Ronald Reagan humorously described government’s money-making philosophy this way: “If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.”
Senior citizens may not move very quickly, but they do still move. So governments tax their Social Security benefits.
And it may seem ironic, but Reagan was the president who saw to that.
In 1983, when Social Security was in financial trouble, Reagan signed a sweeping reform bill that taxed up to 50% of benefits received. President Clinton upped that to 85% a few years later, where it remains.
Utah and several other states then jumped aboard with taxes of their own.
You hate this tax
You hate this. AARP published a poll a couple of years ago that showed about two-thirds of Utahns wanted to do away with this tax. Republicans and Democrats hate it just about evenly. My guess is, the closer you are to 65, the more incrementally you hate it.
People don’t like hating things. That means Utah Gov. Spencer Cox may have hit political gold last week when he released a proposed budget that calls on lawmakers to abolish the tax. The only thing better would have been to outlaw the common cold.
“We have an aging demographic out there,” Cox told the Deseret News and KSL editorial boards. It’s a “silver tsunami” of retiring baby boomers, he said. “They’ve struggled as much … maybe more, through inflation than anybody else.”
This is important, Cox said, because, “All of us hope to be old someday.”
Can I get an amen?
The cost
All it would take to kill this tax, he said, is $143.8 million a year, which is a little less than what it would have taken to remove the state’s sales tax from grocery purchases.
And, while the food tax is somewhat voluntary and incremental, grandma and grandpa pay $950 per year, on average, on benefits they already earned through a lifetime of work.
Not to mention it’s double-taxation. You already pay a federal tax on these benefits.
This idea becomes even more popular when you consider many Americans aren’t sure Social Security will be around much longer. A Gallup poll taken a year ago found only about 50% said they expect Social Security to pay them a benefit when they retire, while 47% said they don’t.
Might as well get as much out of it now as you can, right?
This pessimism likely has to do with reports that Social Security’s trust funds are being depleted by that same tsunami of aging baby boomers, which is a discussion for another day.
So, why has it taken the governor’s office so long to suggest this?
For one thing, the state has been increasing the income limit for credits against this tax, which now is $45,000 for single filers and $75,000 for couples. That makes the extra leap to no tax much easier than it used to be.
The COVID-19 effect
But also, the nation’s 50 states have been on a COVID-19 induced tax-cutting spree for a few years now, and this is the latest manifestation.
As the National Conference of Legislatures put it, Washington poured stimulus money into “federal aid to states and individuals following the COVID-19 pandemic, (which) created a unique economic landscape ...” Translation: States suddenly had a lot of money.
Utah gradually lowered its flat-rate income tax, which once was 5%, to 4.55%. Other states made similar cuts.
Two years ago, 11 states were taxing Social Security benefits. Now, there are nine, and one of them, West Virginia, is phasing its tax out.
Richard C. Auxier, a principal policy associate with the Urban-Brookings Tax Policy Center, took note of this trend.
When states start doing this, he told taxnotes.com, it’s a race against the clock.
“You do not want to be the last one.”
If the Legislature follows Cox’s lead, Utah won’t be.