President Biden has released his latest federal tax return, the one for tax year 2023. He has released the most tax returns of any president in U.S. history. What we are concerned about here, however, is not how much money the president and first lady made or how much they gave to charity but rather how much income they received from Social Security and what this tells us about the Social Security program.
The president files a joint return with his wife, Jill. Their total income, as well as their adjusted gross income, was $619,976. Because they had itemized deductions of $51,002, their taxable income was $568,974. The Bidens owed $146,629 in federal income tax. However, because $100,580 was withheld from their W-2s and 1099s, and $46,000 was applied from their 2002 tax return, they owed the Internal Revenue Service (IRS) only $334. Their effective tax rate was 23.7 percent.
Social Security is the federal Old-Age, Survivors, and Disability Insurance (OASDI) program that provides monthly benefits for retirement, disability, survivorship, and death to about 65 million Americans, including survivors and dependents. Social Security is funded by a 12.4 percent payroll tax (split equally between employers and employees) on the first $168,600 of employee income. For tax year 2023, the Social Security wage base was $160,200.
According to the official Social Security Administration (SSA) “fact sheet” on Social Security changes for 2023, the average monthly Social Security benefit in 2023 was $1,827 for an individual and $2,972 for an aged couple who both received benefits. The maximum monthly benefit amount for a worker retiring at full retirement age was $3,627, or $43,524 a year.
The Bidens received a total of $64,254 in Social Security benefits for 2023, or about $5,345 a month. The taxable amount of their Social Security benefits was $54,616.
The vast majority of Americans believe that retirees are entitled to Social Security benefits because they paid into the system their entire working lives. Yet, nothing could be further from the truth.
There are two things that President Biden’s tax return tells us about Social Security.
First, the Biden’s received a sizeable amount of Social Security benefits relative to the average Social Security check received by retired workers. This is because they have historically had a high income. In fact, Social Security benefits don’t correspond to Social Security taxes paid. Current retirees receive Social Security benefits via taxes collected from current workers, not from funds saved out of the payroll taxes retirees paid when they were in the workforce. When the Social Security tax rate was lowered by 2 percentage points for employees in 2011 and 2012, future benefits were not cut for workers who benefited from that lower tax rate.
Social Security benefits are calculated by an arbitrary formula, loosely based on one’s earnings, that Congress can change at any time and for any reason. Currently, to calculate a retired worker’s monthly check at full retirement age, the SSA will take an individual’s 35 highest-earning, inflation-adjusted years into account. Even so, the Supreme Court has ruled that there is no contractual right to receive Social Security benefits.
Second, the Biden’s were taxed on the majority of their Social Security benefits. This is because Congress can tax away any Social Security benefits that are received. So much for being entitled to get the money back that you paid into the system your whole working life. Regarding the taxation of benefits:
Up to 50% of Social Security benefits are taxed on income from $25,000 to $34,000 for individuals or $32,000 to $44,000 for married couples filing jointly.
Up to 85% of benefits are taxable if the income level is over $34,000 for individuals or $44,000 for couples.
(Income is defined as adjusted gross income + nontaxable interest + half of Social Security benefits.)
Congress has never indexed for inflation the threshold at which benefits are subject to taxation, and the tax on Social Security benefits is not just on the amount received that is over and above the amount of taxes paid into the system.
These two things alone show us the true nature of the Social Security system: an intergenerational, income-transfer, wealth-redistribution welfare program that takes money from those who work and gives it to those who don’t.
The only reason any American thinks that people pay into Social Security is because the Federal Insurance Contributions Act (FICA) mandates that “contributions” from employees and employers should be called Social Security taxes. Without this designation on Americans’ paystubs and W-2 forms, Social Security would be thought of just as it is—another welfare program like food stamps, Medicaid, and Temporary Assistance to Needy Families (TANF).