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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75387  
Subject: Re: From Pension to Roth IRA Date: 2/13/1998 6:14 PM
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Ray,

In general, you have a well-reasoned post with thoughts worthy of consideration by all. This, however, I cannot abide or permit to pass unremarked.


<<Q: Can a 73 year-old retired widow with a small pension be exposed to a 50% tax on her Social Security check?
A1: No, there is no such tax bracker, and you are a mean-spirited rightwing extremist hatemonger for even asking the question.
A2: No. But if she takes a part-time job to get a little extra spending money, she has to pay income tax, plus 7.2% FICA tax (really 15.4%, but that's a different subject) (even though she is _collecting_ Social Security), and her SS payment and pension payment will be reduced if she earns more than a certain (small) amount. And her Medicare premiums can also go up. So her SS isn't directly taxed at 50%, but the effect is the same, when you look at the overall picture. Governments are very good at passing tax laws that have the same effect as a direct tax increase.>>

That is demagoguery at its finest. It's also a myth, a gross distortion, and a misstatement designed to confuse and inflame. In short, IMHO it's an outright lie. I'm rather surprised you seek to perpetuate it, but it certainly won't go unchallenged by me.

First, someone who draws Social Security at age 70 and who works won't lose one thin dime of that payment. It will continue in full. If that person was between the ages of 65 and less than age 70, then an earnings limitation will apply. This year it is $14,500. In 1999 it will be $15,500; in 2000 - $17,000; in 2001 - $25,000; and in 2002 - $30,000. A person between 65 and 70 who earns over those amounts will forfeit $1 of Social Security for every $3 earned in wages above those limits.

Jane is 66 and works during the year at a job that pays her $17,500. She draws an average worker's benefit in 1998 Of $765 per month, or $9,180. In theory, she could gross $26,680 this year. What will she net after taxes and forfeiture? Well, she's $3K over the earnings limit, so she will lose $1K in SS payments to net $8,180 for the year. As a single person, her wage income after exemptions and deductions makes her taxable income $8,200 on which she pays taxes of $1,234 based on 1997 tax tables. She also paid FICA during the year of 7.65% for a total of $1,339. From work, then, she nets $14,927. Add that to her net SS, and she ends up with a total spendable income of $23,107, a "loss" in income of $3,573 to "taxes." It doesn't take a math whiz to see the effective rate on total income is but 13.4%. So much for your 50% tax rate on these poor elderly workers being deprived of their Social Security through confiscatory taxes.
The result is hardly an onerous burden IMHO, and definitely no cause for alarm on anyone's part.

One other point before I close, and that deals with paying FICA while drawing Social Security. Those payments get added to the work history of the person involved. More often than not, they serve to increase the benefit when the person finally does fully retire. Why? Because the SSA recalculates the benefit based on the person's entire work history, and that added income in retirement offsets some zero or low income years, thus boosting the average wage base on which the benefit is calculated.

So, Ray, I can't say I buy into your argument on this one. 50% tax indeed. Hmmmph!

Regards…….Pixy

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