Posted on 10/05/2022 7:10:08 AM PDT by fwdude
During my studies in tax accounting in college, I realized something that is seldom brought to the fore: the fact that the Social Security program entails a triple tax. Why, when so-called "fiscal conservatives" gain governmental power does this never get addressed?
I'll lay out the thesis here and then recommend some actions that future "Republican" or actual conservatives can implement, by the grace of God.
Social Security is a triple tax:
1. The tax itself, which is 6.2% of earned income up to an inflation adjusted limit, which is well above most average salaries. (An ancillary tax, medicare, which is based on the principles, adds another 1.45% tax confiscated and is not limited.)
2. The SS reduction is applied to already federally taxed money. This compounds the effect - you are paying tax on money you don't even receive.
3. Eventual benefits are taxed if there are substantial sources of other income, which many people must have to live. Up to 85% of social security benefits are added to taxable income based on total other income.
The most obvious solution is to attack #1, abolish social security altogether, or make it a wholly voluntary program. I know, a pipe dream, but most advances begin as dreams.
The next attack should be #2, exclude potentially taxable income that is extracted as social security tax. That would reduce a $100,000 salary income to $93,000, a substantial tax savings on $6,200 of income at 20+% marginal tax rate. If you want to help families and the economy, this should be a no brainer. Of course, you could argue that the tax structure already factors in this reduction with dependent deductions, but at least make it explicit. We already make this apparent with cafeteria health plans on paycheck stubs.
The third point is the hardest to gain traction. It goes against the "tax the rich" narrative that is ubiquitous in Washington and leftist circles, a virtual third rail. Social Security retirement benefits to people who have been forced, without their consent, even working for private employers, to pay involuntary tribute to a system with a set of promised future benefits should NEVER have to pay taxes on these benefits. At least if you do number 2, don't do number 3. It would be more logical to exempt social security contributions from federal tax and then tax the benefit proceeds. But even that doesn't happen, and the drumbeat is to exclude "the rich" from any benefits whatsoever in an increasingly unviable Ponzi scheme which hasn't been truly solvent for decades.
> he can pay the SSA back the payments he has received <
Yes, that’s possible. But it must be done within one year of first taking SS benefits. My friend is past that. I believe there is also a way to suspend your benefits for a time to increase your eventual payout.
I suppose one would have to crunch the numbers to see if that makes sense.
“ Roosevelt had a necessary, yet “convenient,” war as a blank check to write whatever he wanted.”
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Social Security was passed in 1935, long before WW2 started.
...THAT wrinkle is only good for ONE year after he starts drawing benefits. If he has the money, he can suspend benefits plus pay back the 12 months $$s and then continue to accrue. The old payback from age 62 to 69 in a lump sum and then get the age 70 credits has been ended... ymmv
**If still working (You and I are not!) Try to max the Roth contributions and make your Roth the growth portion of your retirement assets.
https://financeband.com/do-roth-distributions-count-as-income-for-social-security
Distributions from Roth IRAs are not taxable and therefore won't cause Social Security benefits to be taxable. The optimal time to do a Roth conversion is after you retire, are in a lower tax bracket, but before claiming Social Security benefits. Consider drawing off “tax deferred” retirement assets.
How does Roth affect Social Security?
Your Roth IRA distributions won't affect your Social Security benefits, but your earned income will. ... Also, the amount you make can cause the taxation of your benefits. Up to 85 percent of your Social Security benefits can be taxed at normal income tax rates depending on your amount of earned income.
Have him form a LLC or or C-Corp and take no salary, just dividends or distributions.
His SS benefits may or may not increase. Benefits are based on your top 35 years of inflation-adjusted earnings. If his earnings now are higher than in past years it may trigger a recalculation, otherwise his benefits will not increase.
That makes sense. Thanks for the reply.
If Americans knew what their income stream would be if this money was instead invested in the financial markets instead of Social Security, people would revolt.
A further thought:
Many of us living have benefited from payments our parents received. We did not have to pay for a lot of their support which I assume most of us would have gladly done but it did increase the size our inheritance for many.
Most things have pros and cons. You cannot just look at the cons.
There is an excellent proposal on the Foundation for Economic Education (FEE) site entitled “A Way Out”. It details a way to phase out of Social Security protecting those in or near retirement while providing for a way for younger people to fund their retirement.
12.4% ?
“You don’t know how lucky you are!”
Here in the UK for an average wage the National Insurance tax is 28.3%
15.05% being the employer’s rate
and 13.25% the employee’s rate.
It’s only a matter of when the Ponzi scheme runs out, not if.
It’s true, your friend would receive 25% less retiring at 62 versus 65 (in some cases older depending on year born). But that’s a minimum of three years payments he wouldn’t have gotten at all - and three years of SS tax payments he wouldn’t have had to make. The minimum amount of time it takes to make that early retirement start bringing in less total dollars through full retirement is 12 years.
For me, I retired at 62 and took the 25% cut and never regretted it. I’m in year 10 of the 12 year breakpoint thing. I was paying the maximum SS taxes for about as long as I can remember and even with the cut, the monthly amount is still enough to live on and pay what bills I have.
It was a scheme devised so as to guarantee that the folks would keep voting for their benefits.
“A retired friend of mine decided to take social security when he hit 62. Now he’s 65, and the Biden Effect has forced him to take a part-time job.”....
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Not defending Brandon in any way but anyone who plans on social security being a major portion of retirement income and starts collecting at age 62 is just not that smart.
I view beginning to collect SS same as jumping off a cliff. Once you leap there is little one can do to change the outcome.
Because SS is a slush fund. Duh!
Please don’t forget that Social Security is also the most blatantly regressive tax. The 2022 upper limit of $147,000 means that poor and middle income people will pay the full percentage but richer people will pay a much lower percentage of their incomes. Unlike other flat or progressive taxes, the effective percentage of Social Security tax the rich pay decreases as their income increases.
What folks forget about Social Security is that it was a poison pill taken in 1935.
There was no escape possible.
It was always a matter of time when the patient would die after that.
One hundred years looks like about the right number.
Well, there is a technical term for what you so eloquently describe: B O H I C A
And you WILL NOT be The Last of the Bohicans
This more than evens out after retirement, when up to 85% of Social Security benefits for the so-called "rich" is taxed, AGAIN, as regular income. The poor are not as likely to have as much of the additional income as the higher earners and so their benefits are tax free.
Once you can collect you are penalized if you earn money at a job. They will reduce the social security check even though you are adding to the account!
You are also forced into medicare even when there are better private plans.
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