New Tax Cuts: Eliminating Social Security Taxes for Retirees
Donald Trump threw a wrench into the Democratic plan on Wednesday by claiming he wants to cut Social Security. He proposed eliminating federal taxes on retiree benefits.
This was an unexpected but very welcome development. Taxation of Social Security benefits is It’s been a long time since a complete overhaul was needed.But a recent surge in inflation has highlighted the problems with the current system, and a proposal has been put forward to reform Social Security that would, for the first time in our memory, actually help seniors pay into it.
Social security benefits No tax for the first 50 yearsThe idea to tax them came from one of the most dangerous entities that has ever threatened our republic: the bipartisan reform commission. The National Commission on Social Security Reform, led by Alan Greenspan, proposed in 1983 to tax about half of the benefits received by high-income retirees.
An amendment to the Social Security Act passed that year made half of retirees’ benefits subject to federal income tax if they earned more than $25,000. The threshold was set at $32,000..
This was a tax A relatively small proportion of people receiving social security benefitsIn 1983, the median household income was $24,550. Therefore, the tax only applied to people earning above the average. For people eligible for Social Security, many of whom were retirees, the median was even lower. At the time, the Social Security Administration estimated that the tax would only affect 10% of recipients.
Inflation + Time = Taxation Without Representation
But the tax was destined to grow without politicians supporting higher taxes on the elderly, because the tax base for benefits was Not linked to inflationSo as time went on and inflation seeped into the economy, more and more seniors found themselves on the tax roll.
The median household income for 2022 was $74,580, according to the latest Census Bureau data. But those tax thresholds haven’t changed, so a tax that once only applied to retirees earning above the national average now applies to all retirees. Retirees with incomes well below averageThe Social Security Administration estimates that about 40 percent of recipients owe taxes on their benefits.
So a tax designed to apply to older people with relatively high incomes is now being applied to older people who are working part-time to make ends meet. Taxation without representation. Nobody was in favor of raising taxes, they only happened because tax rates were rising due to inflation.
Donald Trump’s proposal would put an end to this. By simply raising the idea of eliminating taxes on Social Security benefits, Trump has restored some democratic accountability on the issue. Defends taxation of widows’ benefits for those earning $28,000 a yearThat seems like a good topic for discussion in a presidential debate.
At the very least, the tax on benefits It was returned to law signed by Ronald Reagan.That would mean a big increase in the tax threshold, so that once again only the wealthiest households are taxed, and the tax threshold needs to be indexed to inflation so that a broadening of the income brackets does not happen again.
The Fed did not oppose a rate cut in September
of The Federal Reserve did not support Financial markets are confident of a rate cut in September, but the move was not enough to overturn that confidence.
The official statement from the Fed is A bit more hawkish More than many investors thought possible.
“The Committee does not believe it would be appropriate to lower its target range until it has greater confidence that inflation is moving sustainably toward 2 percent,” the Fed said.
that Six weeks left until rate cut: Uncharacteristic FedHowever, during a press conference, Fed Chairman Jerome Powell made it clear that a rate cut is possible in September.
The Fed does not like to shock the markets. It rarely moves when it is sure the market will not move, and rarely does not move when it is sure the market will move. This is not because the Fed is afraid of upsetting the markets, but because Because authorities move the market in the direction they want..
So if the Fed doesn’t push back on the market’s confidence that it will cut rates, The Fed is also expected to cut rates.
