Tax policy: what do you think of exempting retired seniors' income under, say, $90,000?

[SKL]

I haven't received one of those SS statements in a long time, come to think of it.  The last few I received had two numbers - what I'm "supposed" to get and what I'll "probably" get.  :P

[TechWife]

I am aware of these complexities, but the payments are still reported on 1099-R and yes, I lumped them into "pensions" for simplicity's sake.  Do you think the 70+yo retired people who are receiving multiple 1099-R forms know how the heck to compute their required minimum distribution, taxable portion, bla bla bla for each of these forms?  Often they have several 1099-Rs because of switching jobs, their employers being bought out or changing plans, required rollovers, plans being transferred to a new administrator at some random date, etc.  Taxation sometimes breaks down further depending on what kind of underlying investments are included in each plan - which are often not under the control of the retiree.  It's a nighmare.

 

Yes, I do think many of the 70+ year old people in our country are capable of completing their income tax forms. Software has made it easy to do for most filers, and yes, I think many of them do use the computer regularly and are capable of using the software. I would hope that when you are assisting your relatives you are using it as well.  Many people in their 70's are working and/or traveling the country or simply enjoying their lives where they are planted. Age is just not a hard and fast determiner of when people begin to have difficulty with complex tasks. 

[ErinE]

There are plans that include both pre-tax and after-tax income in the same pot.  Mine does.

 

Found it! For those interested in personal finance and retirement accounts:

 

http://news.morningstar.com/articlenet/article.aspx?id=682209

 

Some 401k plans allow after-tax contributions. The 401k may house the two funding sources, but once the plan is rolled over, the monies are separated into a rollover IRA and a Roth IRA. The after-tax and before-tax monies aren't combined.

 

ETA: For the finance geeks, here's another link:

 

https://www.kitces.com/blog/irs-notice-2014-54-acquiesces-on-splitting-after-tax-401k-contributions-for-roth-conversion/

 

This link was in the original article, but this goes into greater detail on what retirees were doing originally and why the IRS gave further guidance.

Edited March 29, 2016 by ErinE

[Ravin]

Okay, here's what I think:

1. Paying in to social security is a tax, not a government-sponsored defined contribution retirement plan. Social security paid out is a government entitlement.

2. Automatic social security payout based upon age alone should be eliminated entirely.

3. The bar should be lowered and made more consistent and less lawyer-dependent for receiving social security based upon disability. It should include a program to retrain individuals disabled from their previous occupation but young and healthy enough to train for something else, and exempt older workers disabled beyond a given age from retraining. Qualification for it should be based partly on need, but with a generous exemption of basic assets including retirement and other savings, a home, etc. A cap of something like $500,000 on assets, perhaps (factoring in areas with very high home values and cost of living). 

4. Social security income should not be taxed.

5. Medicare and Medicaid should be fused into a single program, with anyone who qualifies for social security income automatically qualifying for the insurance as well.

6. The overall income tax code, including social security income tax, should be simplified. Again, there should be a generous exemption of income below which one does not pay. For recipients of social security income who also have other income sources (such as withdrawing money from an IRA), only additional income beyond that general exemption amount should be taxed, but the exemption amount should include the social security income. So, assuming that amount is set at, say, $30,000 for an adult plus an addition $15,000 per dependent minor child, a single working mother with 2 children would only pay income tax on her income over 60,000, and a single retired widow with no young children at home would pay income tax on any income amount over $30,000. If the latter had social security income of $20,000 a year, and drew another $20,000 annually from an IRA, she would pay income tax on $10,000 of her income. If social security income is set higher than the exemption cap, say it's set at $38,000 because she lives in a high-cost-of-living area, and she withdrew another $20,000 from her IRA, she would pay tax on all $20,000 but none on the social security income even though it's over the standard exemption limit.

7. Capital gains should be taxed the same as any other income  when the assets are owned by an individual person, sole proprietorship, partnership, or close corporation the profits of which are taxed similarly to a partnership's. Capital gains is income earned from leaving your money invested in the right place, it shouldn't get breaks that income from doing actual work doesn't get.

8. We need to overhaul corporate taxes, too. But that's a whole other conversation.

 

9. Exempting or lowering property taxes for seniors can incentivize municipalities to push them out of their homes using eminent domain in the name of "economic development". One way to fix this might be to require municipalities are required to leave a given percentage of property in the hands of individuals for their own use, all of which receives breaks on income tax. Another would be to stop allowing municipalities to use "economic development eminent domain."

[SKL]

Found it! For those interested in personal finance and retirement accounts:

 

http://news.morningstar.com/articlenet/article.aspx?id=682209

 

Some 401k plans allow after-tax contributions. The 401k may house the two funding sources, but once the plan is rolled over, the monies are separated into a rollover IRA and a Roth IRA. The after-tax and before-tax monies aren't combined.

 

They aren't combined under the new rules.  The article says the old rules didn't have that benefit.

 

I have to go look at how I did it when I rolled mine over.  I hope I have the breakdown somewhere.  :P  I'm sure I do ... but will I have everything in order 21 years from now ....

