Donald Trump, the Republican presidential nominee, has promised to cut taxes on Social Security, aiming directly at the 67 million Americans who rely on those monthly benefits. “Seniors should not pay taxes on Social Security, and they won’t,” Trump announced at a campaign rally last week.
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Before the rally, he took to Truth Social to share his message with his followers, posting in all caps, “Seniors should not pay tax on Social Security!”
His promise comes at a time when poverty among seniors is rising. According to the National Council On Aging, more than 17 million older adults, or about one in three who are 65 and up, were “economically insecure” as of February 2024. NCOA also highlights that millions of older workers are nearing retirement without savings.
Around 40% of Social Security recipients pay federal income taxes on their benefits. If an individual’s combined income is between $25,000 and $34,000, they’ll pay income taxes on up to half of their benefits. Once their combined income exceeds $34,000, up to 85% of the benefits can be taxable, depending on the total income.
Although this plan may seem helpful, experts are warning cutting income taxes on Social Security could backfire and harm the program by removing one of its main funding sources. According to the Tax Foundation, exempting these benefits from income tax would increase the budget deficit by about $1.6 trillion over 10 years and accelerate the insolvency of the Social Security and Medicare trust funds.
Experts are concerned that Trump’s plan might lead to severe financial consequences. They warn that the loss of revenue from taxing Social Security benefits could destabilize these essential programs, potentially leading to cuts in benefits or increased taxes elsewhere. Trump hasn’t mentioned yet how he’ll make up for the lost funding to Social Security.
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According to a Tax Foundation article published on August 2nd, the move would be “unsound and fiscally irresponsible.” In 2024 alone, the trust funds are expected to collect about $95.3 billion in revenue from income tax on Social Security benefits, a figure projected to rise to over $228 billion by 2033. Removing these taxes would likely accelerate the insolvency date of Social Security up two years to 2033 and Medicare up six years to 2030.
While Trump’s proposal might boost after-tax incomes for Social Security recipients and slightly increase GDP and employment, the overall economic benefits are minimal compared to the significant revenue loss. Higher earners would benefit more from this tax exemption, while the bottom 20% of earners, already in the 0% tax bracket for benefits, would see no change.
Critics argue that completely exempting Social Security benefits from income tax is neither fiscally responsible nor sound tax policy. Instead, they suggest indexing the combined income tax thresholds for inflation, which hasn’t been done since 1993. This reform could alleviate some tax burdens on Social Security benefits without significantly harming the program’s funding.
As the debate continues, the focus remains on finding a balance that supports seniors without jeopardizing the financial stability of Social Security and Medicare.
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This article Trump Says: ‘Seniors Should Not Pay’ — Experts Slam His Plan To Eliminate Taxes On Social Security As ‘Unsound And Irresponsible’ originally appeared on Benzinga.com
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Source: finance.yahoo.com