States eye your social security checks
A number of senior citizen groups around the United States are suddenly up in arms about new state laws - or legislative efforts now under way - to tax federal social security benefits.
The senior-citizen groups have a legitimate concern. Such a tax can be faulted on social and historical grounds. Further, the state taxes could come just as the federal government considers curbing social security benefit levels as one way of holding down budget deficits. So recipients could face a double jeopardy.
It is important that a distinction be clearly drawn between the current federal tax on social security benefits and current or future state taxes on social security. Congress, as part of last year's bipartisan Washington compromise to shore up the financially battered social security system, enacted legislation providing for the federal taxation of social security benefits in the case of senior citizens with high incomes. The federal tax, however, does not go into general revenues. Rather, it is used to replenish the social security trust fund - in other words, to keep the social security system financially solvent.
But because of a provision in the new legislation providing for commonality between the states and the federal government, some 25 states around the US have either passed legislation to tax social security benefits for the 1984 tax year (involving returns to be filed next year) - or are contemplating doing so. The states, however, intend to use the tax revenues not to help save the social security system, but for general revenue purposes.
The rationale for taxing social security payments is that they are just ''transfer payments'' - in other words, just another form of ''income.''
But the social security system was designed to be a basic retirement program for elderly persons. In fact, the federal government went out of its way back in the late 1930s and early 1940s to stress that point. What is generally forgotten today is that back then not a few independent-minded folks balked at either accepting government checks or joining the social security program at all - until it was shown to them that such checks represented a form of pension payment or insurance and were not ''welfare payments.''
Granted, the various state plans to tax social security would likely affect but a very small percentage of senior citizens: those persons who have high income. And state tax rates are much lower than federal rates.
But that is not the issue. Social security recipients made retirement plans based in part or whole on their future social security income. It was not contemplated that such income would be taxed. Further, given the fact that many states will need substantial revenue sources to balance their budgets during the next decade, there is no certainty that an initially modest state tax on social security would not become larger and larger in scope - eventually affecting millions of senior citizens.
The states should leave social security checks alone.
