Inflation is only making things worse!

We hear the term COLA talked about every year. It represents the Cost Of Living Adjustments that are made to all types of Government expenses. It is basically the Inflation Factor for the year. The Social Security Administration calls this number their Index Factor when they calculate your benefits.

The problem that we face with the Tax Hump caused by the Parallel Taxation of our income and Social Security is that when the Government decided to make our Benefits taxable income, they “forgot” to make COLA part of the legislation they passed in 1983 and 1993.

Let’s use the official government Index Factors to look back in time.

Year201820132008 20031998199319881983
Index Factor1.001.081.18 1.431.692.102.523.19
Single50%$25,000$27,000 $29,500$35,750$42,250$52,500 $63,000$79,750
85%$34,000$36,720$40,120 $48,620$57,460$71,400
Married50%$32,000$34,560 $37,760$45,760$54,080$67,200 $80,640$102,080
85%$44,000$47,520$51,920 $62,920$74,360$92,400
Year201920132008 20031998199319881983
Index Factor1.001.121.22 1.481.742.182.603.30
Single50%$25,000$28,000 $30,500$37,000$43,500$54,500 $65,000$82,500
85%$34,000$38,080$41,480 $50,320$59,160$74,120
Married50%$32,000$35,840 $39,040$47,360$55,680$69,760 $83,200$105,600
85%$44,000$49,280$53,680 $65,120$76,560$95,920

In 1983, when the Government decided to start the 50% taxation of our Social Security Benefits at the $25,000 level for single individuals and $32,000 for married couples, as they said to all of us, they were only “Taxing the Rich”. In today’s dollars, that taxation did not start until the “Basis”, half your benefits plus all of your other taxable income, exceeded $79,750 $82,500 for single individuals and $102,080$105,600 for married couples. Not exactly “Rich” today, but better than average!

It seemed like $79,750$82,500 in 1983, but like I said, to be nice, they “forgot” to include the COLA adjustments in their legislation! So, it is still $25,000 in today’s dollars!

They did the same thing in 1993 when they established the $34,000 and $44,000 Basis levels for the 85% taxation of our benefits, in today’s dollars, $71,400$74,120 for single retirees and $92,400$95,920 for married retirees.

As average incomes increase and the starting points for the taxation of our benefits remains constant, the taxation of our benefits will become more and more intrusive on a larger and larger percentage of our retired population!

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