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Author: fingfool Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 19221  
Subject: SS Taxation And Inflation Date: 7/4/2001 7:33 PM
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I recently posted( http://boards.fool.com/Message.asp?mid=15113438 )my concerns that the federal tax on Social Security benefits suffers from "bracket creep". A single response to my post led me to believe that either I did not make my point clear or that there is not much interest at this board on the issue. I will attempt one more time to explain my concern.

A few decades back Washington politicians used bracket creep to raise funds to help fund an accelerating growth in government spending without voting for new taxes. It involved the effect of inflation had on increasing taxpayers rates when their constant dollar (adjusted for inflation) incomes were not increasing or even decreasing. When taxpayers became wise to this subterfuge, the politicians had to agree to index the tax rate brackets and deductions to the inflation rate. It certainly appeared to me at the time that those politicians interested in increased government spending were not taking stands against an ever increasing inflation rate.

The 2 thresholds for SS recipients at $32,000 and $44,000 for married couples and $25,000 and $34,000 for singles are not indexed for inflation. This means middle income taxpayers who are receiving SS benefits will pay higher and higher effective tax rates for a constant dollar income as inflation increases. Inflation is an enemy of people on fixed incomes. With the double edged sword of inflation and lack of indexing for the SS thresholds, retired people could become particularly vulnerable to higher inflation rates.

When I e-mailed my congressman on this issue, I was answered with a history on taxation of SS, current legislation pending that deal with taxes on SS and his stand on SS in general. This was good information to receive but it did not directly address my question about the lack of indexing of the thresholds.

Anyone out there besides me concerned about this issue?

Regards,
fingfool


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