RE: Taxing Benefits

[National Dialogue Moderator <moderator>]

Taxation of Benefits

	As a member of the 1994-1996 Advisory Council on Social Security
(a federal advisory group appointed by the Secretary of Health and Human
Services), I supported a plan that would have included all Social
Security benefits in excess of already taxed employee contributions in
taxable income.  This proposal was part of a larger package of reforms
designed to address the projected Social Security shortfall.  It was a
difficult choice to make, and I probably would not support it again
because we have some better options available to us now, such as using a
portion of projected budget surpluses for Social Security.  I should
point out that the AFL-CIO has not endorsed expanding the taxation of
benefits.

	As others have already made clear, there are several different
ways to change the taxation of benefits.  For example, one proposal
would eliminate the income thresholds so that singles with adjusted
gross income plus nontaxable interest plus half of their Social Security
equal to $25,000 or less (equal to $32,000 or less for couples) would
have a portion of their benefits included in taxable income.  About 30
percent of older beneficiaries would still not pay taxes on any of their
benefits because the existing Federal tax exemptions and deductions
would completely offset this change for those beneficiaries.  

	It is often argued that expanding the taxation of benefits is
one way that today's beneficiaries can be asked to contribute to any
solvency package.  A major drawback, however, is that it will
effectively reduce benefits for the newly taxed beneficiaries.  This
could have a substantial impact on many beneficiaries who have only
modest retirement incomes.

Gerry Shea
AFL-CIO