 

[ErinE]

 

4. Social security income should not be taxed.

 

 

Warren Buffet shouldn't pay taxes on his Social Security? I know retired people who make 6 figures, not including social security. I think any government entitlement should absolutely be taxed in that situation. 

[ErinE]

They aren't combined under the new rules.  The article says the old rules didn't have that benefit.

 

I have to go look at how I did it when I rolled mine over.  I hope I have the breakdown somewhere.  :p  I'm sure I do ... but will I have everything in order 21 years from now ....

 

 

So the after-tax money was put into a roll-over IRA? It sounds like you paid taxes on funds going in and will pay taxes on funds coming out, you just receive the benefit of tax-deferred growth.

[TechWife]

SS employee contributions are not tax-deductible.

 

They currently are usually getting more than they put in, BUT had they put that money in the bank, they would be earning interest on that.  And they would be taxed on the interest, but not the corpus.

 

 

 

I don't understand.

 

Money put into a savings account is taxed when it is earned. The interest earned is also taxed.

 

What am I missing? 

 

 

What you said in this quote is not contradictory to what I said.

 

I don't know what you are missing.  Are you still thinking that SS contributions are deductible when you pay in?  They aren't.

 

 

No, I have never thought or said that SS contributions are tax free and/or deductible. 

 

I don't understand why you say the amount in a savings account isn't taxed. It is taxed at the point where it is counted as income. 

[SKL]

So the after-tax money was put into a roll-over IRA? It sounds like you paid taxes on funds going in and will pay taxes on funds coming out, you just receive the benefit of tax-deferred growth.

 

As your linked article mentions, roll-over into a single IRA means there is a need to track the pre-tax and after-tax part continuously until you take it out.

 

When I take out $100, some part of that will pertain to interest income, all taxable.  Some part will pertain to the pre-tax stuff I put in, also taxable.  And some part will pertain to the after-tax stuff I put in, not taxable.

 

Because I am a CPA and because I have seen how hard this is for older people, I can plan ahead to try to make it easier.  I don't expect most retired people to "get" this the way I do.

[Jean too]

But it doesn't work that way.  Many many people don't pay income taxes for many years of their lives.  If we're talking about elderly people with retirement savings / pensions, we're talking about people who have paid taxes for many years and from whom we could extract those final taxes in a more sensible way.

 

 

Yes, I am aware that is currently doesn't work that way, hence the mess we have created with the current tax system. I think we need to simplify the tax code to a flat tax for all regardless of age, income, number of children etc.. Everyone uses the services provided. Everyone needs to contribute their share, which I believe should be a flat percentage (we'll say 10%) of their income without any exceptions. We could then eliminate, or at least drastically reduce the size, of the IRS and save bunches of money. Everyone would then have skin in the game and this give me attitude of having the government give all sorts of goodies might decrease too when they realize they are paying for those goodies and the percentages might need to increase to fund expected/desired new goodies.

 

Also a $90,000 income is a healthy income and should be required to be taxed under the current system.

[SKL]

I don't understand why you say the amount in a savings account isn't taxed. It is taxed at the point where it is counted as income. 

 

In the case of the example given, I was talking about amounts that are paid into Social Security, and how they would be treated if they were instead placed into savings.  Amounts paid to social security are after-tax money.  If I put them in a regular savings account instead, they would not be taxed again, because they are after-tax money.

 

 

Whether or not amounts in a savings account are taxed depends on many things.  For example, I put some money in an account for my niece for her education.  It is a gift, not large enough to attract tax.  She will not have to pay tax on it when she takes it out.

 

When I wasn't earning enough money to pay taxes, I put money in a savings account and it was never taxed - neither going in, nor coming out.

 

The fact of money being in a savings account doesn't give rise to taxation.

 

If it is excluded from taxable income based on a certain tax incentive, then yes, it gets included in taxable income coming out.  It may or may not be taxed, depending on the applicable marginal tax rate at the time of the distribution.

 

I have a lot of money in my savings account that was simply moved in there from my checking account.  Most years it was taxed before I put it in, although my income as a partner in a business is not directly subject to tax.  Some years I pay out 100% of what I get to the tax man, and other years I don't pay any, depending on various investment decisions of the business.

 

So I guess I don't view savings as having specific tax attributes per se.

 

Edited March 29, 2016 by SKL

[SKL]

Yes, I am aware that is currently doesn't work that way, hence the mess we have created with the current tax system. I think we need to simplify the tax code to a flat tax for all regardless of age, income, number of children etc.. Everyone uses the services provided. Everyone needs to contribute their share, which I believe should be a flat percentage (we'll say 10%) of their income without any exceptions. We could then eliminate, or at least drastically reduce the size, of the IRS and save bunches of money. Everyone would then have skin in the game and this give me attitude of having the government give all sorts of goodies might decrease too when they realize they are paying for those goodies and the percentages might need to increase to fund expected/desired new goodies.

 

Also a $90,000 income is a healthy income and should be required to be taxed under the current system.

 

FTR I like the idea of a flat tax too.  I don't believe I'll see it in my lifetime, though.

 

[Lady Florida.]

