Houghton: A matter of fairness
Some 34 years later, a lot has changed. Apple devices are everywhere, Phish sold out 13 nights at Madison Square Garden, and Vermonters are paying taxes on even more of their Social Security benefits. Vermont is one of only four states in the nation that taxes Social Security benefits at the same rate as the IRS. Most don't tax them at all, and others have a far less burdensome tax rate for these retirement benefits.
Our state has an opportunity to fix that this year and restore fairness to Social Security taxes in Vermont without breaking the bank. Working and retired Vermonters have already paid into Social Security as a tax on their paycheck — do we need to tax them on the benefits they need to survive? With some 143,000 Social Security beneficiaries in Vermont, coupled with the decline of traditional pension plans, the time has come to at least reduce the hit on these older taxpayers. Gov. Scott supports the idea, and our legislators are taking up the issue right now.
Back in 1984, Vermonters with income below $25,000 ($32K if married) did not pay taxes on their Social Security benefits. At the time, the median income was $22,500 — a figure less than the exemption threshold. Today, 34 years later, Vermont's median income grew to $54,600, but thresholds are not a dollar higher. Vermont's median income is over two times higher than the exemption threshold. Not surprisingly, the number of middle-class Vermonters who are paying taxes on their Social Security benefits has more than doubled over the years and will continue to grow going forward.
When you are retired it's tough to increase your income. Annual cost of living adjustments — when they happen at all — don't keep up with the rising costs of health care, utilities and other consumer goods. Social Security tax relief is one way the state can help retirees stretch their hard earned dollars.
AARP Vermont supports the provision put forth by lawmakers that would increase these thresholds to account for 34 years of inflation. This would exempt more Vermont retirees from paying taxes on their Social Security benefits. The new tiers would be phased in gradually over the course of 10 years to minimize impact on the state budget. This is a balanced approach, which would protect funding for many core services and programs Vermonters rely on while providing tax relief to middle-income retirees. And by the way, those tax savings go right back into the Vermont economy.
Unfortunately today, too many Vermont workers haven't saved enough for retirement and will be more reliant on Social Security than their parents and grandparents were. Social Security tax reductions — along with last year's success in creating a new retirement savings program for workers who lack access to a workplace savings plan — are part of AARP's overall strategy to improve financial security. As the nation's second-oldest state, preserving household income is especially critical going forward.
Providing Social Security tax relief is a matter of fairness for low, and middle-income retirees and is an investment in the financial security of Vermonters for years to come. Our Legislature should not miss the chance to help protect our seniors and their families.
Marie Houghton is the president of AARP Vermont.
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