Originally, Social Security benefits were not taxable as income. All funds collected for Social Security went into the Social Security Trust Fund and were used exclusively for benefits. Excesses above those required for immediate benefits were (and are) invested in US Treasury bonds. (The US borrows these funds in effect and the National Debt increases by the amount of Social Security funds invested/borrowed.) These funds are used by the government in any way Congress sees fit but at least in this case the debt of the General Fund to the Trust fund is acknowledged. Theoretically the borrowed funds will eventually be paid back to the trust fund by taxpayers who pay income taxes.
There is, however, a new and more insidious way that Congress has devised to gain funds from the Social Security Trust fund without ever having to pay them back.
Recent changes in the law have made up to 85% of Social Security benefits subject to income taxes. This effectively decreases the benefit to some higher income recipients (to which I do not object) but has an entirely different effect than simply paying less benefits to these individuals. If benefits were simply reduced the funds collected from Social Security payroll taxes and not paid out because of the reduction in payments would REMAIN IN THE SOCIAL SECURITY TRUST FUND. But by making the benefits taxable, $21 billion a year that is collected for the Social Security Trust fund is paid out to beneficiaries and is then collected back in the form of Income taxes. These funds are deposited in the General fund of the United States. Each year then $21 billion dollars of Social Security Payroll taxes are siphoned out of the Social Security Trust fund and placed in the general fund to be used for other than what the tax was originally intended. This at a time when the Social Security System is facing severe problems.
If you believe that is is unconscionable I would encourage you to write to each member of your congressional delegation and urge him to reduce benefits to higher income Social Security Beneficiaries (if this is necessary) by some device other than the income taxes, or as an alternative require all income taxes collected on Social Security benefits be returned to the Social Security Trust fund.
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Last change 5/30/96