1. Only one-half of Social Security (SS) taxes are paid by individuals, from their after-tax earnings. This is like making contributions to a Roth IRA, where withdrawals can be made tax free.
2. The other half of SS taxes are paid by employers, as pre-tax expenses. This is like employer-funded 401k programs, where taxes have to be paid on withdrawals.
3. Therefore, one-half of SS benefits should be tax-free, while the other half should be subject to income taxes.
Unfortunately, politicians have corrupted these basic concepts by using SS as a hidden wealth transfer program by diverting benefits from high income contributors to low income contributors, and by taxing them at steeply increasing income tax rates.* This has all been done by fooling people into believing that their benefits are a wonderful return on their personal contributions, rather than a terrible return on the total taxes paid into this social welfare program.
* The 85% of SS benefits subject to income tax is based on fixed income levels that have not been adjusted in 40 years. As a result, what originally applied only to the top 10% now applies to over 50% of SS recipients. This has created another hidden tax increase that the public is not aware of.
2. The other half of SS taxes are paid by employers, as pre-tax expenses. This is like employer-funded 401k programs, where taxes have to be paid on withdrawals.
3. Therefore, one-half of SS benefits should be tax-free, while the other half should be subject to income taxes.
Unfortunately, politicians have corrupted these basic concepts by using SS as a hidden wealth transfer program by diverting benefits from high income contributors to low income contributors, and by taxing them at steeply increasing income tax rates.* This has all been done by fooling people into believing that their benefits are a wonderful return on their personal contributions, rather than a terrible return on the total taxes paid into this social welfare program.
* The 85% of SS benefits subject to income tax is based on fixed income levels that have not been adjusted in 40 years. As a result, what originally applied only to the top 10% now applies to over 50% of SS recipients. This has created another hidden tax increase that the public is not aware of.
