What does Trump’s proposal to eliminate the Social Security tax for seniors consist of?
Social Security needs reforms to ensure solvency. Experts say Trump’s plan to exempt seniors from paying income tax on benefits would worsen the problem.
A majority of respondents to a new CNBC poll said that Social Security and healthcare were “one of the top” issues or “very important” for who they will they will cast a vote for in November. At the end of July, former President Donald Trump, the Republican nominee in the 2024 presidential election, said that he would support exempting Social Security benefits from income tax.
However, those tax dollars are put back into the Social Security Old-Age and Survivors Insurance (OASI) and Medicare Hospital Insurance (HI) trust funds. And experts say that without a replacement source of revenue, such a measure would speed up the insolvency of the programs.
What does Trump’s proposal to eliminate the Social Security tax for seniors consist of?
Trump specifically mentioned repealing the tax on seniors’ benefits saying: “Seniors should not pay tax on Social Security,” in a post on Truth Social. He has since repeated his support for the proposal during an interview on ‘Fox & Friends’ and a press conference at his Mar-a-Lago club. Most recently a campaign rally in Asheville, North Carolina, where a backdrop simply read “No tax on Social Security.” However, details on the policy, as always, were lacking.
Currently, those beneficiaries whose adjusted gross income exceeds certain thresholds see their Social Security benefits taxed at either 50% or 85% by the federal government. Currently, around 40% of people on Social Security pay federal taxes on their benefits, but this is expected to grow over time as the thresholds remain the same but benefit amounts grow. While most states no longer do so, some states also tax Social Security benefits.
The reduction in revenue to support the programs’ trust funds would mean increased deficits by $1.6 trillion to $1.8 trillion through 2035, according to a recent analysis from the Committee for a Responsible Federal Budget (CRFB) based on government data. It would also advance the insolvency date of the retirement fund by over a year and the Medicare HI by six years to 2032 and 2030, respectively.
Furthermore, the revenue reduction would grow over the long run. The 75-year shortfall for Social Security would increase 25% and nearly triple that of Medicare HI the non-profit public policy organization determined.
When those funds run out of money, law requires that spending be cut to match revenue. In the case of Social Security, benefits for seniors would be cut by 25%, compared to 21% under current law.
The drop in benefits would impact lower income seniors more with bigger reductions than those for higher income seniors. However, CRFB notes that “after-tax benefits would not meaningfully change.”