Double-taxing SS grab shouldn’t have happened
NM needs to correct this wrong
A (Nov. 15) op-ed criticizing the proposal to exempt Social Security retirement benefits from the New Mexico income tax entirely missed the point. The fact of the matter is that Social Security is taxed twice. Income tax is levied on the amount contributed to an individual’s Social Security account, and then income tax is levied on the benefit received years later. As an example, imagine that after you paid all your bills for the month you had some money left and it was placed into a savings account. Later you take it out of savings and are told you must pay income tax on the interest and also on the amount you put in years earlier. It’s the same thing, double taxation.
No other retirement program is taxed twice. Contributions to voluntary plans such as a Traditional IRA, an SEP IRA, a ROTH IRA, or a 401k, PERA or ERB are all taxed just once. They are exempt from income tax when the contribution is made — except for ROTH — and taxed when the benefit is received — except for ROTH. They are all taxed just once, either when the money goes in or the money goes out.
Medicare is also taxed just once. The contribution is taxed before being deducted from total pay, but not taxed when you receive the benefit. Imagine being taxed on whatever amount Medicare pays the hospital or doctor.
Congress knew that voluntary retirement savings plans would not work if taxed twice. However, Social Security is not voluntary, and with the Social Security Trust Fund headed for insolvency, in 1983 Congress decided to change the original intent of Social Security and tax the benefit.
When Congress made the change, it could be argued it was necessary to prolong solvency of the fund. New Mexico has no such Social Security obligation. Yet, New Mexico followed the example of the federal government and became one of just 13 states to include Social Security benefits as taxable income in its state income tax. Double taxation at the federal level is arguably justifiable, but there is no reason it should ever have been accepted at the state level. Exempting Social Security payments is not a tax break, it is correcting a tax grab that should never have happened.