Social Security reform – TERRY THOMPSON

Did all of my fellow Social Security recipients do a victory dance (at least figuratively) when the One Big Beautiful Bill, or OBBB, passed including the No Tax on Social Security provision? Well, we did get the biggest-in-history tax break for seniors. But, sorry, almost all of us will still be taxed on Social Security. Let’s see what’s really in the Bill.

The OBBB was a long-shot from its beginning considering the slim Republican margins in both the House and Senate. Thus, the legislation was crafted by the President’s Administration as a reconciliation bill, a partisan procedure used sometimes to avoid a Senate filibuster. A filibuster would require a 60% vote to stop it and pass the bill in the Senate with at least a 51% vote. However, reconciliation also limits what laws can be changed including Social Security. So, Trump’s insistence on eliminating federal taxes on Social Security had to be done by other means.

Reconciliation procedures do allow for the inclusion of new or revised tax deductions beginning with the 2025 tax year. Therefore, the bill provided a temporary tax deduction for most seniors. I say temporary, because the deduction expires in 2028. Hopefully, it will be reinstated at that time. Impact assessments are that 88% of Social Security recipients 65 and older may deduct an additional $6,000 per person with incomes below $75,000 per year, or $12,000 per couple with earnings below $150,000. These deductions phase out for incomes above the the maximums indicated. Government calculations are that, for almost 90% of seniors, this extra deduction will more than offset the federal taxes that will still be levied on Social Security. Most states don’t tax Social Security.

Although, most seniors are grateful for the additional tax deduction, it is disingenuous to hype the Bill as ensuring “no tax on Social Security.” Those above the income cap will lose some or all the deduction and still pay the tax. Some at low income levels, who do not pay any taxes, will not receive the deduction. And, in everyone’s case, it only lasts four years if not extended. I would prefer the Administration and Congress call it what it is rather than playing name games. The Bill really has nothing to do with Social Security. If you choose to receive Social Security at age 62, you don’t get the deduction until you’re 65, but, if you choose to wait until you’re beyond the collection age, you still get the deduction on reaching 65.

I believe the better way to handle Social Security tax is to eliminate income tax altogether. All things considered, in my opinion, federal government operations should be funded with some kind of consumption tax. Why do Americans have a disincentive to earn and save along with an incentive to buy? The value-added tax (VAT) or other forms of consumption tax are often criticized for being regressive for lower income people. That can be rather easily offset by vouchers, exemptions, or other means to level the playing field. While we’re at it, let’s get rid of local real estate and property taxes which punish home owners and vehicle buyers with never-ending taxes.

The best legislation for Social Security is to reform the entire program, making it self-sustaining instead of going broke after 2034. Several very good plans for saving Social Security have been proposed including raising the minimum age for recipients, including investments in a hybrid contribution plan, means testing for different levels of payout, etc. Something has to be done, but Congress has not grown the backbone to tackle the controversial issue. We need to keep the pressure on Washington, or Social Security is not going to work for anyone in less than a decade.

So, my fellow chronologically advanced friends and loved ones, let’s celebrate the OBBB, but don’t lose sight of what it really does and does not do for us regarding Social Security.

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There are so many rumors and so much misinformation about Social Security today. Here is the truth. No, Social Security is not going broke, but it will be out of reserves soon if not modified. Yes, Social Security future benefits will be reduced if something isn’t done. No, your Social Security payments have not been used for other government programs or wars. Here are some myth busters and warnings you need to know about your Social Security.

In 2018, America’s workers paid in $965 billion into Social Security, and beneficiaries paid $36 billion in income taxes on benefits for a total of about $1 trillion in payments. All this went into the U.S. treasury earmarked for Social Security. The treasury paid out $998 billion in retiree benefits. The other $3 billion went into the Social Security trust fund, or as some call it, the “lock box.” The trust fund also earned $85 billion in interest last year. So, all pay-ins and pay-outs are accounted for. They always have been and always will be. Not a dollar of your hard-earned payroll taxes has been used for anything but to pay qualified beneficiaries. No, illegal immigrants don’t get Social Security. And, yes, Congressmen and Senators pay into Social Security just like the rest of us. But there is reason for great concern for the program.

I recently attended the annual conference for the Association of Mature American Citizens (AMAC) congressional delegates. Serving as an AMAC delegate for Arkansas’s Congressional District 4 has been a joy and an education for me. Congressman Bruce Westerman is a pleasure to work with. One of AMAC’s principal efforts right now is lobbying Washington for its sensible reform plan to keep Social Security solvent for present and future retirees. The program is rapidly approaching the end of its reserves and will soon be on a strictly pay-as-you-go basis. This will reduce benefits by 20% or more.

Social Security was designed in 1935 for contributions to equal withdrawals. That was when life expectancy was 61 years. Most people didn’t live long enough to collect benefits. Each person who lived long enough had many workers paying for his or her benefits. In the 60’s the ratio of contributing workers to retired recipients was around 5 to 1. Today it is close to 2 to 1 and trending lower. The good news is there is about $3 trillion in the Social Security trust fund today. The bad news is it will all be gone by 2034, because there will not be enough workers to support the longer-living retirees. Most retirees now collect more in their lifetime than they have paid in. If we don’t make adjustments, or even if we wait too long to start making adjustments, benefits in 2034 will be limited to what is being paid in–about 21% less than current benefits.

I urge you to get smart on Social Security and put pressure on your Congressman and Senators to have the courage to do the unpopular and reform the program well before reserves are depleted. Congressman Westerman supports the AMAC plan for saving Social Security and believes it is the best plan in Washington. Click here to learn about the plan. Also, if you need personal advice about anything concerning Social Security, ask America’s best and friendliest advisors at ssadvisor@amacfoundation.org. You can also call them at 1-888-750-2622. It’s free, even to non-members. It could save you a lot of money. For instance, they will calculate whether it would be best to begin drawing at age 62 or later based on your individual situation.

If you’re over 50 and not a member of AMAC, you’re missing out. It’s the same price as AARP with the same benefits, but it is a conservative organization. Click here for their website.

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