Another Social Security Fix

In addition to the proposals offered in the letter “ A Social Security Solution ” ( JofA , Jan.06, page 12) and the article “ Promises to Keep ” ( JofA , Jul 05, page 41), I have one that brings the income tax system and Social Security together in a unique way.

One of the arguments offered for the creation of private accounts is that when a retiree dies the money can be passed on to his or her heirs. But most recipients of Social Security depend on their payments almost exclusively for their income. One of the last things on their minds is to pass money on to heirs. They need every dollar to pay basic needs such as housing and medicines. If private accounts were in place, guaranteed regular payments would have to be reduced.

The exception to this majority would be high-income individuals whose Social Security payments are “extra income.” The payments would simply be added to their savings.

A possible solution would be to offer high income individuals, at some time during their working career, the choice to receive a tax deduction for the amount of their yearly payments into Social Security. The deduction could be in the form of a schedule A deduction from their personal income tax return or an adjustment to total gross income before computing adjusted gross income. In exchange they would forfeit the right to receive Social Security payments when they become eligible. The total amount paid into the Social Security reserve fund would not change—the employer would match the employee deduction as usual. The employee would benefit annually with tax savings as well as with the compound interest savings and investment effect of the savings.

The IRS would have to compute the loss in income tax revenues from such a proposal and compare it to the savings in the Social Security reserve fund as a result of not having to pay future benefits. I believe there could be a net savings to the overall federal budget.

The implementation of such a system could be complex, but it would not require as radical a change in the Social Security payment system as some other proposals would.

Jimmie Wayne Knowles, CPA
Spicewood, Texas