Compliance April 15, 2005

Senate Bill Would Roll Back 1993 SS Tax Hike

April 15, 2005 (PLANSPONSOR.com) - Retirees would only have to pay federal income taxes on half of their Social Security benefits instead of the current 85% under a bill recently approved by the US Senate.

Reported by

Fred Schneyer

>The proposal, put forth as an amendment to the federal budget by Senator Jim Bunning (R-Kentucky), would roll the Social Security tax rate back to where it was in 1993, according to a Scripps Howard news report. The additional revenue from the 1993 tax increase has been dedicated to the Medicare Hospital Insurance Trust Fund, while the rest of the revenue goes to Social Security.

>The measure (S. 774) faces an uncertain future since it’s not in the budget currently working its way through the US House of Representatives and is also drawing fire from critics who charge that it would unduly increase the federal deficit and benefit the wealthy.

>Bunning, however, is standing by his proposal. “America’s seniors have worked hard all their lives contributing to the Social Security system, and they should not have to bear the burden of this excessive tax increase,” Bunning said in a statement, according to the Scripps Howard report.

>Critics charge that the only seniors who would benefit are those with the highest incomes, or roughly one-quarter of all beneficiaries. “You’re not talking here about Social Security beneficiaries who are really struggling to get by,” said James Horney, a budget analyst with the Center on Budget and Policy Priorities, a public interest group, according to the news report. “This is the people with the highest incomes among the beneficiaries.”

>Technically, the change applies to couples making more than $44,000 and individuals making more than $34,000. But a survey conducted seven years ago by the Federal Reserve Board concluded that the average income of those who would get a tax cut under an earlier Bunning tax plan was $96,300, according to the news report. Those same beneficiaries had average financial assets of $607,000 and an average net worth of nearly $1.1 million.

In the House, Representative Sam Johnson (R-Texas) reintroduced legislation (HR 1517) April 6 that would roll back the 1993 expansion of the taxation of Social Security benefits.

>Also, according to a report from the Congressional Research Service (CRS), almost 40% of Social Security beneficiaries are affected by benefit taxes. In 2002, Social Security paid a total of $453.8 billion in benefits, and 10.8 million taxpayers had taxable Social Security benefits totaling $94.7 billion, which amounted to 20.9% of total Social Security benefits, the report said (See CRS: 40% of Social Security Beneficiaries Affected By Benefits Taxes ).