I'm not in favor of any of the flat tax proposals that have been offered. All of them put the biggest tax burden on the working class and the poor. Many proposals exempt investment income, so yeah, Warren Buffet, Bill Gates, et. al. would pay fewer taxes. 

 

I'm not against the idea of a flat tax, but until someone comes up with one that is truly fair, I will fight against it.

[ErinE]

As your linked article mentions, roll-over into a single IRA means there is a need to track the pre-tax and after-tax part continuously until you take it out.

 

When I take out $100, some part of that will pertain to interest income, all taxable.  Some part will pertain to the pre-tax stuff I put in, also taxable.  And some part will pertain to the after-tax stuff I put in, not taxable.

 

Because I am a CPA and because I have seen how hard this is for older people, I can plan ahead to try to make it easier.  I don't expect most retired people to "get" this the way I do.

 

Can you get guidance on converting the after tax portion of the current IRA to a Roth IRA? For the future, I would want to separate the funds.

[SKL]

Can you get guidance on converting the after tax portion of the current IRA to a Roth IRA? For the future, I would want to separate the funds.

 

I will have to look into it.

 

It would be nice to have one fund with all the pre-tax and one with all the after-tax.  Unfortunately I have several other things going too.  My present company invests in one of those deals where you have stocks and such.  Historically I've always invested in money market, so at least there is less to keep track of.  Then I have a pension with a company I left years ago, and it's supposed to be available when I'm 55, but I never get a statement.  I also used to have a teeny tiny teacher's pension, but I got that paid out to avoid fees.  Hopefully I'm not forgetting anything ....  I feel for people who have worked in many jobs, and especially for people who have to track that down from their late spouses' employment.  Add in divorce / remarriage and it gets crazier still.

[TechWife]

In the case of the example given, I was talking about amounts that are paid into Social Security, and how they would be treated if they were instead placed into savings.  Amounts paid to social security are after-tax money.  If I put them in a regular savings account instead, they would not be taxed again, because they are after-tax money.

 

 

Ah, so the original statement just left out the word "again," I understand now. Thanks for the clarification. 

 

And yes, once again, I do understand that SS contributions are taxed. Again, I never said that they weren't. I think you have me mixed up with someone else. 

[StephanieZ]

Do either of you have a source for this, because that's not what our statements say and, um..., I'd really like to know how much I might need to adjust my math!!!

 

 

Here is one reference. You can go to the .gov pages for official info and official calculators, etc., but this is more read-able for general info.

 

http://www.fool.com/retirement/general/2014/10/31/how-big-can-a-social-security-check-be.aspx

 

Essentially, in today's $$ (SS goes up with inflation), $3515/mo is the theoretical max benefit. Your monthly benefit is based on your earnings over time. Someone with a max SS tax contribution (SS taxes are capped at around a salary of 110k/yr at this time) for the max number of years/quarters (30 years now??) who waits to age 70 to take their SS, would get this theoretical max. If they'd retired at 66 (67 for us younger folks), they'd be just getting 2663/mo.  (Spousal benefit of 50% is based only on the "standard" amount -- so max of 50% of 2663/mo or about 1330/mo max for spousal benefit.)

 

Note that SS benefits are based on earnings, but not linearly. Essentially, it is "progressive" in that low earners get relatively bigger bang for their SS tax buck, and higher earners get relatively lower bang for their buck. (So a low earner that only paid in, say 500/yr -- x2 to 1000/yr with employer matching tax --  in SS taxes might get a 500/mo in SS benefits at retirement, but a high earner that paid in, say 7000/yr -- x2 with employer matching tax to 14,000/yr -- might get back 2000/mo in benefits . . . TOTALLY made up numbers, FWIW, just making a general point.) To me, this makes sense as SS is intended as an anti-poverty insurance type program, not as a "fair" retirement savings plan. 

 

Hope this is helpful. 

[StephanieZ]

FWIW, I think it's important to view SS retirement (and other) benefits as an anti-poverty measure, not as a retirement investment. This is why it's designed in a progressive manner, essentially getting a lot more $$ from high earners and redistributing it to lower earners. That's fine in my book. High earners also have the ability to save in other ways for retirement. 

 

Taxing SS income seems perfectly fine to me. The key is to recognize that SS income isn't earned savings/retirement. It's a tax you paid while you were working to help insure you and others in society against being destitute in old age (or when disabled or orphaned or widowed with young children). The system is ideally set up to create a floor of survival for folks without resources, not to set you up for a cushy retirement. The fact that wealthier folks get some benefits (SS benefits) as well is a carrot to keep them (me) invested in keeping the SS tax system in place at all. 

 

If you cut off benefits for everyone who earned over 70-100k or whatever, you'd lose support for the system at all. Give them back retirement/etc benefits that are actually a (small) part of their lifetime contributions, and you help maintain their support (and it seems a bit fair anyway).

 

With various exemptions/allowances/etc, presumably low earners will pay little to no federal tax (not all states are progressive this way), with high earners, for whom SS is just one part of their income stream and/or they have big assets to live off, they'll pay some taxes on their SS benefits. Seems fine and fair to me.

