Interesting and Shocking Facts about Social Security

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More Changes to SocSec Taxation

• What had began as a “tax on the rich” was now increasingly a tax on lower middle income citizens.

• Back in 1983 when the $25,000 single and $32,000 married limits were set before SS benefits were taxed at the Federal level, there was the intent that it would only affect high-income earners. Adjusted for inflation, those limits should have been increased and equal to  $68,196 and  $87,291 in June 2021. Meanwhile without an inflation adjustment in the income tax brackets, the lower limits had drifted down into the middle class resulting clearly in more and more SS benefits being taxed over time.  Originally to be to 'tax the rich.'

• The $25,000, which was originally in 1983 affecting those earning $68,196 in June 2021 dollars, that $25,000 limit had a purchasing power of  $47,006  in Apr 2021 dollars.

• In 1983 when the $34,000 single and $44,000 married limits were set, those limits had the equivalent purchasing power of  in 2021, effectively targeting the same level of high-income as the original 1983 congressmen were.

• Meanwhile, the $32,000, which was originally in 1983 affecting those making $87,291 in 2021 dollars, that $32,000 limit had a purchasing power of $59,066 in Apr 2021 dollars.

• In 1983, the average Social Security benefit was $440.77 per month or $5,289.24 for the year. In 1983, a single filer with this average benefit could have up to an additional $19,710.76 in income to have a provisional income of exactly $25,000 and still be under the limit and have none of their Social Security taxed. 

• In 1993, the average Social Security benefit was $1,288.94 per month or $15,467.28 for the year. In 1993, a single filer with this average benefit could have an additional income between $25,000 and $34,000 in income and now making 50% or $7,733.64 SS benefits subject to tax.

• In 2021, the average Social Security benefit was $1,658.03 per month or $19,896.36 for the year. The 2021, a single filer with this average benefit could have an additional income in excess of $34,000 and now making 85% or $16,911.91 of SS benefits subject to tax.

• Over time, more and more Social Security benefits are taxed as inflation-adjustments on both Social Security benefits themselves and other income sources push more taxpayers into these higher tax rates.

Other Points

Does anyone including our federal officials in charge of determining inflation really know how to apply them to specific groups of people?  Well, they believe they do by breaking out two different general ways to determine inflation by either of the consumer price index (CPI) indices: CPI-U for all Urban Consumers or CPI-W for Urban Wage Earners and Clerical Workers - huh????  Why????  Oh, and then picking and choosing what basket of goods to actually use while eliminating significant items such as insurance, taxes, shrinkflation, etc, etc.

https://inflationdata.com/articles/2023/07/19/what-is-the-difference-between-the-cpi-u-and-the-cpi-w/

According to the Bureau of Labor Statistics (BLS)

CPI-U for all Urban Consumers

• The CPI-U, or Consumer Price Index for All Urban Consumers, is the most widely used measure of inflation in the United States. It is designed to capture changes in the cost of living for all urban consumers, regardless of their income levels or employment status. The CPI-U is calculated by tracking the prices of a basket of goods and services that represent the spending patterns of urban households. 
• According to the BLS, “The CPI market basket is developed from detailed expenditure information provided by families and individuals on what they actually bought. There is a time lag between the expenditure survey and its use in the CPI. For example, CPI data in 2020 and 2021 was based on data collected from the Consumer Expenditure Surveys for 2017 and 2018. 

CPI-W for Urban Wage Earners and Clerical Workers

•  According to the BLS, “The CPI-W also includes a basket of goods and services, but the weights assigned to each expenditure category are based on the spending patterns of wage earners and clerical workers. 
• This means that items such as housing and transportation, which may constitute a larger portion of their expenses, are given more weight in the calculation of the CPI-W.” On the other hand, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)  represents approximately 30 percent of the total U.S. population and is a subset of the CPI-U population. 

CPI-E for the Elderly

• This is not in effect, but it is worse than the two above in keeping up with overall general inflation.  It is perpetually experimental index designed to track costs for the elderly more accurately than either the CPI-U or CPI-W.  DON'T SUPPORT THIS.

Seasonal and Non-seasonal Adjustments to Inflation

News Release BLS Jun 12, 2024 #USDL-24-1123

• How to Use Seasonally Adjusted and Unadjusted Data for analyzing short-term price trends in the economy, seasonally adjusted changes are usually preferred since they eliminate the effect of changes that normally occur at the same time and in about the same magnitude every year—such as price movements resulting from weather events, production cycles, model changeovers, holidays, and sales. This allows data users to focus on changes that are not typical for the time of year. 

• The unadjusted data are of primary interest to consumers concerned about the prices they actually pay. Unadjusted data are also used extensively for escalation purposes. Many collective bargaining contract agreements and pension plans, for example, tie compensation changes to the Consumer Price Index before adjustment for seasonal variation. BLS advises against the use of seasonally adjusted data in escalation agreements because seasonally adjusted series are revised annually for five years.

Medicare and Other Deductibles

Medicare was established

• Medicare was created in 1965 and since there are a multitude of changes to coverages.  This section will not go into details of those changes, but will focus on the premiums which commenced in 1966.  At that time, medical Part A was $3.00 monthly to an increase to $164.90 monthly representing 53.96 times higher.

• Depending upon your income levels and there are now five, your premiums will increase and by substantial amounts.

• Even if you are in the lowest premium amount, it still affects your overall COLA.  Depending upon your monthly benefit amount, it can reduce your COLA percentage amount one half percent in 2024.  For example, if the COLA for 2024 is 2.5%, another increase premium could effectively give you an actual COLA increase of 2.0%.

• Collectively, Medicare premium increases and increasing deductibles can have substantial negative impacts to your COLA.

A Wild Black Box of Hedonic Adjustments

According to Epoch Times 

Even on specifics, the Bureau of Labor Statistics (BLS) can’t seem to reflect actual industry prices. The BLS has food prices up 26 percent since 2019. But industry data has groceries up 35 percent. The least price increases are in retail liquor (11 percent), which is precisely why cocktails, wine, and beer are up so much at restaurants: It’s a good place to extract profit margins.

Then you have the black box of hedonic adjustments, which allow bureaucrats to re-render the price of any product with changed quality with some perception that, after all, you don’t mind paying more for higher quality, so therefore, it is not really increasing in price.

Finally, you have the effective exclusion of most main forms of shrinkflation and added fees. How much does all this add to the CPI? We don’t really know. It’s not wildly impossible that real inflation over four years has been 30 percent or 50 percent or higher. Adjust all the other data for that and you gain a completely different picture of what is happening.

https://www.theepochtimes.com/opinion/10-points-about-post-lockdown-economics-5695684?src_src=Opinion&src_cmp=opinion-2024-07-31&est=AAAAAAAAAAAAAAAAZOEkexwBzNXa5bAdnnNcGb1gxE1AKSwale5om32BtBbGoT2STzpUgA%3D%3D 

One last Significant Impact - IRMAA

Beginning in 2007, Income-related Monthly Adjustment Amount or IRMAA was instituted and began to be added to Part B premiums for enrollees with income above a certain threshold. Subsequently, IRMAA was applied to Part D as well.  There are currently five brackets of income thresholds determining their respective Medicare adjustments - always much higher. see https://thefinancebuff.com/medicare-irmaa-income-brackets.html for more detailed information.

Based upon the dialogue in this website and the various aspects that can impact your COLA, many recipients can and do actually pay higher income taxes and thereby easily wiping out any COLA increase or certainly a good portion of it.  You can also go negative giving up 100% of your COLA and then some due to the current taxing structures that continually worsens.

Continue on to the COLA Differences by Different Calculations and Their Impacts page in this website.