North Dakota should cease taxing Social Security income

German Chancellor Otto von Bismarck is routinely credited for creating the first Social Security system in modern history in the 1880s. Perhaps ironically, it was a political move to stave off advancing socialism in Europe by creating the first modern welfare state. The chancellor was no idiot – the initial system set 70 as the age at which people could collect what we call Social Security today. At that point in history, few people lived to the age of 70, so it made for good politics but a minimal actual impact. It was, in effect, a tax. Years after von Bismarck died, the qualification age was lowered to 65 and the U.S. system was adopted in the U.S. as a model by Franklin Delano Roosevelt in the Social Security Act of 1935.

Today, Social Security is the “third rail of American politics” – an entitlement which despite going bankrupt in a few years, is still untouchable by U.S. politicians. Neither immediate past presidents – Barack Obama nor Donald Trump – while being polar opposites in many ways but both of which were bold, has attempted to save the program.

North Dakota is one of the states that continues to tax Social Security earnings eligible for taxation by the federal government.

Minot Daily News believes all Social Security income should not be taxed by North Dakota. It’s been an issue batted around by the Legislature, and tweaked, but not adopted. At the same time the Legislature has debated using Legacy Fund earnings to eliminate the state income tax entirely.

Why not start with ending taxation on Social Security?

Many people consider Social Security a tax in the first place. It’s a compulsory deduction from workers’ paychecks and the return on “investment” is not market based. Some consider taxing Social Security amounts to double taxation. Furthermore, it is a moral issue. Taxing people on Social Security directly conflicts with the idea of the welfare net. The federal government has use of your Social Security payments for decades and then when you collect from the program, the state taxes our return on investment? Where’s the morality there?

Tinkering with state taxation on Social Security is insufficient. Who is entitled to make the decision about what retirees should or should not be taxed on Social Security? No, not all Social Security recipients are living on a limited fixed income. But why should politicians decide the income level at which one does or doesn’t pay taxes on Social Security? Everyone’s finances are different.

All Social Security benefits should be tax free. It amounts to a pittance in the state budget. The state can find alternate revenue – or Legacy Fund earnings can easily replace the revenue.

The North Dakota Legislature should take up the issue in its next session and eliminate this tax.

It’s the right – and moral – thing to do.


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