RE: Impact on other programs, and tax considerations

[Richard Arsinow <richard.arsinow@rauland.com>]

Yes, Medicare is another program in need of an overhaul.  Workers are forced to pay an unlimited amount in payroll taxes, yet the benefits they can receive are certainly limited---especially for prescription drugs.

We could try to reform them together, but wouldn't that be much harder than reaching agreement on either one separately?

One thing that we must consider together with Social Security reform is the taxation of its benefits.  In a way, means testing of Social Security benefits is already in place.  I am acquainted with the tax situation of several citizens over 70 who have the "three-legged stool" financing of retirement---pension, savings and Social Security.  Their effective marginal tax rate is 51.8%.  If they earn an additional dollar in interest, or receive an additional dollar in pension, or even take an additional dollar distribution from a traditional IRA, 51.8 cents of that dollar goes to federal income tax.  When they invested in that IRA, they were told that tax would be deferred until retirement, when their tax rate would probably be lower.  Ha!  Congress found a way to take back many Social Security dollars as income tax without the horrid details becoming widely known.  (Note:  This bracket applies to returns where more than 50% but less than 85% of Social Security benefits are taxable.)

In my opinion, with regard to the 50% of benefits financed by workers' payroll taxes, since the taxes are not deductible, the benefits should not be taxable.  Congress should not be allowed to have it both ways.  With regard to the other half, financed by employers, while the taxes are deductible, the benefits were designed and decreed to be tax exempt when Social Security was created, and should have stayed that way.  Worse yet, by applying the tax only to those whose other income exceeded a certain amount, Congress made the Social Security wealth redistribution more severe in a way which does not show up in the Social Security benefits formula, and provided a disincentive to saving for retirement.