr 2034/2035. I am providing a link to info from the SSA website that informs us of the Special Issue Treasury Securities used exclusively for the SS Trusts. https://www.ssa.gov/oact/progdata/specialissues.html I suggest to click on the sub topics that appear on the left side of the screen; namely, Investment Holdings (drill down further via Time Series Request) and Investment Transactions (both OASI and DI).

The best examples that I can relate the Special Issue Securities to are Treasury Bills may be considered Special Issue Certificates of Indebtedness and Treasury Notes (of various duration) may be considered Special Issue Treasury Bonds. If you buy/invest in Treasury Bills and/or Notes are you concerned what the Treasury does with the money? Probably not, your concern is the interest rate and risk free guarantee backed by the "full faith and credit" of the U.S. Government.

There are many issues that need to be addressed by Congress regarding the projected depletion of the remaining assets ( approx. $2.8 Trillion) of the SS Trusts in 2034/2035. IMO, the SS (FICA) tax base has eroded since 1983 which was the last time Congress addressed the SS Trusts. The Labor Participation Rate (LPR) is a dismal 62%. In the early 2000s the LPR reached about 65%. and has declined since then. Many folks are focused on the Unemployment Rate ( approx.4% per government accounting) and feel that is outstanding

. That rate only tracks the folks currently in the workforce (approx. 168 million). However, there are approx. 271 million folks eligible to work out of approx. 331 million in the USA. I think there are at least two questions that need to be answered. First, why are there over 100 million not working or not being counted as eligible for the workforce? Second, why is the federal government not supporting job creation in the USA? 

Lastly, I would not encourage folks to spend all their money and deplete their bank accounts to receive a tax break. There should be incentives for folks to save and invest their money. Moreover, there should be incentives for folks who create good paying jobs ( not fake jobs created by the government)   and plenty of them.

[roachme]

The purchase of Treasury bonds and instruments was dictated in the original Social Security Act of 1935 in Title II, Sec. 201(b).  It is now located in Title II, Sec. 201(d) after years of amendments.  Corporate bonds were allowed in the original law and I believe the 1960 change you refer to was when corporate bonds were removed from the investment pool.

[DanL873126]

Thanks, but that is not factually correct. Income taxes do not fund the Social Security Trust Fund.  Social Security is funded by FICA taxes, not income tax, and Social Security benefits are already exempt from FICA taxes.  So freeing Social Security benefits from income taxes will have no effect on funding Social Security.

[BalbonisMoleskine]

"So freeing Social Security benefits from income taxes will have no effect on funding Social Security."

Yes, it will. According to https://www.aarp.org/retirement/social-security/info-2023/social-security-taxes.html: "By law, federal income taxes collected on benefits go into the government’s Social Security and Medicare trust funds, meaning they contribute to future benefit payments. Income taxes on benefits paid out in 2022 added $48.6 billion to Social Security’s coffers, accounting for about 4 percent of the program’s revenue, the vast majority of which comes from payroll taxes levied separately on most U.S. workers’ earnings."

[Tonster521]

@DanL873126 In 1982, President Reagan addressed the depletion of the SS Trust by forming a National Commission (aka Greenspan Commission) to develop solutions. You can find the results/details at the SS website (ssa.gov/history). It is lengthy and will take time to read. I am linking  Appendix C - Findings and Recommendations https://www.ssa.gov/history/reports/gspan5.html and Chapter 4- Additional Statements https://www.ssa.gov/history/reports/gspan7.html#c10 wherein individual members of the National Commission provided individual statements. Appendix C indicates the initial recommendation that 50% of SS Benefits should be taxable income if folks exceed certain thresholds based on a new concept called "combined income:. Those initial thresholds were $20,000 single and $25,000 married. The threshold were subsequently increased to $25,000 single and $32,000 married. Only 50% of one's SS Benefits were used to determine whether one's combined income exceeded the thresholds. DirkB is correct. I believe President Reagan signed the Amendments in April 1983. SS Benefits for certain folks that exceed the thresholds will be taxable income in 1984. It has been this way for 40 years. I agree with Gail 1 that both Presidential Candidates appear to be trying to buy votes by their initial positions for tax free SS Benefits. So far, I have not seen any detailed analysis from either candidate regarding the math behind such mismanagement. The SS Program needs revenue. As DirkB indicated, cutting $50 Billion or more of revenue will hurt the SS Program. So, do you reduce SS Benefits to cover the shortfall? Will the reduction be shared equally? Do you pick and choose? Do you increase current FICA taxes? I do not think there is a good answer/solution. If someone must pay taxes on SS Benefits, it means they have other income. When that income combined with 50% of their SS Benefits lifts them above the thresholds, SS Benefits become taxable. In other words, they are not at or near poverty level. Approximately, 40% to 45% of folks report SS Benefits as taxable income. The other 55% to 60% do not report SS Benefits as taxable income. These are the folks that are near poverty level or slightly above. They need the help more so than the wealthy.