 

Personally, I'd be fine with eliminating the 110k/yr salary cap as well, but that'd be unlikely to, in the end, add a huge amount to the system since most folks with very high incomes have ways around endless SS taxes (setting up corporations, etc.), and if you added another 15+% (which is what it is when you are paying both ends of the SS tax as a business owner) to income endlessly just means business owners, etc, would direct income to "non earned" income that is NOT subject to the SS taxes at all. (In fact, many/most business owners already do this to some extent . . . ) Maybe a better route would be to ADD SS taxes to financial transactions/investment income/etc . . . "passive income" . . . 1% on all that could likely eliminate payroll taxes to a large extent. (But, just try to get the investment banks, uber-wealthy, etc., to agree to this!)

 

[ktgrok]

I'm totally fine with that.  You work hard all your life, there should be a break.  I'm also not comfortable with property taxes on the elderly.  It can really be a hardship, especially if the area has gone up in value. 

 

I was just talking about this...how when we cut income taxes and other taxes (on businesses, etc) that budget shortfall gets fixed by raising property taxes, which hits seniors hard, much more so than income tax would. 

[ChocolateReignRemix]

I was just talking about this...how when we cut income taxes and other taxes (on businesses, etc) that budget shortfall gets fixed by raising property taxes, which hits seniors hard, much more so than income tax would. 

 

Part of that has to due with how local governments generate revenue.  Smaller communities do not have income taxes, but they need a way to pay for the services needed by everyone, including seniors. Exempting a large portion of the community, particularly one that often owns large amounts of property, from helping to pay for those services unfairly shifts the burden to everyone else.

[SKL]

I don't view this sort of thing as shifting the burden to someone else.  We're all going to be old someday.  Just like we all were takers when we were young kids, and nobody is bothered by that, why shouldn't similar consideration be given at the other end of life?  It's not like these people didn't all do their time for the decades in between.

 

I would like to be able to look forward to a little less fuss and worry in my declining years.  Wouldn't you?

[ChocolateReignRemix]

I don't view this sort of thing as shifting the burden to someone else.  We're all going to be old someday.  Just like we all were takers when we were young kids, and nobody is bothered by that, why shouldn't similar consideration be given at the other end of life?  It's not like these people didn't all do their time for the decades in between.

 

I would like to be able to look forward to a little less fuss and worry in my declining years.  Wouldn't you?

 

If children earned income or owned property I would expect them to be taxed as well.

[ktgrok]

Part of that has to due with how local governments generate revenue.  Smaller communities do not have income taxes, but they need a way to pay for the services needed by everyone, including seniors. Exempting a large portion of the community, particularly one that often owns large amounts of property, from helping to pay for those services unfairly shifts the burden to everyone else.

 

right, I'm not talking about eliminating property tax for seniors! I'm saying that some places have cut and cut other tax revenues at the state level, and at the local level that lost revenue is made up via increasing property taxes. 

 

In other words, if the state used to provide a certain amount towards schools, but has cut their budget as a result of cutting income taxes, then the shortfall has to be made up, and since there is no income tax locally, it is usually done via property taxes. Whereas before that money came from income tax paid to the state then sent to the local districts. 

[Lady Florida.]

I don't view this sort of thing as shifting the burden to someone else.  We're all going to be old someday.  Just like we all were takers when we were young kids, and nobody is bothered by that, why shouldn't similar consideration be given at the other end of life?  It's not like these people didn't all do their time for the decades in between.

 

I would like to be able to look forward to a little less fuss and worry in my declining years.  Wouldn't you?

 

But when we were takers there were givers. At some point it should be our turn to give.

[SKL]

But when we were takers there were givers. At some point it should be our turn to give.

 

Yeah, like from age 20-65 or 70!

 

[SKL]

Seriously, I'm talking about people who have worked full-time or more for ~5 decades, raised kids, volunteered, paid taxes, served in the military, helped their own parents, ached, grieved, worried, suffered disasters and crimes, and went without many times.  I don't understand how people can talk as if these folks need to step up after being takers all their lives.

[StephanieZ]

right, I'm not talking about eliminating property tax for seniors! I'm saying that some places have cut and cut other tax revenues at the state level, and at the local level that lost revenue is made up via increasing property taxes. 

 

In other words, if the state used to provide a certain amount towards schools, but has cut their budget as a result of cutting income taxes, then the shortfall has to be made up, and since there is no income tax locally, it is usually done via property taxes. Whereas before that money came from income tax paid to the state then sent to the local districts. 

 

Yep, exactly this has happened this year in WV. As the (deranged) state legislature has refused to deal with budget shortfalls, many critical services are going unfunded. Our county has a SLEW of "levies" (surcharges on our property taxes that will last 5 years) on the primary ballot in May to fund basic services like buses, libraries, rail trail and park maintenance, etc, etc. It's all stuff that used to be funded via regular state budget process, but has been decimated in recent budget failures. The counties ONLY have the ability to impose property taxes (no alternatives such as sin taxes, etc.), so these levies are on the ballot. I sure hope the parks one passes. We happen to own a lot of real estate (business as well as home), so we'll probably have a big hit at tax time. We can handle it, no problem, and I'll vote for all the levies, but folks on a fixed income will be pinched. The state's failure leaves the county no other option, though, as the county's only means to raise funds is through the property tax rates (long term) and levies (5 yr terms -- ideally just for major improvements, etc.). It's so desperate that our county is trying to use the levies just to maintain what we already have . . .  I'm guessing this is because the levies can be done quickly whereas raising the base property tax rates is a slower process. But, our legislature just took the year off from doing any constructive work this year, including budgeting . . . So, our county is doing what it can to try not to be destroyed. (Ours is probably one of if not the most affluent in the state, but that isn't saying a lot in WV. Nonetheless, we feed taxes to the rest of the state already.)

