Trump Wants To Eliminate Social Security Taxes: 4 Reasons Boomers Might Want To Hold Off on Retirement
Written by
Vance Cariaga
Edited by
Nicholas Morine
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One of ex-president Donald Trump’s main talking points during the 2024 presidential campaign is his promise to protect Social Security benefits if he wins a second term this year. He has vowed not to cut benefits despite suggestions from some lawmakers that cuts are needed to deal with a looming funding shortfall. Trump has even floated the idea of eliminating federal income taxes on Social Security benefits.
The idea was brought up in a July 31 post on Trump’s Truth Social network, when he wrote that “SENIORS SHOULD NOT PAY TAX ON SOCIAL SECURITY!”
Trump isn’t the first lawmaker to propose an end to federal taxes on Social Security benefits. As CNBC reported, a bill introduced in January by U.S. House Democrats (dubbed the You Earned It, You Keep It Act) also called for excluding Social Security benefits from gross income for federal income taxes.
If enacted, that bill would save the typical senior household nearly $560 a year, according to estimates from the Senior Citizens League, a non-partisan seniors advocacy group.
New Bill: Can It Pass?
But getting Congress to pass such a bill is unlikely, experts say, even though it would undoubtedly be popular among Social Security recipients.
For now, Social Security benefits are subject to federal income taxes if you earn a certain amount before reaching full retirement age. Individuals with provisional income (adjusted gross income + nontaxable interest + 1/2 of Social Security benefits) above $25,000 and joint filers with provisional income above $32,000 have up to 50% of their Social Security benefits taxed. For individuals with provisional income above $34,000 and joint filers above $44,000, up to 85% of Social Security is taxed.
About 40% of seniors who receive Social Security have to pay taxes on the benefit, according to the Social Security Administration. If these taxes are eliminated altogether, seniors previously affected will not have their benefits reduced by tax withholding.
That sounds good on the face of it — especially if you are a baby boomer considering retirement. But before making the leap, be sure you understand what’s at stake.
Here are four reasons boomers might want to hold off on retirement, even if Trump succeeds in eliminating federal income taxes on Social Security benefits.
1. Benefits Could Be Cut
Eliminating taxes on Social Security benefits would put the already stressed program under even greater financial stress. Social Security’s Old Age and Survivors (OASI) Trust Fund is due to run out of money within the next decade, leaving the program solely dependent on payroll taxes for funding. Payroll taxes currently fund about 77% of benefits, but the program also gets money from income taxes that help pay for administrative and other costs.
“Exempting Social Security benefits from taxation will further increase the insolvency of Social Security,” George Mason University’s Veronique de Rugy wrote in a column for the National Review.
The Committee for a Responsible Federal Budget estimated that the move would push the insolvency date of Social Security’s retirement trust fund up by more than a year. When the fund becomes insolvent, some lawmakers have suggested cutting retirement benefits to deal with the shortfall. If that turns out to be the case, you might be better off delaying retirement so you have more time to build a nest egg and increase your eventual Social Security payment.
2. Medicare Might Also Be Impacted
Holding on to your employer’s health insurance plan as long as possible might be a good idea if Medicare benefits end up being affected by Trump’s proposal. According to a recent analysis from the Tax Foundation, exempting all Social Security benefits from income tax would not only reduce revenue for Social Security — it also would reduce revenue for Medicare. That in turn could lead to Medicare cuts. Boomers who delay retirement also delay having to depend on Medicare to pay their healthcare bills.
3. Full Retirement Age Could Be Raised
Another suggestion to deal with the trust fund’s insolvency is to raise the full retirement age, which is currently 67 years old for most working Americans. The reasoning is that by raising the retirement age, workers will be motivated to delay retirement until they qualify for the full Social Security benefits they are due. This could help the program buy time until lawmakers find other funding sources.
If you are a younger boomer, a higher retirement age means you might have to wait another year or so to collect your full benefits. That alone could be reason enough to delay retirement.
4. You Have a Chance To Earn More Money
Pushing back your retirement date is often a good option no matter what happens with Social Security. Doing so gives you more time to earn money, pay down debt, contribute to your 401(k) or IRA and boost your eventual Social Security benefit. Earning a few years of extra income could go a long way toward funding a comfortable retirement if Social Security benefits get cut.
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