With President-Elect Donald Trump’s victory, it’s time to take a closer look at some of the key proposals that helped him win, especially one that’s been receiving a lot of attention: the elimination of Social Security taxes. A recent Monmouth University poll found that 66% of Americans support this idea, and another ABC News/Ipsos poll showed even stronger backing, with 85% in favor. So, what would this change mean for Social Security, and could it lead to unintended consequences for millions of beneficiaries?
The Proposal: What’s on the Table?
Trump’s proposal aims to remove income taxes on Social Security benefits, tips, and overtime pay. This change, although popular, has sparked debates about its long-term effects, particularly on how Social Security will function moving forward.
While many people don’t realize it, Social Security benefits aren’t typically subject to federal taxes unless your “combined income” (a formula involving your adjusted gross income, non-taxable interest, and half of your Social Security benefits) exceeds certain thresholds. The more income you have, the more of your Social Security benefits could be taxed.
For example, if you’re single and your combined income is between $25,000 and $34,000, you could end up paying taxes on up to 50% of your Social Security benefits. If your combined income exceeds $34,000, up to 85% of your benefits might be taxed. The thresholds for couples are a bit higher, but the basic idea is the same.
The Real Impact: Could It Hurt Social Security?
While the proposal sounds attractive to many, experts warn that eliminating taxes on Social Security benefits could have serious consequences. According to the Tax Foundation, this policy change would likely reduce federal tax revenue by $1.4 trillion from 2025 to 2034. This loss of revenue could push Social Security closer to insolvency. In fact, the Social Security trust funds are already projected to be depleted by 2034. Without the revenue from Social Security taxes, it could come even sooner.
Moreover, this policy would affect more beneficiaries than people realize. When taxes on Social Security benefits were first introduced, only about 10% of beneficiaries were expected to pay them. However, with inflation not being accounted for in the tax thresholds, nearly 40% of Social Security recipients now find themselves paying taxes on their benefits.
What’s at Stake for Social Security?
Trump’s tax cuts might result in a short-term boost to some individuals’ after-tax income — about 0.9% on average across all income groups. However, the long-term effects could be far from positive, especially for the millions of seniors and disabled Americans who rely on Social Security as their primary source of income.
If this proposal goes through, it could hurt the very people it intends to help. Without sufficient tax revenue, the Social Security system might struggle to meet its obligations. The trust fund depletion could happen faster, potentially resulting in reduced benefits for future retirees.
Looking Ahead: A Delicate Balance
While eliminating taxes on Social Security benefits might sound like a win for many voters, it’s essential to consider the bigger picture. Social Security is a lifeline for millions of Americans, and any changes to its funding could have far-reaching effects. As Trump moves forward with his plan, it will be important to find a balance between providing tax relief and ensuring that Social Security remains sustainable for future generations.
In the end, while the proposal is popular and could provide short-term financial relief for some, the potential risks to the long-term health of the Social Security system could be too great to ignore.
