Appendix K to the report of the 1983 Greenspan Commission on Social Security Reform

Appendix K- Section J

SUMMARY OF SECTION J - TAXATION OF BENEFITS
Option No.	Description
J-1	Include 50% of OASDI benefits in adjusted gross income for income-tax purposes, with the proceeds credited to the OASDI Trust Funds.
J-2	Same as Option J-1, except that 100% of OASDI benefits would be included in adjusted gross income.
J-3	Include OASDI benefits in adjusted gross income for purposes of the income tax in the same manner as are unemployment benefits, with the proceeds being credited to the OASDI Trust Funds.
J-4	Include all OASDI benefits in adjusted gross income as soon as such benefits first exceed the total employee OASDI taxes paid, with the proceeds being credited to the OASDI Trust Funds.
J-5	Consider OASDI benefits as "income" for purposes of determining marginal income tax rates applicable to other income (OASDI benefits would not be taxable), with the proceeds being credited to the OASDI Trust Funds.
J-6	Include 50% of OASDI benefits in adjusted gross income, phased-in over 40 years, with the proceeds being credited to the OASDI Trust Funds. Also, there would be a phased-in exclusion of the employee OASDI taxes from such gross income.
J-7	Same as Option J-6 except that 100% of benefits would be included in adjusted gross income.

Note: See subsequent pages for cost data, which are not summarized here because of the diverse nature of the estimates for the various proposals.

Note: The short-range cost estimates presented here were prepared by the staff of the Assistant Secretary for Planning and Evaluation, Department of Health and Human Services. The staff of the Joint Committee on Taxation, U.S. Congress, has also made estimates of this type, and these tend to be higher than those shown in this Section (e.g., for Option J-3, the total savings for 1983-89 shown here as $29 billion are $46 billion according to the Joint Committee estimate).

J. TAXATION OF BENEFITS *

Present law. OASDI benefits are not subject to income tax.

Options.

J-1 Include 50% of OASDI benefits in adjusted gross income for Federal income-tax purposes, with the proceeds credited to the OASDI Trust Funds, effective in 1984.

Costs (in billions of dollars)
1983	1984	1985	1986	1987	1988	1989	1983-89
0	-7.0	-7.8	-8.5	-9.2	-10.0	-10.8	-53.3

Long-Term Cost: -.6% of taxable payroll

J-2 Same as Option J-1, except that 100% of OASDI benefits would be included in adjusted gross income.

Costs (in billions of dollars)
1983	1984	1985	1986	1987	1988	1989	1983-89
0	-17.7	-19.5	-21.4	-23.3	-25.3	-27.4	-134.6

Long-Term Cost: -1.4% of taxable payroll

* All proposals in this section assume that the tax credit for persons aged 65 and over is eliminated. Such elimination provides most of the additional revenue in the early years for proposals J-3, J-4, J-6, and J-7.

J-3 If benefits plus other income exceed $12,000 for single persons or $18,000 for married couples, then include $1 of OASDI benefits for each $2 of income above the respective thresholds in adjusted gross income for Federal income tax purposes, up to a maximum of 50% of OASDI benefits. (Unemployment benefits are currently treated somewhat in this manner.) The proceeds would be credited to the OASDI Trust Funds, effective in 1984.

Costs (in billions of dollars)
1983	1984	1985	1986	1987	1988	1989	1983-89
0	-3.4	-3.9	-4.5	-5.1	-5.7	-6.4	-29.0

Long-Term Cost: .5% of taxable payroll if dollar figures remain unchanged over the long-range (or .3% of taxable payroll if they are indexed to wage changes).

J-4 Include the amount of OASDI benefits paid after 1983, after recovery of employee contributions, in adjusted gross income for Federal income tax purposes. The proceeds would be credited to the OASDI Trust Funds, effective in 1984.

Short-Term Cost: Little effect in the first few years. Ultimately, the effect would be similar to Option J-2.
Long-Term Cost: -1.2% of taxable payroll

J-5 Consider OASDI benefits as "income" for purposes of determining the marginal Federal income tax rates applicable to other income, but continue to exclude OASDI benefits from such taxation. The additional proceeds resulting from such changed procedure would be credited to the OASDI Trust Funds, effective in 1984.

Costs (in billions of dollars)
1983	1984	1985	1986	1987	1988	1989	1983-89
0	-13.1	-14.4	-15.7	-17.0	-18.3	-19.7	-98.1

Long-Term Cost: n.a.
n.a. = not available

J-6 Include 50% of OASDI benefits in adjusted gross income for Federal income-tax purposes, phased in over 40 years, with the proceeds being credited to the OASDI Trust Funds, effective in 1984. At the same time, there would be a phased-in exclusion of the employee OASDI taxes from such gross income (the resulting loss in tax revenues would not be taken from the OASDI Trust Funds).

Short-Term Cost: Little effect in the early years.
Long-Term Cost: -.4% of taxable payroll

J-7 Same as Option J-6, except that 50% of OASDI benefits would be included in such adjusted gross income in 1984, with increases over 40 years so that ultimately 100% would be so included.

Short-Term Cost: Little effect in the early years.
Long-Term Cost: -1.20% of taxable payroll