Q. I am 73 years old, on Social Security and working part time. Am I required to have payroll taxes deducted from my paychecks? ---O.N., by email from San Antonio, TX
A. Yes, the payroll tax, which is often called the employment tax, will be automatically deducted from your paychecks. Also, while you are old enough that your Social Security benefits cannot be reduced because of work earnings, it is possible that your additional earnings will cause a portion of your Social Security benefits to be taxed.
Let’s take a modest case. Suppose your wage earnings cause a portion of your Social Security benefits to be taxed and that you are in the 15 percent tax bracket.
As a result, your marginal tax rate on each additional dollar of wages will be 30.15 percent, excluding any state income taxes. Exceed certain amounts and it could be still higher. If you were self-employed, you would pay an additional 7.65 percent (the employers’ portion), and your effective tax rate on additional income would be 37.80 percent.
This can happen to a single retired taxpayer with an income, from all sources, of less than $50,000. A person who is not retired would have to earn more than three times as much to pay taxes at a similar rate. Such is the equity of our crazy tax system.
In recent weeks no fewer than three of President Obama’s appointees have faced questions over their taxes. Two appointees have withdrawn. The most common reading of this was that Bigwigs everywhere, regardless of party, think they are above the law.
I think the correct reading is this: Our wretched tax system is so complicated, so time-consuming, and so rife with arcane detail that it is virtually impossible to do your taxes correctly and on time. The tax reform we need is true simplification, such as the Fair Tax proposal to replace our entire tax system with a national sales tax.
Q. I am in the position of being totally dependent on the federal government for my financial position. As a retired federal employee, I receive a monthly annuity and a little Social Security from work before and after my federal employment. I also have a few hundred thousand in savings and nothing in the stock market. I have IRAs in the amount of about $225,000, which is insured by NCUA, and CDs for about $200,000 also insured by NCUA. These are spread among three insured credit unions
You mentioned in an article that "In this environment, the only ‘safe’ place for your money is in U.S. Treasury obligations." Are you saying NCUA insurance is not "safe" and that I should pull it out and invest in U.S. Treasury obligations? I understand that if the problems get serious enough, my annuity and Social Security may be reduced, but what about my CDs and IRAs? Are they safe? ---D. D., by email from San Antonio, TX
A. U.S. Treasury obligations, FDIC-insured certificates of deposit, and National Credit Union Association accounts all share one thing--- a guarantee from the U.S. government. Some fine print readers will tell us that U.S. Treasury obligations are the safest of the three, but when you watch the actions of government, you see that all three are very secure. The major reason for this is that failing to make good on those “full faith and credit” guarantees would assure the systemic collapse that is threatened by current economic events.
I believe the same is true for your Social Security benefits and federal pension benefits. Failure to make good on those promises, which account for the bulk of the income received by more than half of all retirees, would be an “end-of-the-world” event. That doesn’t mean it couldn’t happen--- both of our massively irresponsible political parties have created huge unfunded liabilities in Social Security and Medicare--- but everything humanly possible would be done to fulfill those promises.
The major threat to your future security, I believe, is from future inflation. That is why I have advocated Treasury inflation protected securities and I Savings bonds in many columns.