Social Security proposal would end 'double taxation' of income...but at what cost?Sep 12, 2022
Congress is at it again. They are trying to win votes at the cost of future retirees. This time by helping current retirees at the cost of future retirees.
The latest proposed cuts come in the form of the "You Earned it, You Keep It Act," introduced by Rep. Angie Craig (D-MN). This bill would repeal all federal taxation of Social Security benefits starting in 2023..but at some significant costs.
As I told Dan Shaw from Financial Planning Magazine, an industry publication for Financial Advisors:
"[the bill is] nothing more than a bid to win retirees' votes.
Congress will do its best to avoid doing anything that will harm current recipients for fear of retribution come election time, Sternbach said. Any pain will most likely be felt by workers who are either too young or too busy to worry about retirement at the moment."
The second part of the legislative proposal would require high earners to pay payroll taxes on income of $250,000 or more a year. Current law prevents payroll taxes from being applied to annual earnings above $147,000.
Leibel Sternbach, a financial consultant with expertise in Social Security matters, said critics of the current system too often forget that the amount of Social Security benefits that retirees and others receive is directly tied to how much they've paid into the system over the years. So the more high earners have to pay in, the more those earners will be able to draw out upon retirement.
"It's not a welfare program," he said. "So if you raise that cap, you'll just be paying out more in benefits."
Sternbach said financial planners have an important role to play in forecasting likely changes to Social Security and helping younger clients find ways to compensate for any losses resulting from the need to shore up the system.
"You need to be thoughtful, rather than go ahead with just the default, because otherwise you're playing into their hands, and you are probably not going to come out ahead," he said.
You can read the full article here.
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