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Old 02-14-2013, 08:30 AM   #41
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Originally Posted by packrat44 View Post
Prior to LBJ and his need for more help in funding the Viet Nam war, there was no taxing on receipt of SS benefits. Roosevelt stated SS benefits would never be taxed. However, when politicians want more money, all prior promises are off the table. You can run, but you can't hide.
Actually, I think the first time SS benefits were taxed federally was after the 1983 changes.

But anyway, on the subject of pooling retiree resources and to quote myself in 2004:
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Since most solutions boil down to: Take the middle class savings, put them in the SS pool, and redistribute the total equally to all retirees current and future, WHY NOT JUST DO THIS?
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Old 02-14-2013, 08:35 AM   #42
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Actually, I think the first time SS benefits were taxed federally was after the 1983 changes.
Correct.

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The taxation of Social Security began in 1984 following passage of a set of Amendments in 1983, which were signed into law by President Reagan in April 1983. These amendments passed the Congress in 1983 on an overwhelmingly bi-partisan vote.
Social Security History
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Old 02-14-2013, 08:58 AM   #43
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True, taxes have to be paid on IRAs (contributions or distributions) at some time....but don't put it out of the realm of possibility that ROTH IRA distributions would be directly taxed.

After all, half of your social security check you receive in your 60s has already been taxed by income taxes when you earn it on your paycheck. Yet, up to 85% of your SS check (depending on your AGI) is subject to income tax.

50% of your SS payments into the system were never hit with income tax (your employer contribution), but up to 35% of your SS payments - which were taxed once when they were taken out of your paycheck - are taxed AGAIN when you receive them.

Before it changed in the late 80s/early 90s, it was always such that just 50% of your SS benefits were taxed (since you had already been taxed on 50% of it when you earned it).

It surely doesn't make 'sense' that you would be hit with income tax twice on the same dollar that you put in to SS and then take out - but the gub'mint can do whatever the elected politicians so decree.

So...moral of the story: don't merely assume that there's no way that a ROTH could be directly hit with some form of income/asset tax in the future, since such a blatant example of double taxation would surely never make sense or seem obviously unfair.
Using your logic, once a SS recipient has received in benefits what he has paid in (for some people, it doesn't take too long to hit that breakeven point, for others, they get there more slowly), shouldn't 100% of his benefits be subject to income taxes? Using 50% or 85% is a bargain, especially if the SS recipient is receiving them for a long, long time (decades).
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Old 02-14-2013, 10:31 AM   #44
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I think they will need to implement a VAT, which will be somewhat independent of where the money we spend comes from.
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Old 02-14-2013, 10:42 AM   #45
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Correct.
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The taxation of Social Security began in 1984 following passage of a set of Amendments in 1983, which were signed into law by President Reagan in April 1983. These amendments passed the Congress in 1983 on an overwhelmingly bi-partisan vote.
Social Security History
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Old 02-14-2013, 10:49 AM   #46
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I think they will need to implement a VAT, which will be somewhat independent of where the money we spend comes from.
Well, this would tend to counteract the "punish savers" aspect of means testing. Do both and neither spenders nor savers can feel like they are being singled out for the pain...
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Old 02-14-2013, 02:29 PM   #47
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Actually, I think the first time SS benefits were taxed federally was after the 1983 changes.
The only problem was that the income limits for taxation were not indexed for inflation. They remain at 1983 levels.
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Old 02-15-2013, 12:06 PM   #48
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Well, this would tend to counteract the "punish savers" aspect of means testing. Do both and neither spenders nor savers can feel like they are being singled out for the pain...
Sounds like a good balance. However, I would expect that certain categories of goods and services will carry a higher VAT than others. In fact, some stuff may be exempted from the VAT altogether to protect the poor from having to spend more on the essentials of life.
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Old 02-15-2013, 12:17 PM   #49
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Sounds like a good balance. However, I would expect that certain categories of goods and services will carry a higher VAT than others. In fact, some stuff may be exempted from the VAT altogether to protect the poor from having to spend more on the essentials of life.
No doubt -- I think it would be more like sales taxes where food is exempt, and probably medicine as well. Though I would expect some social engineering over which foods are exempt, with those perceived as "unhealthy" being hit with a VAT.
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Old 02-15-2013, 12:26 PM   #50
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No doubt -- I think it would be more like sales taxes where food is exempt, and probably medicine as well. Though I would expect some social engineering over which foods are exempt, with those perceived as "unhealthy" being hit with a VAT.
Oh boy!

Do I look forward to a debate as to why expensive seafood gets a tax break because it is healthy, while cheap staples like flour, sugar, and white rice get taxed because they contribute to diabetes? Wine is good, while whiskey and beer are bad, the latter because of its effect on men's tummies?
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Old 02-15-2013, 12:46 PM   #51
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No doubt -- I think it would be more like sales taxes where food is exempt, and probably medicine as well. Though I would expect some social engineering over which foods are exempt, with those perceived as "unhealthy" being hit with a VAT.
There was a bit of fuss a year or 2 back when Pringles had VAT added to them in the UK. The government decided that the amount of potato in a Pringle had fallen below the threshold to class it as a food item (Pringles are now classed the same as potato crisps and lose some price advantage)

This table below is an example of what we would get to over here if VAT came to be, and food was excluded.

