I’m a Social Security Expert: 4 Reasons I’m Concerned About Trump’s Tax Policies
Written by
Jordan Rosenfeld
Edited by
Molly Sullivan
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With the presidential election looming, voters are looking closely at each candidate’s policies to determine how they might affect the economy, and thus, their wallets.
From fears about inflation and economic stability, some voters wonder how former President Donald Trump’s proposed tax cuts and policies will affect them. A big area of concern is Social Security.
Social Security expert Angelo Crocco, a CPA and owner of AC Accounting, spoke with GOBankingRates to explain his concerns, which might align with questions Americans have about Trump’s tax policies.
Undermining Disability Insurance
One of the big tax policies Trump has put forth is cutting federal payroll taxes. While this might temporarily help Americans, it could lead to a major problem, according to Crocco — undermining or or weakening Social Security overall, which will also hurt Social Security Disability Insurance (SSDI).
Since SSDI is funded by the same payroll taxes, any cuts therein may result in even fewer funds allocated to this critical program.
“My concern is that disabled Americans may find fewer resources if the government decides to tighten eligibility for disability benefits or even reduce payouts. This is an issue that doesn’t get enough attention, as most discussions around payroll tax cuts focus on retirement benefits,” Crocco said.
Right now, SSDI is an essential component of the Social Security safety net, Crocco said, and its erosion may have detrimental effects on individuals who rely on it.
Risk of Privatization and Retirement Instability
If Trump’s tax cuts were to limit the funds going into Social Security, this could also pave the way for Social Security’s partial privatization, Crocco said. There’s already a growing advocacy for market-driven investment accounts rather than guaranteed benefits among certain proponents if Social Security’s funding becomes unstable, but it’s missing some important considerations, Crocco said.
“While this might sound appealing to some, it comes with a significant risk: Retirees would be exposed to market fluctuations, which could jeopardize their financial security during downturns,” Crocco said.
As someone who works with many people in that stage of life, he said, “This is a potentially harmful change that might do more harm than good because many clients I work with aren’t prepared to manage that kind of risk in retirement.”
Tax-Deferred 401(k) Withdrawal Issues
Another trickle-down effect from Trump’s tax policies could cause trouble for retirees when it’s time to take withdrawals from tax-deferred retirement accounts like 401(k) plans.
Crocco pointed out that reductions in corporate taxes increased stock market returns, resulting in higher 401(k) balances for certain retirees, but it also means they can owe more in taxes than they anticipated when they begin taking withdrawals.
“Many retirees I’ve worked with are surprised by how these withdrawals push them into higher tax brackets, which in turn increases the taxable portion of their Social Security benefits. This can have a big effect on their total retirement income if they don’t prepare their taxes properly.”
The Unspoken Risk of Inflation
Lastly, Crocco said there’s a lesser-known inflation-related risk to some of these cuts, namely that inflation may rise as a result of tax cuts increasing the national debt.
Social Security’s Cost of Living Adjustments (COLA) are not always sufficient to keep up with actual inflation, either, he said, particularly in sectors like healthcare where expenses are growing more quickly than the rate of inflation overall.
“I have personal experience with how this can reduce pensioners’ purchasing power, making it difficult for them to maintain their standard of living even with Social Security increases. Although it’s not often a hot topic, retirement planning must take this into account.”
Of course, many presidential policies require Congress’ approval to pass, so much is still to be decided no matter the outcome of the election.
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