Tax experts say that we are taxing seniors on Social Security in a multitude of ways that reduce savings rates. Due to a rule passed in 1993, up to 85 percent of Social Security benefits are taxable for those seniors who choose to continue working. But analysts say their effective marginal tax rates can run up to 100 percent. And they are slapped with an effective marginal rate of more than 50 percent on interest from savings.

Consider the case of Joe Retiree -- who paid taxes on his money when he earned it as wages before retirement.

• Then he put some of that after-tax money in stocks, and those companies paid corporate taxes on earnings realized from his investment.

• Before Joe's retirement, the money got taxed a third time when Joe paid income tax on his dividends.

• At retirement, that same income stream from the stock pushes Joe above the modest limit the IRS allows, so he pays a benefits tax.

• When he dies, his beneficiaries must pay an estate tax on their inherited shares.

This adds up to quintuple taxation.

Others are in a worse bind. The government cuts back benefits when people work "too much": $8,280 per year for 62 to 64 year olds. A 63-year-old who has savings income and works 40 hours a week can be subjected to a tax penalty exceeding 100 percent.

Presidential candidate Bob Dole wants to roll the 85 percent rate on Social Security benefits back to 50 percent, where it was during the Reagan years. He would also attack the problem of the disincentive to savings and investment posed by the current 28 percent rate of capital gains taxation by reducing the rate to 14 percent.

Many economists say these two steps are at least a start toward encouraging savings and investment, as well as making the tax code somewhat fairer.

Source: Editorial, "Two Tax Regimes," Wall Street Journal, October 21, 1996.