Writing in the Wall Street Journal, investment guru Charles Schwab argues for lowering Social Security payroll taxes on older Americans as a way to encourage them to work more, while also lowering the income taxes that retirees pay on their Social Security benefits:
I’ve written extensively, including in the Wall Street Journal, about cutting payroll taxes on older workers as a way to encourage delayed retirement. You can check out one of those articles here. Read more!
As deliberations about tax reform begin in earnest, Congress should consider a simple fix to help millions of older Americans: Eliminate Social Security and Medicare payroll taxes after age 65 on the first $50,000 of earned income. These Americans have already contributed to the two programs over a lifetime. Yet even after they hit the retirement age, they continue to pay Social Security and Medicare taxes on income they earn.
This reform could significantly benefit seniors with modest incomes. Nearly 20% of people 65 and over are still working—more than eight million in all—according to the Bureau of Labor Statistics. Of people 65 and older who reported income in 2014, about 80% took in less than $50,000, according to the Administration on Aging. The median was just over $22,000. This proposal would boost their spending power significantly.
Take a 70-year-old woman who earns $25,000 a year in California. Today the combined Social Security and Medicare tax on that income is approximately $1,900. Federal and state taxes further reduce her take-home pay to roughly $21,000. Exempting her from Social Security and Medicare taxes effectively would increase her spending power by more than 9%. She is likely to put that additional $1,900 toward day-to-day living expenses. It’s enough to have a real positive effect on her quality of life.