In a recent WSJ feature, veteran broker Charles Schwab advocates giving
older Americans a break on their Social Security taxes.
When we’re discussing Social Security taxes, we’re talking about two distinct taxes:
- Social Security’s payroll taxes; presently 6.2% each for both employees and employers (totaling 12.4% for the self-employed).
- Social Security’s benefits surtax, a provision of the 1983 amendments indirectly taxing Social Security benefits for higher-income earners.
Mr. Schwab advocates the elimination of the Social Security and Medicare payroll taxes after age 65 on the first $50,000 of earned income—incentivizing continued earnings on the part of older Americans without
giving the nation’s affleunt too much of a break. He’s proposing the benefits surtax be entirely removed in “the spirit of fairness.”
Of course, it’s important to remember that this surtax was part of an emergency measure effected to prevent Social Security’s Trust Fund from exhausting. But because the thresholds for this tax were set in 1983 and have not been adjusted for inflation,
these taxes are beginning to affect Americans of more moderate means.
Mr. Schwab believes his proposal to eliminate the surtax should receive bipartisan support. And indeed, recent legislative proposals have shone a new light on the benefits surtax. A reform proposal authored by Rep. Sam Johnson (R-TX) would phase out
the taxes on Social Security benefits, while a proposal across the aisle from Rep. John Larson (D-CT)
adjust the thresholds for the benefits surtax for inflation— a measure which should theoretically reduce the population subject to the surtax to 1983 levels.