Tuesday, December 13, 2005
A Social Security Solution
So here is my proposal.
For anyone who reaches retirement age and continues to work without drawing social security, no taxes (social security, federal or state income) on any earnings up to the maximum amount normally taxed under social security.
This would provide a powerful incentive to continue working. For 2005 the social security maximum taxable income is $90,000, so essentially one could earn up to $90,000 tax free, a benefit worth perhaps $20-30,000.
The cost to the state and federal governments of the foregone taxes would be nothing, were the person likely to quit working absent the tax rescission. If he quit, there would be nothing to tax. The gain to the social security system would be that it would not need to pay out social security until the person finally quits working.
There would be a cost to the government in one respect. Some workers currently work past retirement age, and the goverment would lose taxation of the their income up to the social security cut off. Still the loss seems likely less than the overall gain. The average age of retirement is currently about 63 and a half.
Sure, it would need some fine tuning. For instance, ought the rescission of taxes be at age 62 or age 66, or partially at 62 and fully at 66? What about Medicare? Should the person pay taxes on any income above $90,000 at the same rate he would have paid absent the tax rescission?
But the basic trade is a sound one: fewer social security payments in return for no income tax. The beauty is that it trades something that would not exist absent the incentive -- taxes on income from continuing to work-- and thus doesn't have a negative affect on the government.
What might older workers do with their added income past age 62? Well perhaps they should save it for when they do retire. A part of any plan ought be a generous IRA or similar provision to encourage saving their extra income.
So here is my proposal.
For anyone who reaches retirement age and continues to work without drawing social security, no taxes (social security, federal or state income) on any earnings up to the maximum amount normally taxed under social security.
This would provide a powerful incentive to continue working. For 2005 the social security maximum taxable income is $90,000, so essentially one could earn up to $90,000 tax free, a benefit worth perhaps $20-30,000.
The cost to the state and federal governments of the foregone taxes would be nothing, were the person likely to quit working absent the tax rescission. If he quit, there would be nothing to tax. The gain to the social security system would be that it would not need to pay out social security until the person finally quits working.
There would be a cost to the government in one respect. Some workers currently work past retirement age, and the goverment would lose taxation of the their income up to the social security cut off. Still the loss seems likely less than the overall gain. The average age of retirement is currently about 63 and a half.
Sure, it would need some fine tuning. For instance, ought the rescission of taxes be at age 62 or age 66, or partially at 62 and fully at 66? What about Medicare? Should the person pay taxes on any income above $90,000 at the same rate he would have paid absent the tax rescission?
But the basic trade is a sound one: fewer social security payments in return for no income tax. The beauty is that it trades something that would not exist absent the incentive -- taxes on income from continuing to work-- and thus doesn't have a negative affect on the government.
What might older workers do with their added income past age 62? Well perhaps they should save it for when they do retire. A part of any plan ought be a generous IRA or similar provision to encourage saving their extra income.
Comments:
Post a Comment
