Trump Wants To Eliminate Social Security Taxes: 4 Ways This Could Actually Hurt Retirees
Written by
Chris Adam
Edited by
Daria Uhlig
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As many Americans of retirement age wonder about potential cuts to benefits, and workers worry about the future of the Social Security system, Republican presidential nominee Donald Trump is promising to repeal taxes on benefits if he wins in November.
While the idea might sound good at first, experts warn this move could cause more harm to the program than good.
Here are some potential consequences for Social Security if Trump wins the presidency.
More Trust Fund Instability
The presidential candidates have been talking about the future of Social Security and the future financial stability of its trust funds. Unless Congress takes action, federal officals expect the Social Security trust fund to run dry within the next decade.
Eliminating the taxes on Social Security benefits would deplete the trust fund even earlier. In fact, according to the Committee for a Responsible Federal Budget, the trust fund would become insolvent a year earlier, in 2032, and Medicare’s insolvency date would advance by six years, to as early as 2030.
Reduced Benefits
So what does more trust fund instability mean for the millions of people who rely — or will rely — on Social Security?
Beneficiaries would see reduced benefits and see them much earlier than expected. Reduction estimates vary, but Kiplinger reported that insolvency would reduce benefits by 17%. Maintaining current benefits would require cuts to be made somewhere.
‘Dishonest’ Approach
Tax cuts are generally favored by a majority of voters, but it’s important to note that while beneficiaries with incomes above $25,000 ($32,000 for married couples) pay federal income tax on up to 85% of their Social Security benefits, Social Security recipients with lower incomes are not taxed on their benefits.
“[Trump is] talking about getting rid of the taxation, which increases the benefits, but the very benefits that are subject to taxation will be much reduced,” Nancy Altman, president for Social Security Works, told Kiplinger. “So basically, it’s not an honest proposal.”
Uncertain Futures
For many retirees living on Social Security and fixed incomes, there may be little wiggle room when it comes to their finances. While Trump’s proposal to eliminate Social Security taxes may benefit some retirees, it may also hurt many of those who support the former president and his previous vows not to make cuts.
Trump’s proposal apparently would not affect Social Security payroll withholdings — the 6.2% employees and employers each pay into the system to fund Security Security (plus 1.45% for Medicare).
“He’d repeal the tax on Social Security benefits, without proposing any way to shore up the retirement system by either raising other taxes or otherwise restructuring benefits,” wrote Howard Gleckman, senior fellow at the Tax Policy Center. “It is the latest example of how his agenda inevitably would result in exactly the kind of Social Security cuts he vows to oppose.”
As GOBankingRates previously reported, John F. Pace, a CPA with four decades of experience, said that while there are good arguments on both sides, it’s important to look at the human impact.
“Our society should aim to support seniors and the vulnerable after decades of hard work and public service,” Pace said. “If eliminating these taxes can achieve that goal without compromising essential programs, it deserves consideration.”
Editor’s note on election coverage: GOBankingRates is nonpartisan and strives to cover all aspects of the economy objectively and present balanced reports on politically focused finance stories. You can find more coverage of this topic on GOBankingRates.com.
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