New proposal in the U.S. House of Representatives for improving the financial standing of the SS

A new proposal emerged this week in the U.S. House of Representatives aimed at improving the financial standing of the Social Security program by repealing the federal taxation of benefits while phasing out the current wage cap on taxable earnings.


"The bill is sponsored by Reps. Angie Craig, D-Minn., and Yadira Caraveo, D-Colo., and it is dubbed the You Earned It, You Keep It Act. According to the lawmakers, the proposed reforms would make the program fairer while also pushing out the projected insolvency date of the key Social Security retirement trust fund to 2054 — 20 years beyond the current projection of 2034.
Effective in 2025, the proposal would eliminate the federal taxation of Social Security benefits for personal income tax filers."

https://www.thinkadvisor.com/2024/01/30/6-things-to-know-about-the-new-bill-repealing-social-security-income-taxes/

 

Some useful ideas here. Right now, we pay Social Security or Self Employment taxes out of money that is taxed when earned. Some portion of our Social Security benefits therefore should not be taxed when received.

Well, some portion in fact isn’t taxed. Depending on total income a Social Security recipient can pay income tax on bendfits anywhere from zero to 85%. Elon Musk will pay tax on no more than 85% of his benefits.

But benefits received beyond payroll tax paid in should be taxable.

Should we treat Social Security benefits the same as any other savings account? Doing so will penalize the poorer retirees.

Then what about removing the cap on earnings subject to payroll taxes? There's no cap for Medicare after all.

Here's a question: should income other than wages be subject to payroll taxes? If you live off your investments you don't pay payroll taxes. Then again, you don't get credit toward eventual benefits either.

Interesting policy questions.

 

Wow! Americans have SO much to think about. I guess we Canadians aren't such great thinkers, so our Government has done most of it for us.

We don't have a separate tax to fund Social Security. We pay taxes on our income -whatever the source. Wages, investments etc. The Federal and Provincial Governments decide how what they receive gets spent. Feds look after funding Old Age Pension from Federal Income Tax and the Canada Pension Plan (separate) is funded by mandatory contributions (from payroll or self-employment income). Those mandatory contributions are tax-deductible. There is a maximum yearly amount of contributions - the same for everyone. If more is collected - you claim a refund on your tax return.

People 65 and over have an additional Federal Tax exemption. Last time I looked it was an additional $12,000 per year plus everyone's standard basic personal exemption. If all you have coming in is Canada Pension and Old Age Pension, you won't be paying any taxes. And if that's all you have coming in you'll pick up a few grand more in non-taxable Federal Income supplement. That's added to your monthly cheque / bank deposit from the Feds. You list it on your tax return - but it isn't taxable.

Wealthy people don't need publicly-funded pensions. So old-age pension is clawed back piecemeal. The bite starts at around $110K+ a year and the Old Age Pension disappears at around $160K. Canada Pension doesn't change. Rich or poor, you pay into it - you collect according to what you paid in.

I think it's fair. They've been good to me. I don't mind that the Government doesn't want us to think too much in this case. I'd probably make a mess of it, if I had to think. Filing the return is hard enough, for me. And they pay me well, for just doing that.

And the Feds have just given me free dental.* This a good place for an old guy to live.

* It's for everyone 70 and over who doesn't already have private or employer insurance. Dental work is free if your income is less than about $95K a year. There's a co-payment for those with incomes above this. I don't know how much. I'll never need to know. I don't expect it covers fancy cosmetic or restorative work. It'd be silly to expect that. But I'll look anyway...

 

PS - our single-payer Health Care System is also funded by tax receipts. I wouldn't want it any other way. Many years ago it was funded by those tax dollars plus small premiums - like $12 every three months. They were a nuisance. Glad they're gone. Easier to pay in with the taxes. Oh, right... I don't have to pay taxes any more. But if I made a whole lot of money and DID have to pay --- that'd be OK too. It's all good.

Everything's not perfect here - not by a long shot. But it's a comparatively good place to be old. And if you get sick, you'll get care and you won't be bankrupt. Yes - there are some things I think some Canadians have a right to be SMUG about, @Stanislav . Just not everything.

 

I'm not seeing much difference between these mandatory contributions to fund the pension plan and a tax to fund a pension plan.

 

One gigantic difference apparently...in Canada if you have a high enough income in retirement, you don't get the pension you paid into. Here, you do.

Here in the U.S. we carefully preserve the myth that your Social Security "contributions" go into an account with your name on it and that what you get back is your contributions and interest. This is nonsense of course. You get back much, much more than that unless you're a higher income retiree (or you die young). Social Security in the U.S. is absolutely a wealth redistribution system.

