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Jewish World Review Oct. 28, 2004 /13 Mar-Cheshvan, 5765

Jan L. Warner & Jan Collins

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Consumer Reports

How the government bilks seniors | Q: My wife and I have never made waves, but those days are over! Our health insurance premiums and medical expenses continue to increase, our assets were decimated by the stock market crash, and we're getting hit with taxes on our Social Security benefits because we're trying to make ends meet by making more money.

It's a shame that, while seniors are down, we're kicked by the lawmakers who voted for Medicare reform, and are sold out by the AARP, which promoted the act for its own selfish reasons. There are more than 40 million of us seniors, yet we have no trustworthy voice. The tax on our Social Security is just one more punitive measure assessed against us. Is there a way to avoid this unfair tax and get someone to stick up for us? Had I known it was going to be this bad, I would never have retired.

A: We agree that seniors have been getting the short end of the economic stick from more than one direction for a long time. One need only look at the huge financial benefit the AARP stands to rake in as a result of the "new and better" Medicare program to understand that its support of this legislation was a self-serving business decision that is not in the best interests of the majority of its members. In fact, AARP's financial records reflect that more than half of its millions of dollars in annual revenues come from the sale of insurance-related products. Coupled with vote-hungry politicians who want to pull the wool over the eyes of seniors at least one more time before next year's elections, we have yet another example of government run amuck.

To make matters worse, while politicians talk about their commitment not to raise taxes, they don't say much about why 50 to 85 percent of the Social Security benefits of many Americans are taxed based upon a punitive formula used only to calculate taxes on Social Security.

Here's how they take you to the financial woodshed: First, they calculate your modified adjusted gross income (MAGI) by adding, for tax purposes, your adjusted gross income to your tax-exempt interest. Then, they add to your MAGI one-half of your Social Security benefits, thereby arriving at your "provisional income." If you are single, there will be no taxes on your Social Security benefits until your "provisional income" exceeds $25,000. If you are married and file joint tax returns, your Social Security is not taxable until your "provisional income" exceeds $32,000.

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Of course, your adjusted gross income includes not only income you earn from odd jobs trying to keep up with inflation, but also interest, dividends, capital gains, distributions from IRAs, etc.

Unmarried Social Security recipients with provisional incomes ranging from $25,000 to $34,000 — and married couples with provisional incomes ranging from $32,000 to $44,000 — can expect to pay taxes on up to half of their Social Security benefits. Called the "Reagan Tax," revenues from these taxes go to the Social Security trust that, during the next 10 years, anticipates pulling in more than $177 billion from taxes on your Social Security benefits.

Unmarried benefit recipients with provisional incomes of more than $34,000 — and married couples with incomes of more than $44,000 — can expect to pay taxes on up to 85 percent of their Social Security benefits. Called the "Clinton Tax," revenues from these taxes go to the Medicare trust fund that, over the next 10 years, anticipates banking more than $118 billion from taxes on your Social Security.

To add insult to injury, unlike income tax brackets, the income levels used to tax your Social Security are not adjusted annually. This means that more seniors are clobbered with the tax each year when they least expect it. And guess what? These rules also apply to Social Security disability and survivor benefits.

That's right. Your elected officials decided that they would cannibalize your Social Security payments in order to feed the very same kitty that writes your checks each month. They are repossessing part of the money you contributed into the Social Security trust while you worked.

Bette Davis knew what she was talking about when she said, "Aging isn't for sissies." But that was before seniors were penalized for working hard to increase returns to make ends meet. We suggest that either your elected officials don't know this tax exists, or don't know how confiscatory and punitive it is. Talk to them and, if they are in the dark, put them out to pasture next term. They don't deserve your vote.

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JAN L. WARNER received his A.B. and J.D. degrees from the University of South Carolina and earned a Master of Legal Letters (L.L.M.) in Taxation from the Emory University School of Law in Atlanta, Georgia. He is a frequent lecturer at legal education and public information programs throughout the United States. His articles have been published in national and state legal publications. Jan Collins began co-authoring Flying SoloŽ in 1989. She has more than 27 years of experience as a journalist, writer, and editor. To comment or ask a question, please click here.


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© 2004, Jan Warner