[Ravin]

Warren Buffet shouldn't pay taxes on his Social Security? I know retired people who make 6 figures, not including social security. I think any government entitlement should absolutely be taxed in that situation.

It makes sense in the context of the rest of what I said.

[eternalsummer]

If you're talking about simplification of the tax code, cool - we need a vastly simplified tax code for many reasons, including seniors, people who are less intelligent and unable to afford tax help, corporations with well-paid lawyers and not a lot of integrity, and on and on.

 

If you're talking about saving old people money - that's crazy right now.  In the last few decades the gap between the wealth of the elderly and the young has gotten pretty insane:

http://www.bloombergview.com/articles/2015-11-13/europe-s-old-get-richer-the-young-get-poorer

http://money.cnn.com/2011/11/07/news/economy/wealth_gap_age/

http://www.pewsocialtrends.org/2011/11/07/the-rising-age-gap-in-economic-well-being/

 

Furthermore, the government (that is, we taxpayers) spend a lot more money on the old than the young:

http://www.politifact.com/truth-o-meter/article/2013/jan/28/federal-spending-old-young-numbers/

 

And unfortunately, the people who you are now saying should receive a tax break (meaning I should cover their taxes) have already both promised themselves certain benefits (through pensions or social security or medicare or whatever), then largely failed to fund those benefits, or spent the allocated money on something else and left IOUs there instead.  

 

So no, I'm not of the opinion that they should have eaten their cake (and our future cake, and told us not to worry, more cake would appear for us someday) and then get more cake now just because the tax code is kind of complicated.

 

If we want to reduce the tax burden, and I am *all* for reducing the tax burden, the responsible thing to do (that neither party seems to want to ever do, alas) is reduce spending.  I think we are *way* past that point now, honestly, and a major and fairly devastating correction is inevitable, but oh well.

Edited March 30, 2016 by ananemone

[StephanieZ]

The problem is the math. Yes, they paid taxes...but was it enough to cover the expenses? The school tax on my home is more than enough to pay for 2 children, over the time I will be in the home. My neighbor though, has an exemption for being a senior, but since the home is rented out yet not claimed as a rental, the taxes dont cover the half dozen children that are there every single school year, many of whom are transported to their old school 75 miles away due to McKinney Vento. Then add in the town services needed....the tax doesnt cover the costs associated with the property.

 

But, that's just illegal. Your senior neighbor is pulling a scam. Our entire society is based on the honor system, IMHO. 

[Carrie12345]

Seriously, I'm talking about people who have worked full-time or more for ~5 decades, raised kids, volunteered, paid taxes, served in the military, helped their own parents, ached, grieved, worried, suffered disasters and crimes, and went without many times.  I don't understand how people can talk as if these folks need to step up after being takers all their lives.

 

I think it's as unreasonable to lump all seniors into that description, just like it's unreasonable to lump all X'ers into overspenders and millenials into lazy.

 

I do support the idea of *freezing real estate taxes for seniors at some level or another.  I'm probably biased by my upbringing in NJ and adulthood in PA, where I've seen RE taxes get absolutely nuts.  I don't like the idea that someone could buy a house, spend 30 years paying it off, and still wind up with a monthly/annual payment equivalent to or higher than their mortgage payment was at one point.  That's plain unreasonable.

[StephanieZ]

No, its not illegal to give your homeless friends a place to stay, then accept a cash gift of gratitude. The point I am making is that all these exemptions allow people to make use of a lot of services, while dumping the bill on others and personally profiting. Is it really morally right to live in low income senior housing, claiming your only income is SS, when you have accumulated wealth? Anenemone's post is spot on.

 

Yes, that is illegal. That is renting. If you LIE about the cash (or non cash) by calling it "gifts", then you can get away with it. But, that doesn't make it legal. It's illegal. Try telling that story to the judge about the cash gifts and it being a favor, and see what they say. Then you are committing perjury, too. Not good. I am a landlord in two states . . . I have read and re-read the laws. The senior neighbor is breaking the law. She should be paying taxes as a landlord, not as an owner-occupied residence. In fact, her mortgage (if she still has one) could likely (theoretically) be called due if she tells the truth or is caught.

 

Rental property taxes are higher. I know; I pay them. When we recently bought our rental property for college girl to live in (with roommates), there were three ways I could have done it. As a second home (a lie I could get away with), in dd's name (even 1% ownership), or the way reflecting the truth -- as an "investment property". Either of the first two options would have saved us massively on property taxes -- 50% off the top. The first two ways would have also saved us mortgage costs both in required down payment and in interest rate. But, you know what, we did the LEGAL way, even though several banks simply assumed we were going to be lying and calling it a 2nd home "like most parents do". We will pay an extra thousand or two a year over the time we own it because we told the truth . . . So, IMHO, your neighbor, to be legal, should disclose the transformation of her property to a rental and pay appropriate taxes (and other business license fees, etc.)

