RE: Taxing Benefits

[Ron Gebhardtsbauer <gebhardtsbauer@actuary.org>]

     Again the comments are great.  The other panelists said everything.  
Do you need me anymore?

     I have to admit, I saw this option as tax simplification initially,
because it didn't affect low income people.  However, middle and
moderate income people can be affected a fair amount.  I did a
calculation of how much taxes could go up for a married couple, at
various income levels.  Couples with total income under $15,000
(approximately) won't be touched because they don't pay taxes at all
(due to exemptions and deductions), and people with total incomes over
$70,000 (approximately) won't be affected, because they already pay
taxes on 85% of their Social Security benefit.  (I am assuming we would
stick with the proxy of 85% in the law that Ann Combs mentioned.)  The
people in between would pay more taxes.  John cited the couple with
$30,000 in retirement income having their taxes go up about $1,900.  A
couple with total income just over $40,000 could see their taxes go up
around $3,000.

       Now is the policy call.  What do the readers suggest?  Should we
do it?  Or are there some alternatives?  One alternative would be
to simplify the tax rules so that 85% of the benefit is taxable,
but only apply it to people whose incomes are above, for example,
$32,000.  That would keep it from affecting people with lower
incomes, and it would eliminate the complexity and 2 of the
thresholds.   Any comments?

RON