The House Passed Legislation to Roll Back Income Tax on Social Security Benefits
The House did pass legislation repealing the increased income tax legislation on Social Security benefits passed in 1993. The vote was 265-159, which therefore would not be enough of a margin to override the threatened veto that President Clinton has announced. The repeal is projected to cost $117.4 over 10 years. The president felt that the money would be better spent on adding prescription drug coverage to Medicare beneficiaries. Couples earning more than $32,000 but less than $44,000, and singles making more than $25,000 but less than $34,000 will continue to be subject to taxes on 50 % of their Social Security income. Incidentally, interest from municipal bonds is included in determining income levels, so therefore the interest may not be totally "tax free".
Congress increased the income tax on Social Security beneficiaries in 1993 to help alleviate the budget deficit at that time. The measure increased to 85 % from 50 % the portion of Social Security benefits subject to income tax when a retiree's income, including half of his or her annual Social Security benefit, exceeds certain levels. At that time the levels were $25,000 for a single person and $32,000 for a couple filing a joint return. These levels are now at $34,000 for a single person and $44,000 for a couple filing a joint return.
The White House indicated that the president would oppose the bill. The president feels that the revenue produced by the tax, which is projected to be $8.8 billion in 2000, is necessary to maintain the solvency of the Medicare system. If the tax were to be repealed funds to replace it would have to come from other general revenues. In addition the repeal would benefit the very wealthy without doing anything for lower income individuals. This in turn would leave less funds available for prescription drug coverage under Medicare.
The Center on Budget and Policy Priorities, a liberal research group, felt that the repeal would in fact put the Medicare system into further disarray. They argue that since private pension income is subject to income tax, the same should be true for Social Security benefits payments.
Mr. Archer argued that Medicare would not be affected because the budget surplus would allow additional general tax revenues to go to Medicare in place of the revenue lost from repeal of the tax.
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By Allan Rubin
updated July 29, 2000
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