[Laura Corin]

I think it's as unreasonable to lump all seniors into that description, just like it's unreasonable to lump all X'ers into overspenders and millenials into lazy.

 

I agree.  My mother did not work outside the home after my eldest brother was born.  She was supported by my father's income and then alimony, then received a state pension (similar to ss) based on my father's contributions.  She complains about the government being mean with its budget cuts to vulnerable people (I often agree with her) but she has not contributed to society in any way since I left home 35 years ago: no paid work, no taxes paid, no volunteering.  I think that if she had a higher income then she should defnitely be taxed - as it is, she falls below the general tax-paying threshold.

[Annie G]

 

Rental property taxes are higher. I know; I pay them. 

 

In my town  property tax on a rental is actually cheaper.  We used to have a rental in this town and the house cost about half what our family home cost but the taxes were less than half our taxes. My house is about 900 square feet smaller than my next door neighbor's and his has been completely renovated. But his is valued less than mine and his tax rate is lower than mine. The same goes for the house next to his- it's a rental and is huge but also pays the lower tax rate. 

 

When we moved from Georgia and rented our house our property taxes didn't go up at all. Our insurance on the property did- when we rented the house the insurance on it cost us more than what we paid to insure both the property and the contents when we lived there. 

 

It stinks that they charge rentals a higher rate where you live!

[Jane in NC]

This discussion has been fascinating.  Perhaps I am wrong, but it seems that that OP wishes to honor age and contributions of seniors with a financial break--whether or not the financial break is required.

 

I am all for honoring our seniors as I am for honoring our veterans, our teachers, the tireless do-gooders who keep our communities going.  The initial premise of a tax break was given at $150K, then reduced to $90K, both sums being well above median family incomes. Overly generous in my view.

 

There is a great disparity in income where I live among seniors.  I live in one of those tourist places that has become a popular retirement community for people from around the county.  (This is true in general for coastal Carolina.)  Transplants to golf course or beach communities have deep pockets--but will claim poverty as they go out for dinner every Friday night.  I have neighbors with two homes, pensions, investments.  This is a far cry from seniors who live on the other side of the tracks in modest to disheveled houses or trailers. 

 

I looked up property tax breaks for seniors:

 

 

This program excludes the greater of the first $25,000 or 50% of the appraised value of the permanent residence of a qualifying owner. A qualifying owner must either be at least 65 years of age or be totally and permanently disabled. The owner cannot have an income amount for the previous year that exceeds the income eligibility limit for the current year, which for the 2015 tax year is $29,000. See G.S. 105-277.1 for the full text of the statute.

 

 

This is a far cry from exempting senior citizen income up to $90K!!  In fact, looking at the seniors who live on my block, I can honestly say that they can all afford to pay income tax.  Some may not want to pay, but they can afford it.  (Anecdotal, I know.)

 

Some may wish to protect their assets to pass along to the next generation, but that is another issue. 

[luuknam]

It's not like older people haven't made any previous contribution to the common good.

 

Which includes having created the current tax system we've got. The zillions of complicated rules weren't made by my generation - they were made over the past several decades, when the elderly and almost-elderly were voting etc. In the meantime, they also created a system where too little money has been paid into SS etc, on the assumption that younger generations can pay for that stuff.

 

I'm willing to support people over 85 not paying taxes if they make less than $50k or some such. I'm definitely willing to fix property tax at age 70 so that it doesn't increase but rather stays the same.

 

ETA: fixed property tax for their primary residence only, NOT for any second houses, real estate investments, properties they're renting out, etc.

Edited March 30, 2016 by luuknam

[Ravin]

In my town  property tax on a rental is actually cheaper.  We used to have a rental in this town and the house cost about half what our family home cost but the taxes were less than half our taxes. My house is about 900 square feet smaller than my next door neighbor's and his has been completely renovated. But his is valued less than mine and his tax rate is lower than mine. The same goes for the house next to his- it's a rental and is huge but also pays the lower tax rate. 

 

When we moved from Georgia and rented our house our property taxes didn't go up at all. Our insurance on the property did- when we rented the house the insurance on it cost us more than what we paid to insure both the property and the contents when we lived there. 

 

It stinks that they charge rentals a higher rate where you live!

 

Taxes on residential rental property tends to be handled one of two ways:

 

1. Higher property tax on rental property, which is then passed on to the renter by reflecting it in the rent;

 

2. Same or lower property tax on rental homes, and also a tax on the rent itself, the burden of which may be explicitly laid directly on the renter or included in the price of monthly rent.

 

Either way, the usual consequence is that the price of those taxes is passed on to renters, even when the actual burden of the tax lies with the property owner.

[Ravin]

It does bear repeating that our population has a very large aging bubble. Giving them too many tax breaks while piling more taxes on middle and lower income younger generations of people in the work force is not a good solution to much of any problems.

