The “You Earned It, You Keep It Act,” H.R. 7084, is a bad and unfair idea. It’s a film flam.
Not paying taxes on the portion of your Social Security benefits paid for by you through payroll taxes has some logic. However, there is no reason that all benefits should be tax free.
You may have earned your benefits under the law, but you didn’t pay for them. There is no reason benefits that were paid for by your employer or not at all should be tax free.
Most beneficiaries receive far more in benefits than they paid in taxes during their entire lives.
Why should a retired couple having the same household income (or higher) as a 40 year old couple raising children pay no taxes on their Social Security benefits?
HR 7084 is smoke and mirrors.
- It will only make the Trust solvent for twenty years
- It will lead to taxing all payroll earnings
- It uses general revenue to fund Social Security, something the original design of Social Security was intended to avoid.
- The claims of reducing the federal debt are a scam. The debt reduction calculation assumes that if Social Security is not fixed, full benefits would still be paid by transferring funds from general revenue. As you can see below from the Office of the Chief Actuary doing this is prohibited by law and inconsistent with all past practices.
- Eliminating the taxability of benefits between the 50% and 85% level takes revenue from the Medicare Hospital Trust.
QUINNSCOMMENTARY 
Both the IRS and Social Security have already said this is a good idea. All of the money the government takes back in taxes would get spent in the local economies and reduce the workload of the IRS and SS. It makes SS solvent until 2055 and by then all of the boomers will be gone. In 2055 I will be 100 yrs old.
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There is no flimflam. Social Security was not taxable for years until the 1983 changes were slipped through with no indexing for inflation. Most people didn’t pay attention then because they didn’t think their retirement incomes would be affected. At the minimum, the limits should have been indexed.
There is nothing novel about not taxing benefits, the Roth IRA and 401k are examples. As Al Lindquist said, returns are often not that great.
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The film flam is using general revenue and projecting debt savings by assuming that if the trust is depleted payment will continue from general revenue. The 1983 changes were an effort to build up the Trust and intentionally were not indexed. If all wages were subject to payroll tax the trust is only 59% better off, but not sustainable. Instead they want to do that, but spend the additional income and divert me general revenue. Does that make sense?
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I see your point on some of the issues with the bill. The failure to account for longer term financing of the program being one. I looked at it and there was a strange idea of taxing the 250k and over crowd and giving them a pittance for the increased taxes paid when they retire. Also the gap between the current top limit and 250k would be gradually adjusted. So yeah, I think the bill is a stinker and should go nowhere but I still think the taxation of benefits without indexing is a raw deal.
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Money contributed by employer and employee should be tax free and once you have withdrawn those contributions then tax them.
Federal pensions used to do that (until 1985?) so that if you contributed $120,000 you were not taxed until an amount above that. Today it is proportional I believe–you know what your total contribution is ($120,000)–what your annual annuity is from the feds, say $60,000, thus you pay tax on half your annuity until you exceed $120,000.
Yes, you paid for your benefits (didn’t I pay as a self-employed person–whose money was that–who wrote the check?) and your employer no doubt pays you a salary commensurate with expenses, one of which is the contribution they make. I certainly paid as employer and employee with a tax reduction as the employer.
Sure, as noted in previous posts, you might get back more than you paid. But you could die at age 61, or whenever, and never receive a benefit nor do your heirs get anything if single. Needless to say that money invested would give most of us a far greater return. Heck, you could buy one of those fixed annuities you love so much and watch your dollars being eaten away by inflation.
Yes, current law makes prohibitions about general revenue. Come on now, current law can be changed in minute. Has SS changed over the years as mandated by Congress? Did the Secure Act do way with “stretch IRA’s” for almost all folks? You think the tax-free distributions in a ROTH can’t be changed?
Sure seniors consume the largest share of federal dollars through Medicare-SS–and Medicaid. And you want universal Medicare?? All run by politicians and sure to be financially insecure years down the road.
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Why should employer taxes paid be income tax free? Employer contributions to a pension or 401k are not tax free. Few people die without collecting and even when that happens survivors will receive benefits. Investing our own money and doing better is a red herring. In theory possible, in practice given all the possible benefits under SS very unlikely for most people.
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“Why should employer taxes paid be income tax free?”
because you were paid that much less at the time.
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“pandering for votes” Really? Members of Congress do that? Must be an election year.
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