Tuesday, May 16, 2017

Charles Schwab: Cut Payroll, Income Taxes on Retirees

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:

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.

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.

1 comment:

WilliamLarsen said...

The payroll tax paid by those 65+ is less than the payroll tax now paid by current workers. In addition, the base is many times higher adjusted for both inflation and wage growth since the these 65+ were born/working.

Social Security is the single largest con ever perpetrated. Now some ignorant people want to reduce payroll taxes for those 65+ who work. How about just eliminate the payroll tax. If those now 65+ have paid their fair share, there is nothing to worry about, their accumulated payroll taxes they have paid are sitting in a trust fund with enough funds to pay all their benefits.

If you believe that you are truly gullible. Social Security cannot pay scheduled benefits past 2029 (CBO) and 2034 (SSA) and 2028 (Larsen). So why keep the con going? What is going to happen when benefits are cut by 25% in the first year? Will there be support to increase payroll taxes or will the workers see Social Security for what it truly is - a con?

Will 160 million workers sit by and let their payroll taxes increase? Will the spouses (non working) of many of these workers also support raising the payroll tax?

This is going to get real interesting real fast.