Will there be changes in social security payments depending on who wins the election?
Trump has said that he would give a tax cut to seniors, specifically on Social Security benefits, but that could spell trouble for the program.
Both the Democratic and Republican candidates for president have said that tax cuts will be one of the features of their respective administrations should they win. One of the groups that Trump has said that he would give a tax cut to are seniors. Specifically, any taxes that are levied on their Social Security benefits.
While most states have repealed their own taxes on income from Social Security, those at the federal level are used to shore up the finances of the program. That would mean the trust fund that helps the agency make payments to beneficiaries would empty out faster than its rapidly approaching insolvency date without an alternate source of funding according to experts.
Will there be changes in social security payments depending on who wins the election?
The current estimate by the Board of Trustees for the Social Security Old-Age and Survivors Insurance (OASI) is that the trust fund for the program will run out of money by 2033. The Committee for a Responsible Federal Budget (CRFB) forecasts that under Trump’s proposal to repeal taxes on Social Security benefits that insolvency date would be moved up over a year if there is no replacement financing for the program.
Currently, only 40% of beneficiaries pay federal taxes on the benefits that they receive according to the Social Security Administration. These beneficiaries have income above certain thresholds generally derived from sources other than Social Security.
The reduction in revenue to support the program’s trust fund would mean an increased deficit of $1.6 trillion through 2035, according to a recent analysis from CRFB based on government data. Furthermore, the revenue reduction would grow over the long run. The 75-year shortfall for Social Security would increase 25% 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.”
Who pays taxes on Social Security benefits
The US government started taxing Social Security benefits in 1984 to solve a funding shortfall for the program. While Social Security benefits are automatically increased each year to make sure inflation doesn’t reduce their purchasing power, the Total Gross Income thresholds above which benefits get taxed are not indexed.
This means that over time more and more Social Security recipients will have to pay federal income tax at some level on the benefits they receive. Currently, Individuals with a Total Gross Income, including Social Security, of more than $25,000 will be taxed on up to 50 percent of their Social Security income. Couples who file jointly will begin being taxed when their total income exceeds $32,000.
Individuals earning more than $34,000, or couples with a combined gross income of at least $44,000, will be taxed on up to 85 percent of their Social Security benefits.