 

Corporations, on the other hand, don't have kids to raise and don't have to worry about growing old. Tax them. 

[ErinE]

It does bear repeating that our population has a very large aging bubble. Giving them too many tax breaks while piling more taxes on middle and lower income younger generations of people in the work force is not a good solution to much of any problems.

 

Corporations, on the other hand, don't have kids to raise and don't have to worry about growing old. Tax them. 

 

Taxes on corporations end up on consumers. In my view, corporate taxes only increase the cronyism prevalent in many countries. I'd rather reduce and simplify corporate taxes than increase incentives to pay off politicians.

Edited March 30, 2016 by ErinE

[SKL]

I agree.  My mother did not work outside the home after my eldest brother was born.  She was supported by my father's income and then alimony, then received a state pension (similar to ss) based on my father's contributions.  She complains about the government being mean with its budget cuts to vulnerable people (I often agree with her) but she has not contributed to society in any way since I left home 35 years ago: no paid work, no taxes paid, no volunteering.  I think that if she had a higher income then she should defnitely be taxed - as it is, she falls below the general tax-paying threshold.

 

The people being hit with the difficulties I'm talking about are people with income sources from jobs they have held in the past.  So the above comment does not apply to them.  The people in your example, however, do get to enjoy the simplicity of not having to deal with tax complexities.

 

[SKL]

People talking about elderly folks having more wealth - well, yeah, they tend to try to pay off their houses so they don't have a rent or mortgage payment when they stop earning full-time salaries.  That is a great thing.  We should all do that.  And yeah, their pension savings is considered wealth, and that is also responsible.  Those are the people who get to eat people food instead of dog food in their declining years.  :/

 

My proposal would not include "rich" older people, or those who still work.

 

And again, for about the 5th time, I did not say they should not be taxed, but that their taxation should be handled in a more reasonable manner, such as a lower deferral limits and/or a one-time tax when they reach a certain age, and then no filing requirement after that IF they fall within a middle-income range annually.  Again, most of these people pay very little or no tax anyway, so no, this isn't going to bankrupt younger families.  In fact it will benefit seniors' adult children by making things simpler both before and after their deaths.  Honestly, I would be very willing to pay for that benefit.

 

As for blaming the elderly modest-income retirees for today's tax system, oh sure.  Yeah, that was my dyslexic, high school dropout, full-time factory worker dad over in Washington lobbying the government.  Oops, no it wasn't.

[Laura Corin]

The people being hit with the difficulties I'm talking about are people with income sources from jobs they have held in the past.  So the above comment does not apply to them.  The people in your example, however, do get to enjoy the simplicity of not having to deal with tax complexities.

 

 

I was responding to the idea that older people were hardworking contributors to society.  Not necessarily.

 

[luuknam]

As for blaming the elderly modest-income retirees for today's tax system, oh sure.  Yeah, that was my dyslexic, high school dropout, full-time factory worker dad over in Washington lobbying the government.  Oops, no it wasn't.

 

Well, maybe he should've been. At least if he wanted/wants a less complicated tax system.

 

I'm okay with a simpler tax system. I just don't think saying "hey, I'm 70 now, woe is me" is a great attitude (not that I've heard a 70yo complaining - that said, my 70-something father-in-law still makes a little cash on the side filing taxes for others and might be dismayed at losing work by them not being taxed).

[luuknam]

Again, most of these people pay very little or no tax anyway, so no, this isn't going to bankrupt younger families.  In fact it will benefit seniors' adult children by making things simpler both before and after their deaths.  Honestly, I would be very willing to pay for that benefit.

 

There are about 40 million 65+yo people in the US. At, say, $500 in tax per person, that's $20 billion. Little bits add up. And yes, I know the federal budget is way larger than $20 billion, but unless you're personally going to throw in $20 billion, I don't think it's for you to say that hey, they pay only a little bit, so why not have them not pay it. $500 is btw just a number I picked because I think someone (you?) mentioned it upthread. Same idea holds for some other amount.

[eternalsummer]

People talking about elderly folks having more wealth - well, yeah, they tend to try to pay off their houses so they don't have a rent or mortgage payment when they stop earning full-time salaries.  That is a great thing.  We should all do that.  And yeah, their pension savings is considered wealth, and that is also responsible.  Those are the people who get to eat people food instead of dog food in their declining years.  :/

 

My proposal would not include "rich" older people, or those who still work.

 

And again, for about the 5th time, I did not say they should not be taxed, but that their taxation should be handled in a more reasonable manner, such as a lower deferral limits and/or a one-time tax when they reach a certain age, and then no filing requirement after that IF they fall within a middle-income range annually.  Again, most of these people pay very little or no tax anyway, so no, this isn't going to bankrupt younger families.  In fact it will benefit seniors' adult children by making things simpler both before and after their deaths.  Honestly, I would be very willing to pay for that benefit.

 

As for blaming the elderly modest-income retirees for today's tax system, oh sure.  Yeah, that was my dyslexic, high school dropout, full-time factory worker dad over in Washington lobbying the government.  Oops, no it wasn't.

