Former President Donald Trump vowed to eliminate taxes on Social Security benefits, a campaign promise met with mixed reactions from bipartisan tax policy experts.
“Seniors should not pay taxes on Social Security,” Trump wrote on the social media platform Truth Social, a pledge he’s repeated several times during his campaign run.
If it comes to fruition, his proposal would impact as many as 67 million taxpayers who currently claim monthly retirement and disability program benefit checks. While the idea may sway some voters, more than just a cut on taxes on Social Security, Trump’s proposal to end Social Security taxes could destabilize your benefit amount in the long term.
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Here’s a breakdown of the pros and cons of untaxed Social Security income.
Pros of eliminating taxes on Social Security
Currently, up to 85% of your Social Security benefits can be subject to federal tax. So, who wouldn’t love the idea of catching a break on those taxes?
But the winnings may not be as equal for all. That’s what the Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution, found. Those who would benefit the most from untaxed Social Security income narrow down to top earners, including:
- The highest-income households or folks on the top 0.1% of the income spectrum — those making nearly $5 million or more annually — would see the biggest benefit from untaxed Social Security income. Hypothetically, if there were no taxes on the benefit they’d get an average tax cut of nearly $2,500 in 2025.
- Middle- and upper-income households — those earning between $63,000 and $200,000 — would also get a stroke of luck, as a share of after-tax income. Households in this income range would see a tax cut between $1,190 and $1,430.
Cons of eliminating taxes on Social Security
Trump’s plan to ban taxes on Social Security income could have long-term implications that would hurt the program and the amount of cash you’re entitled to. Let’s dive into the bad:
- The lowest earners wouldn’t see a difference. Less than 1% of the lowest-income households – those making about $33,000 or less – wouldn’t see a tax cut at all. By comparison, about 28% of middle-income households would get a tax cut and about 20% of those on the top 0.1% of the income threshold would see a tax cut.
- Medicare would become insolvent by 2030. The Social Security program is facing financing shortfalls, and under current law, its revenue is projected to run dry by 2036. Repealing the tax on the benefit would speed up the insolvency timeline by six years, according to estimates from the Committee for a Responsible Federal Budget.
The outcome would be “disastrous”, the Urban Institute revealed, impacting as many as 81 million retirees, people with disabilities, and their families who are expected to collect Social Security in 2035.
Currently, Social Security beneficiaries with incomes over $34,000 ($44,000 for married couples), are taxed on an additional 35% of their benefits, with that revenue going to help support the Medicare HI trust fund. Without that source of revenue, and upon Medicare’s insolvency, beneficiaries wouldn’t be able to claim their full benefit amount.
- Social Security would become insolvent by 2032. Repealing the tax would advance the insolvency date of Social Security’s retirement trust fund one year earlier, according to the Committee for a Responsible Federal Budget.
- Fewer benefits in the long run. Under current law, Social Security trustees project that you’ll only be able to cash in 83% of your scheduled benefits in 2035 if the program reaches insolvency. That share would narrow even further to 73%. As mentioned, Trump’s plan to eliminate taxes on Social Security would advance that timeline to 2030.
- It would reduce revenues by $1.8 trillion through 2035. Slashing taxes on Social Security would cause a $1.8 trillion deficit between fiscal year 2026 and 2035, according to data from the Social Security and Medicare Trustees. This includes $1.05 trillion less in revenue for the Social Security program and $750 billion less for Medicare.
A separate analysis from the Congressional Budget Office expects a total reduction in revenue of $1.6 trillion, with $950 billion less for Social Security and a cut of $650 billion for Medicare.
Bottom line: Social Security benefits will be a hot topic
Trump isn’t the first person to suggest getting rid of taxes on Social Security benefits. While the former president is using the proposal as a bid for this campaign, others have floated similar ideas in the past.
For instance, as Kiplinger reported, Minnesota Rep. Angie Craig (D-Minn.) proposed the You Earned It, You Keep It Act, which aims to eliminate taxes on Social Security income by raising the Social Security wage base. In other words, higher earners would foot the bill.
While ending taxes on Social Security income could be an enticing idea, it could have some major repercussions. Still, one factor is for certain: Congress will have to address the Social Security program’s imminent funding shortfall within the next few years.
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