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Should The Tax Laws Be Reformed To Encourage Savings Article
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Will the Government Reduce Taxes on Social Security?
from:The Social Security Act of 1935 was one of the most important pieces of legislation ever enacted by the US government. It came in the midst of the Depression and provided lifetime payments to retired workers beginning at age 65. This original legislation laid the groundwork for today’s Social Security programs. Since then, Social Security has grown to become by far the largest federal program. The Social Security budget is roughly one quarter of the entire federal budget.
For years, the social security benefits received by our retired citizens was tax free. After all, Americans pay money into their social security accounts their entire working lives, so the idea when the fund was created was that it would be a tax free retirement benefit.
All that changed several years later, and has been changing ever since. In recent history, a portion of your social security benefits have become taxable. At one point, 50% of social security benefits received were taxable, and then it went up to as much as 85% for some income brackets. There have been several moves to reduce taxes on social security, but they have been largely unsuccessful.
Our population is an aging one, and social security benefits will soon begin being paid out at the highest rate ever. But, just as big a problem will be the poverty that our aging population will have, particularly if a large percentage of them will be relying on their social security benefits as the majority of their retirement income. If the government could reduce taxes on social security, this aging population would have more disposable income each and every month.
One solution to help reduce taxes on social security benefits without causing the entire system to crumble as our population ages is to raise the social security tax on current workers. Today, workers pay Social Security taxes on the first $90,000 of their income. Instead of increasing the actual percentage paid, we could instead increase the cap, so that workers are taxed at the same percentage, but on their entire income. This shifts the burden to the higher income workers, rather than adding an additional burden to middle class workers.
Our Social Security system is definitely in jeopardy, and today’s 30 year old worker cannot expect the benefits that today’s retirees are seeing. In fact, it’s expected that if we don’t overhaul the Social Security system in some way, today’s workers will see their benefits be about 25% less than today’s retirees receive. Yet, today’s retirees need to see us reduce taxes on social security right now in order to ensure that our aging population isn’t living below the poverty level.
If you’re currently working and paying into the Social Security, you should be certain to have additional retirement savings. It’s highly likely that the Social Security benefits you receive will not be enough to support you in retirement, and it’s likely that you’ll be taxed on your benefits. With the system so badly in jeopardy today, it’s not likely that the government will reduce taxes on social security in our lifetime.
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