So is our Medicare. I pay my Medicare Part B premiums through a (mandatory) deduction from my Social Security payment but they also charge me a significant surtax on Part B and Part D because I am (barely) inside that higher earnings bracket.

Variable tax treatment of Social Security benefits is all part of the wealth redistribution policy.

Funny thing though...after all those years working it's still a bit jarring to me to see this money show up in my checking account every month "just because". It also seems odd to me that while I'm receiving the Social Security pension I'm also still paying into the program because I'm still working at times.

 

Old Age Pension? Those who need the money get it. Those who don't need it - don't get it. i.e. - more for those who need it. Some people who get it, never paid into it. Maybe a widow who never worked outside the home, etc. Or someone unable to work. Or someone unwilling. Everybody with income pays taxes - subject to exemptions, of course - and the government gets to decide how they hand out the slice of taxes that go to old age pension. I think it's fair. Maybe if I had an income ten times higher - I wouldn't. But I am not that guy.

The Canada pension is different - you pay in - you collect. You don't pay - you don't collect. The Old age Pension has been with us since 1927. Canada Pension is a creature of the 60s. I'm glad they're there. I'd have been totally screwed, otherwise.

 

Yeah, it objectively is. I didn't fit there but I know multiple people who very much do. At least those who can afford Toronto housing.

OK, be smug about getting a thing right that almost every other rich country (with a conspicuous exception for the Land of the Free down here) also got right.

Having said that, it IS a big deal, and I wish more people here in the US knew what a relief it is to have your health coverage universal and unconditional. Also, I heard all y'all made steps towards affordable childcare for everyone. Kudos.

 

Let's just establish that taxation is in the Constitution. I believe it's literally in Article 2. This is how the Government of the People by the People gets to have any power.

 

True - all of that.

(1) We certainly didn't originate it. But Tommy Douglas knew a good thing when he saw it - and got it implemented. For everyone.
(2) Almost every rich country?" EVERY developed country except the US.

Commonwealth Fund:

"Health care spending, both per person and as a share of GDP, continues to be far higher in the United States than in other high-income countries. Yet the U.S. is the only country that doesn't have universal health coverage."

Canada spends an average of around $8,000 per year, per person, on health care. Under their present system, the US spends over $12,000 - and gets poorer results. And US life expectancy is going the wrong way - decreasing. By several years, so far.

I just used the "smug" word to return the favour. You used it a while ago and I took exception. I still do, but we're even now. I am not one of the bunch that made you decide to leave Canada. There are some people who I wish would decide to leave, but you were never one of them. I hope you find happiness in the US. -- You're doing pretty darn well, it looks like. Our loss. Congrats and I wish you continued success.

 

@Stanislav Oh yes. I temporarily forgot. In case you haven't heard, Stanislav - the Feds just announced - dental care for all over 70. Hey. I still got teeth! I'm IN! It's free if one's income is under $96,000 a year. Now what old Canadian Gummer makes more than that? I know - Arthur Irving - he's 94 and worth 9 billion plus. Anyway, if you make over $96K - there's a co-pay. I'll never need to worry about that, so I didn't check how much it is. I guess Arthur Irving might have to check. Don't think it'll bother him, though.

Premier Doug Ford (Ontario) had a dental "pauper-plan" for Ontario seniors. That plan was of no use to anyone above public welfare income - and those on welfare (any age) have had free dental care for generations. The income limit of Ford's plan was ridiculously low and I think you had to be at least 96 and accompanied by both your parents. Good that this takes him out of the picture. I wish someone would steal every picture of him. Maybe steal Dougie himself and hide him in a barn in Saskatchewan, never to be seen in Ontario again.

 

Returning to the idea of exempting Social Security benefits from federal taxation...if you are poor enough your benefits already ARE tax exempt.

 

They certainly are, here. My two Government pensions and whatever, Federal Supplements added up last year to around 23K. 7 K of that was not taxable at all, The rest, at least in my case was covered by basic personal exemptions. At 65+ you get an additional 12,000 added to your personal exemptions. I have not had to pay any income tax since I turned 65. I won't be paying any this April, I'm sure. My income will be a couple of thousand better in 2024, but I don't think I'll have to pay any tax next year. If any, a flea-bite at most.

They got me pretty good for 45 years, to pay for what I and other seniors get now, and so I'm OK with not being nailed now. It means I can save some money and not be impoverished. I've said before I was flat broke at 65. I'm fine now; I even have a few small personal luxuries, and it looks like I can stay that way and leave a pretty respectable sum to my sons and a bit to my now-grown grandchilden. I sleep nights.

 

Perhaps the "Now You See It - Now You Don't" Act would have been more appropriate.