When is a tax break not a tax break?
A recent Op-Ed in the Albuquerque Journal critical of exempting Social Security retirement benefits from New Mexico income tax entirely misses 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 taxes twice. Contributions to voluntary plans such as a Traditional IRA, a SEP IRA, a ROTH IRA, A401k, 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 plans would not work if taxed twice. However, Social Security is not voluntary and with the Social Security Trust Fund aiming 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 benefited from the change because the basis for NM income tax comes from our federal income tax return. Double taxation at the federal level is arguably justified, or reasonable, or acceptable, or understandable, but for no reason should it 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.
Sen. James P. White, District 19
Leota started working for The Independent in 2006, working her way up through the ranks. An employee buyout in 2010 led to her ownership of the newspaper. Leota has served on the board of the N.M. Press Association, and is currently its First Vice President. She is passionate about health and wellness, especially mental health, and loves making art. She can be reached at firstname.lastname@example.org.