Social Security Trustees Report:1.1% COLA in 2005, Growing Taxation of Benefits, More Illegals

Send this article to a friend.

Printer friendly version.

Social Security Trustees Report:1.1% COLA in 2005, Growing Taxation of Benefits, More Illegals

TSCL was recently amazed to learn that the Social Security Trustee’s estimate for the 2005 COLA is just 1.1%. If that estimate proves correct, which appears to be unlikely due to record high gasoline prices, it would be the lowest COLA ever paid. The Trustees say that several changes for computing the CPI made by the Bureau of Labor Statistics since 1995 “will tend to reduce the growth rate of these indices in the future.”

The Trustees also say that taxation of Social Security benefits is becoming an increasingly important source of cash revenue to the Trust Funds as fewer workers enter the work force and wage growth slows. Recent data from the Department of Treasury indicate that there is “significant increase in revenues from the taxation of Social Security benefits.”

Revenues from the taxation of Social Security benefits are expected to more than double in just 8 years. Unlike wage brackets, income levels at which the tax is triggered have never been adjusted since President Reagan first signed it into law in 1983. Every year more seniors learn that their benefits are subjected to tax. Up to 50% of Social Security benefits are taxable for seniors who have “provisional” incomes of $25,000 to $34,000 (individuals) and $32,000 to $44,000 (couples). This “first tier” is earmarked for the Social Security Trust Fund. Seniors with higher incomes exceeding $34,000 (individuals) and $44,000 (couples) may find up to 85% of their Social Security benefits are taxable. This second tier of the tax was signed into law by President Clinton in 1993 and is earmarked for the Medicare Trust Fund. (Read about legislation that would fight the taxation of Social Security benefits on page 5, “Pushing to Repeal the 1993 Social Security Tax.”)

Also troubling are continued changes to estimates of the long-term solvency of the Trust Fund due to what Trustees refer to as “immigrants not admitted to the U.S. for legal residence.” The Trustees estimate that one out of every three immigrants who entered the U.S. in 2003 was not legal. These “other-than-legal” immigrants result in higher projections of beneficiaries in the future and decrease the long-range balance of the Trust Fund.

TSCL is most disturbed by an apparent loss of one year in Trust Fund solvency — a fact that seemed to go unnoticed by the national media. For the first time in recent years, the Trustees reported that only 14 years remain until the “crisis date” — the year in which benefits will begin to exceed cash revenues. For years, that date had remained 15 years away.

Source: 2004 Social Security Trustees Report, March 23, 2004.

May 2004