། into account. This group, however, estimated to involve fewer than 6,000 single people and 2,000 couples, would constitute less than oneseventeenth of 1 percent of all people over 65, and the maximum tax increase any of them could have would be $22 for a single person and $44 for a married couple. As Secretary Dillon pointed out in his testimony before the House Ways and Means Committee, the adverse effect of the program on these few taxpayers could be eliminated by raising the credit to $325, or possibly through some other special provision. Also, under present law the tax liability for older people may vary considerably, depending on the source of their income. Consider a couple over 65, for example, with a $5,000 income, electing to use the standard deduction. If their $5,000 income is entirely from earnings from work, the tax is $420 under present law. If the $5,000 is from $1,800 in social security, $1,200 from earnings, and $2,000 from a private pension, the tax is $31. Under the new proposal, if this couple has $5,000 a year in earnings from work, they would pay no tax. If the $5,000 is from $1,800 in social security, $1,200 from earnings, and $2,000 from a private pension, they would pay no tax. Similarly, if this couple's $5,000 were to come entirely from private or public pensions, dividends, or any other source whatsoever, whether they itemized deductions or took the standard deduction, they would, under the new proposal, pay no tax at all. Under current law, a number of such couples might be subject to varying amounts of tax. The proposed changes will clearly foster greater equality in the tax treatment of the elderly-complete equality in many cases. OTHER CHANGES AFFECTING THE AGED Although they are not part of the special tax revisions for the aged, there are several proposals in the overall tax program which also have special meaning to older people. They are: Medical deductions Under present law, people 65 or older may deduct the total amount of their medical expenses up to a maximum of $5,000 for a single person and up to $10,000 for a couple, unless there are disabilities or dependents, in which case the ceilings are higher. The proposed revisions would completely remove all such ceilings. Also, under the present law older people can deduct the cost of only that portion of their drugs which exceeds 1 percent of their incomes. Under the proposed changes this limit is dropped and the total cost of all prescription drugs would qualify as deductible. Dividend income Many older people receive a significant portion of their income in the form of dividends, and these people will also benefit under the proposed tax program. The proposed repeal of the dividend credit. and exclusion taken alone would increase the taxes of such older peo ple, but this effect will be more than offset by the increase in corporate dividends which will result from the 5-point reduction in the corporate tax rate. Thus people 65 or over-who receive 45 percent of the dividend income reported on tax returns, although they file less than 9 percent of all returns will be among the principal beneficaries of the increased dividend income resulting from the overall effects of the tax program. Retirement income credit under age 65 There are now some 100,000 people retired under age 65 who are using the retirement income credit because they are getting retirement pay from publicly financed retirement programs other than social security and railroad retirement. Retired schoolteachers, policemen, and other government employees fit this category. To avoid hurting these people who are presently obtaining the retirement income credit and who would not be able to take advantage of the proposed $300 tax credit until they reach 65, it is proposed that they be allowed to continue to use the retirement income credit until they reach 65. People who have retired between the ages of 62 and 65 and who are receiving social security and railroad retirement benefits would not be affected by the proposed revisions. Their benefits would continue to be tax exempt, but they would be taxed on any other income in the same fashion as all other people under 65 and would, of course, benefit from proposed tax rate reductions. SUMMARY President Kennedy's entire tax program will be of significant help to people over 65 in all income groups, with the greatest benefit going to those with lower incomes. The special credit for the aged would give 97 percent of its benefits to elderly taxpayers with income below $10,000, and 50 percent to those with incomes below $5,000. And, while the final overall effect of the tax program on people over 65 would give the bulk of the $790 million in benefits to those earning less than $10,000, tax reduction would also be extended up through the $50,000-plus bracket. TABLE 1.—Illustrative examples to show the effect of present law and the President's recommendations on taxpayers 65 and over with various sources of income The minimum standard deduction for a married couple would be $400. The $600 credit is reduced by 1⁄2 the social security benefits received, $900, multiplied by the taxpayer's bracket rate of tax, 14 percent, a reduction of $126. Source: Office of the Secretary of the Treasury, Office of Tax Analysis. TABLE 2.-Effect of the tax program on tax liabilities of individuals aged 65 and 1 Excludes alternative tax on capital gains. NOTE.-Figures are rounded and do not necessarily add to the totals. 1,240 <-100 40 4,030 -790 2,790 20 CHART 1.-Percentage decrease in tax liability of individuals age 65 and over at various income levels Section 116 of the Social Security Amendments of 1956 provides for the periodic appointment of Advisory Councils on Social Security Financing beginning with the year 1957, to review the status of the old-age and survivors insurance trust fund and the disability insurance trust fund in relation to the long-term commitments of the program. Under the law the Council consists of the Commissioner of Social Security as Chairman and 12 members representing employers, employees, and self-employed and the general public. THE FIRST COUNCIL (1957) The first Council was appointed early in the fall of 1957 and issued its report on January 1, 1959. In addition to the Chairman, the Council was made up of three members representing employers, three members representing employees, and six members representing the selfemployed and the general public. This membership included distinguished economists, private insurance actuaries, bankers, and financial experts, as well as representatives of business and labor." The Council's major finding was, "The method of financing the oldage, survivors, and disability insurance program is sound, and, based on the best estimates available, the contribution schedule now in the law makes adequate provision for meeting both short-range and long-range costs." Although the Council made no recommendations for basic changes in the financing of the program, it made recommendations for minor changes which were the basis for the changes made by the 1960 amendments to the Social Security Act relating to the investment of the trust funds and the duties of the trustees. THE 1963 COUNCIL Originally the Councils were to issue their reports prior to each scheduled increase in the tax rates. Under the 1960 amendments to the Social Security Act, this schedule was modified so that future Councils would report in 1965, 1968, and every 5 years after that. The 1960 amendments required the appointment of a second Advisory Council on Social Security Financing by the Secretary of Health, Education, and Welfare in calendar year 1963. The Council's report is to be made by January 1, 1965. The 1960 amendments gave the 1963 Council a broader mandate than was given the first Council. Under the law, the 1963 Council is to report not only on the status of the trust funds but is to look into all aspects of the old-age, survivors, and disability insurance system, including the coverage of the program and the adequacy of benefits, and to report its recommendations for changes. Fact Sheet No. 10 REDUCTION OF OLD-AGE ASSISTANCE RESIDENCE REQUIREMENTS To 1 YEAR BACKGROUND The Social Security Act now permits States to require up to 5 years of residence out of the last 9 as a condition of eligibility in the old-age assistance (OAA) program. At the present time, 7 jurisdictions have no residence requirements for OAA, 1 State requires 6 months, and 23 States require 1 year of residence. Of the remaining 23 States, 3 require more than 1 year but less than 5 years, and 20 States require 5 years, the maximum allowed under the Federal law. |