Over the years there have been many changes to Social Security, some to add benefits, some to shore up finances, none sufficient by the way to keep the trust sustainable.
One of those changes was taxing Social Security benefits. In many Americans mind those taxes are unfair. After all, they paid for their benefits, why tax them? Eh, not so much.
The notion that the SS payroll tax is more personal and thus so allocated for our benefit is, well, false. It’s just a tax like any other and has no relationship to the benefits we collect.
In theory at least beneficiaries are not taxed on the value of their contributions, but on the benefit funded by their employers (just like a pension) by other taxpayers and by the interest paid on trust treasury bonds.
As a leading member of the Greenspan commission on Social Security in 1982-83, Ball had an opportunity to promote this idea. The subsequent Social Security Amendments of 1983 provided that up to 50 percent of benefits would be taxable for beneficiaries with incomes above certain levels. A decade later, the Omnibus Budget Reconciliation Act of 1993 provided for the taxation of up to 85 percent of benefits for individuals with modified AGI above somewhat higher thresholds. The provision has since remained unchanged.
Lawmakers chose the 85-percent figure because actuaries estimated that no Social Security beneficiary had paid (through withholding from his or her paychecks) for more than 15 percent of his or her own benefits. The rest represents employer contributions and imputed return on both worker and employer contributions. Most beneficiaries contribute much less than 15 percent of their own benefits, so the 85-percent limit was considered generous. In addition, the income thresholds shield low-income beneficiaries from tax. 🔴