VFOOD8160 - Excepted items: snack products: examples of the VAT liability of common snack products

from the table, Pringles are subject to VAT, but Tortilla chips are not
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Old 02-15-2013, 02:58 PM   #52
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No doubt -- I think it would be more like sales taxes where food is exempt, and probably medicine as well. Though I would expect some social engineering over which foods are exempt, with those perceived as "unhealthy" being hit with a VAT.
That is within the Government's power. Social engineering through tax policy has been a common practice for decades. There may be an issue where Federal VAT intersects with state food stamp policy - i.e., if you use food stamps to pay for items that are ordinarily subject to VAT, they would be exempt because you used food stamps.
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Old 02-16-2013, 11:23 PM   #53
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I've been saying here for years that this may be prudent financial planning whether it happens or not: to "engineer" your assets in a way that allows you to live comfortably on a lower AGI. (Until they start "means testing" net worth, anyway.)

For now, it's much more likely that they start with means testing using AGI. We already see it in terms of marginal tax brackets, in terms of the level of taxation on dividends, how much of your SS benefit is subject to taxation, and soon in terms of health insurance subsidies through PPACA. I personally expect (at age 47 now) my future SS and Medicare benefits to be heavily means-tested along the lines of AGI.

I don't like that, but I think prudence requires me to move assets around defensively to help keep AGI below a certain threshold in any given year makes sense.
So for those already retired, does that mean you start withdrawing less per year for a number of years before applying for SS or becoming eligible for Medicare?

Seems like if you're retirement income is entirely from withdraws in retirement accounts, it's easy to set your AGI to whatever it needs to be.

So when they craft the means-testing legislation, they have to be aware of that. Whether a retiree has $500k or $5 million in assets, one can withdraw just enough to stay below whatever threshold, whether it be for ACA subsidies or for SS/Medicare means testing?
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Old 02-17-2013, 05:41 AM   #54
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So when they craft the means-testing legislation, they have to be aware of that. Whether a retiree has $500k or $5 million in assets, one can withdraw just enough to stay below whatever threshold, whether it be for ACA subsidies or for SS/Medicare means testing?
Once you reach age 70 1/2 your retirement withdrawals are subject to RMDs. It becomes much more difficult to manage income to a certain level.
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Old 02-17-2013, 05:52 AM   #55
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As I've posted before, I honestly believe that the debt/spending is so extreme that there is no other solution than for this country to eventually declare bankruptcy. It may take a decade for that to happen, but I just don't see how we can balance the books. (hope I'm wrong of course!) I really don't.

This is like the guy with a $20K a year job who got to be $1M in debt, and he's thinking that if he cuts back on cigarettes and gets a second job, he can dig his way out. (my proportions may be off)

Having said that, why 'sacrifice' when the ultimate goal is not realistically achievable? What do we pay in interest every day?

I'm all for throwing my pail of water on a kitchen fire, but if you look closely, the house is fully engulfed...

Instead of wasting time demonizing the 'rich' we should be planning for a different future for this country. The old country is gone folks and it ain't coming back, now let's figure what to do post bankruptcy.
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Old 02-17-2013, 06:54 AM   #56
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[QUOTE=explanade;1284908

So when they craft the means-testing legislation, they have to be aware of that. Whether a retiree has $500k or $5 million in assets, one can withdraw just enough to stay below whatever threshold, whether it be for ACA subsidies or for SS/Medicare means testing?[/QUOTE]even if you could do this despite taxable RMDs, is there anyone out there with a $5M portfolio who would really crimp their lifestyle to a point beyond comfort simply to avoid a few bucks in tax?
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Old 02-17-2013, 06:56 AM   #57
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As I've posted before, I honestly believe that the debt/spending is so extreme that there is no other solution than for this country to eventually declare bankruptcy. It may take a decade for that to happen, but I just don't see how we can balance the books. (hope I'm wrong of course!) I really don't.
i hope you are wrong too and am glad that no economists of any stripe think anything of the sort is in store.
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Old 02-17-2013, 09:22 AM   #58
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RMDs are only for 401ks and IRAs right?

Don't most people here have far more assets in taxable accounts? Those are the ones you control, although, capital gains distributions and dividends from them do raise your AGI, so it may be very difficult to stay below $60k for ACA subsidies.
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Old 02-17-2013, 09:41 AM   #59
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Once you reach age 70 1/2 your retirement withdrawals are subject to RMDs. It becomes much more difficult to manage income to a certain level.
Of course, once you are required to take RMDs, you're already on Medicare so the song and dance about health insurance exchanges and subsidies doesn't really apply to you under current law. For sure there is a very real chance that Medicare will become much more heavily means-tested at some point in the future, though, so strategies to reduce RMDs (such as Roth conversions and taking distributions to use up lower tax brackets) are still in play.
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Old 02-17-2013, 10:05 AM   #60
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Of course, once you are required to take RMDs, you're already on Medicare so the song and dance about health insurance exchanges and subsidies doesn't really apply to you under current law. For sure there is a very real chance that Medicare will become much more heavily means-tested at some point in the future, though, so strategies to reduce RMDs (such as Roth conversions and taking distributions to use up lower tax brackets) are still in play.
Isn't Medicare already means tested in that the premiums are higher once you are above a certain income level?

Medicare costs at a glance | Medicare.gov
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