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Retirees Face Social Security Taxes
Jan L. Warner & Jan Collins

Question: My wife and I have been run-of-the-mill seniors who never made waves, but those days are over! Our health insurance premiums and medical expenses continue to go up, our assets were decimated by the stock market crash, and we get penalized by getting hit with taxes on our Social Security because weíre trying to make ends meet by making more money.

Itís a shame that while we and other seniors are down, we are kicked by the senators and congressmen who voted for Medicare reform, and were sold out by AARP, which promoted the act for its own selfish reasons. There are more than 40 million of us seniors, yet we have no voice. The tax on our Social Security is just one more punitive measure assessed against us. Is there a way to avoid this unfair tax and get someone to stick up for us? Had I known it was going to be this bad, I would never have retired.

Answer: We agree that seniors have been getting the short end of the economic stick from more than one direction for a long time. One need only look at the huge financial benefit AARP stands to rake in as a result of the "new and better" Medicare program to understand that its support of this legislation was a self-serving business decision that is not in the best interests of the majority of its members. In fact, AARPís financial records reflect that more than half of its millions of dollars in annual revenues come from the sale of insurance-related products. Coupled with vote-hungry politicians who want to pull the wool over the eyes of seniors at least one more time before next yearís elections, we have yet another example of government run amuck.

To make matters worse, while politicians talk about their commitment not to raise taxes, they donít say much about why 50 to 85 percent of the Social Security benefits of many Americans are taxed based upon a punitive formula used only to calculate taxes on Social Security.

Hereís how they take you to the financial woodshed: First, they calculate your modified adjusted gross income (MAGI) by adding, for tax purposes, your adjusted gross income to your tax-exempt interest. Then, they add to your MAGI one-half of your Social Security Benefits, thereby arriving at your "provisional income." If you are single, there will be no taxes on your Social Security Benefits until your "provisional income" exceeds $25,000. If you are married and file joint tax returns, your Social Security is not taxable until your "provisional income" exceeds $32,000.

Of course, your adjusted gross income includes not only income you earn from odd jobs trying to keep up with inflation, but also interest, dividends, capital gains, distributions from IRAís and Roth IRAís, etc.

Unmarried Social Security recipients with provisional incomes of from $25,000 to $34,000 -- and married couples with provisional incomes of from $32,000 to $44,000 -- can expect to pay taxes on up to half of their Social Security benefits. Called the "Reagan Tax," revenues from these taxes go to the Social Security Trust that, during the next ten years, anticipates pulling in more than $177 billion from taxes on your Social Security benefits.

Unmarried benefit recipients with provisional incomes of more than $34,000 Ė and married couples with incomes of more than $44,000 Ė can expect to pay taxes on up to 85 percent of their Social Security benefits. Called the "Clinton Tax", revenues from these taxes go to the Medicare Trust Fund that, over the next ten years, anticipates banking more than $118 billion from taxes on your Social Security.

To add insult to injury, unlike income tax brackets, the income levels used to tax your Social Security are not adjusted annually. This means that more seniors are clobbered with the tax each year when they least expect it. And guess what? These rules also apply to Social Security disability and survivor benefits.
Thatís right. Your elected officials decided that they would cannibalize your Social Security payments in order to feed the very same kitty that writes your checks each month. They are repossessing part of the money you contributed into the Social Security Trust while you worked.

Taking the NextStep: Bette Davis knew what she was talking about when she said, "Aging isnít for sissies." But that was before seniors were penalized for working hard to increase returns in order to make ends meet. We suggest that either your elected officials donít know this tax exists, or donít know how confiscatory and punitive it is. Talk to them and, if they are in the dark, put them out to pasture next term. They donít deserve your vote.

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