In November, Republican presidential nominee Donald Trump emerged victorious in the race against Democratic challenger Kamala Harris. With Trump returning to the White House for a second term, many retired workers on Social Security are hopeful that he can bring much-needed changes to the program.
During his campaign, Trump took to social media, stating, “Seniors should not pay taxes on Social Security.” He also pledged not to cut benefits, vowing to “fight for and protect Social Security” throughout his presidency. While Trump’s intentions may be positive, he has yet to provide specific details on how he plans to achieve these goals.
However, according to the Committee for a Responsible Federal Budget (CRFB), a nonpartisan organization, some of Trump’s proposed changes could actually be harmful to Social Security recipients. In fact, they argue that these policies could worsen the program’s funding deficit and speed up the timeline for benefit cuts. Let’s take a closer look.
Trump’s Proposal to Eliminate Social Security Taxation
Social Security benefits were not always subject to federal income tax. That changed in 1983, when Congress passed legislation to help keep the trust fund solvent. Since then, several politicians, including President-elect Trump, have proposed eliminating the tax on Social Security benefits.
While this idea may seem appealing to beneficiaries, it comes with risks. Social Security is facing a significant funding issue, with trustees predicting that the program’s trust funds will be depleted by 2035. If that happens, revenue from payroll taxes would cover only 83% of scheduled benefits, possibly resulting in a 17% benefit cut within a decade.
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There are only two ways to fix this issue: increase the program’s cash inflows (i.e., raise taxes) or decrease cash outflows (i.e., reduce benefits). Trump’s proposal to eliminate the taxation of Social Security benefits would actually reduce one of the program’s funding sources, worsening the financing problem.
Trump’s Other Tax Proposals and Their Impact
Alongside the Social Security proposal, Trump has also suggested eliminating taxes on tips and overtime pay. Since Social Security derives more than 90% of its revenue from payroll taxes, reducing these revenue streams could exacerbate the program’s funding woes. According to the CRFB, eliminating taxes on tips and overtime could collectively reduce federal revenue by nearly $2 trillion over the next decade.
Additionally, Trump has proposed imposing tariffs on imports, including a 10% baseline tariff on all goods and a 60% tariff on imports from China. While tariffs could boost federal revenue, economists warn that they would likely drive up inflation, which would increase the size of cost-of-living adjustments (COLAs) for Social Security recipients. This could lead to greater spending by the program, further straining its finances.
The Potential Consequences of Trump’s Proposed Changes
In summary, Trump’s proposals to eliminate taxes on Social Security benefits, reduce taxes on tips and overtime, and impose tariffs could collectively reduce Social Security revenue by $2.3 trillion through 2035. This would accelerate the timeline for potential benefit cuts by up to three years, according to the CRFB.
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However, Karoline Leavitt, national press secretary for Trump, responded to the CRFB’s report, assuring that “President Trump will quickly rebuild the greatest economy in history and put Social Security on a stronger footing for generations to come, all while eliminating taxes on Social Security for America’s well-deserving seniors.”
While reassuring, Leavitt’s statement doesn’t clarify how Trump intends to achieve these goals, leaving Social Security recipients uncertain about the future of the program. Given Congress’s history of delaying action on Social Security issues, retirees should remain cautious and monitor the situation closely.
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