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New bill aims to stop state tax on Social Security

By   /   January 6, 2017  /   News  /   No Comments

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DOUBLE TAXATION: One in ten Vermonters is subject to the state tax on Social Security.

 

The first House bill introduced at the start of the legislative session aims to end Vermont’s tax on Social Security, a $30 million annual revenue source.

State Rep. Topper McFaun, R-Barre Town, the sponsor of H.1, says the revenue is a pittance compared to Vermont’s total budget, which amounts to $5.6 billion, including federal and other special funds.

“I have elderly widows staring into my face telling me they’re having trouble living. They’re having to choose between paying bills and buying medications. I don’t think that’s right,” he told Watchdog.

Social Security is already taxed federally. The tax is dependent on the beneficiary’s income level, with several brackets of increasing tax percentage. Individuals who have a provisional income of over $25,000, and couples with an income over $32,000, are taxed. This impacts approximately 49 percent of all Social Security beneficiaries.

Vermont is one of four states to tax Social Security benefits to the extent they are taxed on the federal level. The other three states include Minnesota, North Dakota and West Virginia.

Because Social Security funds are originally from income tax, McFaun believes it is wrong to tax these payments two times. “I don’t think they should be taxed twice while living in poverty. Social Security is supposed to be a safety net so they don’t have to (live this way),” he noted.

David Reville, spokesperson for AARP Vermont, agrees. “We hear from seniors all the time about how unfair it is to be taxed on a benefit they’ve payed into all their lives,” he said.

Following Maine, Vermont has the second oldest population. In 2013, one in 10 Vermonters were subject to state tax on Social Security. That number is likely much higher today, as Vermont’s population continues to get older.

According to Reville, 24 percent of Vermont beneficiaries rely on Social Security for 90 percent of their income; 54 percent rely on Social Security for 50 percent of their income.

McFaun said his bill, now assigned to the House Committee on Ways and Means, has already stirred a lot of discussion. “Members of the committee have told me they’re concerned about the $30 million shortfall,” he said.

Committee members were not available for comment.

Even if the House doesn’t exempt all Social Security payments, McFaun hopes lawmakers will raise the taxable income threshold to protect struggling seniors.

“People are at least talking about the issue. That’s what I want,” he said.

In 1984, Congress agreed to tax up to 50 percent of Social Security benefits for recipients with qualifying income levels. This was done in an effort to raise additional funds for the program as Baby Boomers began to retire and more people began drawing from the program than were paying in.

In 1993, Congress increased taxable benefits up to 85 percent for higher income brackets. The funds from this increase were funneled to Medicare, as the federally funded insurance program began to see the same problems with increased enrollment.

In 2016, the federal government generated $51.8 billion by taxing Social Security, and $20 million went towards the Medicare Hospital Insurance Trust Fund.

Despite the extra revenue from taxes, Social Security faces a shortfall of trillions of dollars. Because of unemployment, shifting age demographics, longer life expectancies, and government spending of allocated Social Security funds, there is not enough money in the program to pay for the number of eligible seniors.

The program continues to borrow funds, and is projected to see $32.1 trillion in unfunded liabilities by 2090.

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Emma Lamberton is Vermont Watchdog’s health care and Rutland area reporter. She has written for the Rutland Herald and Times Argus, two of Vermont’s largest newspapers, and her work has been republished by FoxNews.com and a number of local Vermont newspapers. She can be reached at [email protected] or by following her on Twitter @EmmaBeth9.