The reader was upset. He didn't know it yet, but the "tax torpedo" had just hit his retirement. That's the name I gave the taxation of Social Security benefits in 2003. His note asked if there was some mistake in his income tax calculations. If he took an extra $1,000 from his IRA account, it was taxed more than he expected. But if he took another $20,000, the additional tax wasn't so painful. No matter what, his tax bill was a lot higher than he expected.
In the early 1980s, the Social Security system was running short on cash. A commission recommended increasing the retirement age over a long period and increasing the Social Security portion of the employment tax.