 

Wealth is wealth.  If they acquired it by good means, like working and saving, that is great!  They have the wealth now, one way or another.  Pretending that old people are poorer than the young is just not accurate.  In this country, right now, old people (and boomers) have more money than the young.

 

Secondly, yes, your dyslexic, high school dropout, full time factory worker dad is partially responsible for the tax system and the other various ways the previous generations led our country into debt, filled SS with IOUs, and underfunded their own pensions.  That is what democracy *means*.  

[SKL]

Wealth is wealth.  If they acquired it by good means, like working and saving, that is great!  They have the wealth now, one way or another.  Pretending that old people are poorer than the young is just not accurate.  In this country, right now, old people (and boomers) have more money than the young.

 

Secondly, yes, your dyslexic, high school dropout, full time factory worker dad is partially responsible for the tax system and the other various ways the previous generations led our country into debt, filled SS with IOUs, and underfunded their own pensions.  That is what democracy *means*.  

 

I never said they were "poorer."  Some are, some aren't.

 

But back to the wealth thing.  When you're younger, you're building your wealth if you can, and living off your earnings.  But when you're retired / disabled, all you can do is use up your wealth.  My dad showed me the balance in his IRA account.  It looks like a nice number (it's 5 digits).  But that's all there is, there ain't no more, and there won't be no more.  That has to pay for most of my parents' household expenses for the rest of their lives, which may be decades.  Yes, it's great to have it, but let's keep it in perspective.  That is not fancy wealth.  I don't understand the tone that suggests older folks deserve no sympathy because they have a few bucks in the bank.

 

As for blaming uneducated blue collar workers for decisions they had no power over, I look forward to seeing how you like it when you are blamed similarly.

 

I sense a lot of folks just aren't able to imagine themselves in another person's situation - even the situation they themselves may well be in someday.

 

And no, I haven't heard older people complaining about this.  I am complaining on their behalf.  I complain when kids have to take a hundred standardized tests, and when mentally ill people can't get services, and when older people have to go through all kinds of pointless hassle to accomplish what should be basic tasks.

[SKL]

A comparison would be how we all feel about college financial aid.  If you work and save some money for college, bam, you get less financial aid because you don't need it.  But people are allowed to complain about that.

[Jane in NC]

I never said they were "poorer."  Some are, some aren't.

 

But back to the wealth thing.  When you're younger, you're building your wealth if you can, and living off your earnings.  But when you're retired / disabled, all you can do is use up your wealth.  My dad showed me the balance in his IRA account.  It looks like a nice number (it's 5 digits).  But that's all there is, there ain't no more, and there won't be no more.  That has to pay for most of my parents' household expenses for the rest of their lives, which may be decades.  Yes, it's great to have it, but let's keep it in perspective.  That is not fancy wealth.  I don't understand the tone that suggests older folks deserve no sympathy because they have a few bucks in the bank.

 

 

If your father has five figures in his IRA, I presume that he is not earning $150K or $90K in annual income--that was your starting basis for this discussion.  I really feel there is some disconnect in your posts.

 

I have great sympathy for seniors who cannot keep up with rising property taxes or healthcare costs.  But those earning $90K from their investments can afford to sell a few shares of stock or one of their properties to ease their burden. That is more than a "few bucks in the bank".

 

 

[eternalsummer]

A comparison would be how we all feel about college financial aid.  If you work and save some money for college, bam, you get less financial aid because you don't need it.  But people are allowed to complain about that.

 

They're allowed to complain about it, but they don't get free money because of it.

[eternalsummer]

I never said they were "poorer."  Some are, some aren't.

 

But back to the wealth thing.  When you're younger, you're building your wealth if you can, and living off your earnings.  But when you're retired / disabled, all you can do is use up your wealth.  My dad showed me the balance in his IRA account.  It looks like a nice number (it's 5 digits).  But that's all there is, there ain't no more, and there won't be no more.  That has to pay for most of my parents' household expenses for the rest of their lives, which may be decades.  Yes, it's great to have it, but let's keep it in perspective.  That is not fancy wealth.  I don't understand the tone that suggests older folks deserve no sympathy because they have a few bucks in the bank.

 

As for blaming uneducated blue collar workers for decisions they had no power over, I look forward to seeing how you like it when you are blamed similarly.

 

I sense a lot of folks just aren't able to imagine themselves in another person's situation - even the situation they themselves may well be in someday.

 

And no, I haven't heard older people complaining about this.  I am complaining on their behalf.  I complain when kids have to take a hundred standardized tests, and when mentally ill people can't get services, and when older people have to go through all kinds of pointless hassle to accomplish what should be basic tasks.

 

 

My concern isn't that people will blame me for how the country fares when my generation is in power; my concern is that my generation manages the country well in that time and that we leave a decent economic situation for our kids and grandkids.  Voting is not contingent on education or social/economic class.  I would be fine with it if it were!  But I suspect I am in the vast minority in that opinion :)

 

I can imagine myself making $90,000/year as an old person with $200K in the bank.  I cannot imagine asking young people with nothing, making $50,000/yr, to subsidize (more than they already do) government spending on my behalf.

 

If I were an elderly person making $25,000/year with no assets, I can see not wanting to pay much in taxes, because in that case I would actually be poor!