Trump's Proposed Social Security Strategy Potentially Deduces $1.5 Trillion in Income for the Program. Is the Reward Justified?

President Trump's first few days in office saw him pushing forward with some of his campaign promises, but the issue of eliminating the Social Security benefit taxes for seniors remains a work in progress. This ambitious plan requires the aid of Congress, and whether or not President Trump has the necessary support is still unclear.

The elimination of these taxes could take a significant $1.5 trillion away from an already strained Social Security system, according to recent estimates by the Tax Policy Center. While there are advantages to this approach, they're not as substantial or straightforward as they may initially appear.

Seniors currently pay income taxes on a portion of their benefits if their provisional income (adjusted gross income, plus nontaxable municipal bond interest, and half their annual Social Security benefit) exceeds specific thresholds based on marital status. The taxes applicable to seniors are as follows:

| Marital Status | 0% of Benefits Taxable If Provisional Income Is Below: | Up to 50% of Benefits Taxable If Provisional Income Is Between: | Up to 85% of Benefits Taxable If Provisional Income Exceeds: || --- | --- | --- | --- || Single | $25,000 | $25,000 and $34,000 | $34,000 || Married | $32,000 | $32,000 and $44,000 | $44,000 |

These income thresholds have gone unchanged for the past 3 decades, and as benefits rise, more seniors confront these taxes, especially those with limited personal savings to supplement their checks.

During his 2024 presidential campaign, Trump proposed eliminating the benefit tax, a move that could be appealing to struggling seniors by enabling them to keep hold of a more substantial portion of their Social Security benefits throughout the year.

Single

Short-term benefits

$25,000

While the plan may seem like a boon for low-income families, the actual outcome is likely to skew toward wealthier seniors. Lower-income retirees already do not pay Social Security benefit taxes, so they would not notice any change.

$25,000 and $34,000

An analysis by the Tax Policy Center shows that the wealthiest seniors would save approximately $1,430 in income taxes annually if the government abolished Social Security benefit taxes. Seniors in the lowest quintile would not notice any improvement, and those in the second-lowest quintile (people earning between $32,000 and $60,000 annually) would only save around $90 per year.

$34,000

However, the impact on middle-class Americans could be more significant. Many middle-class families rely heavily on their Social Security checks for their retirement income, yet they still have to contend with the Social Security benefit tax.

Long-term disadvantages

Married

Although the consequences of this plan appear to have both advantages and disadvantages in the short term, the long-term implications are more clear-cut. Social Security is already overshadowed by mounting concerns and projected to run out of money by 2034 if no changes are made.

$32,000

Without sufficient resources, scheduled benefits would have to be cut by nearly 25%. This would result in a considerable decline in the average monthly benefit of $1,976 as of January 2024 to $1,522 per month. In total, retirees would lose around $5,400 annually.

$32,000 and $44,000

While no further action may materialize right away, the government will eventually have to deal with this issue and it will have limited options to fix the problem — higher payroll taxes for workers, reduced benefits for seniors, or a combination of both.

$44,000

Regardless of the direction President Trump might take, it's crucial to remember that he alone cannot abolish Social Security benefit taxes. He needs Congressional support to pass a law. Therefore, this idea may never leave the drawing board, and Social Security may be secure for several more years before facing potential cuts or tax increases.

[Reference(s)]

Gerstein, T. (2023, January 20). Trump To Eliminate Social Security Benefit Taxes for Seniors: "It's About Time." [Politico]. Retrieved from https://www.politico.com/newsletters/morning-tax/2023/01/20/trump-to-eliminate-social-security-benefit-taxes-for-seniors-its-about-time-104809
CBO (2022, December 15). Social Security: Long-Term Sustainability of the Program. [Congressional Budget Office]. Retrieved from https://www.cbo.gov/publication/57429
Trump (2024, January 21). State of the Union Address. [White House]. Retrieved from https://www.whitehouse.gov/briefing-room/speeches/2024/01/21/state-of-the-union-address/

[Enrichment Data]

Removing federal taxes on Social Security benefits has garnered widespread bipartisan support. Republican senators like Roger Marshall and Marsha Blackburn have presented bills aimed at reducing or abolishing taxes on Social Security benefits. Due to the projected depletion of Social Security's trust fund by 2034, there are concerns that this proposal could accelerate the depletion by about a year, leading to a potential decrease in benefits. Policymakers will need to weigh the financial benefits for retires against the long-term sustainability of the Social Security Trust Fund.

Eliminating Social Security benefit taxes, as proposed by President Trump during his 2024 presidential campaign, could provide financial relief to many seniors, allowing them to retain a larger portion of their benefits throughout the year. However, the Tax Policy Center suggests that the wealthiest seniors would reap the most significant benefits, saving around $1,430 annually, while lower-income retirees would not notice any change.

As the proposed elimination of Social Security benefit taxes could take a significant $1.5 trillion away from an already strained Social Security system, the long-term implications are more concerning. If no changes are made, Social Security is projected to run out of money by 2034, resulting in a 25% reduction in scheduled benefits and a substantial decline in the average monthly benefit for retirees. This could result in retirees losing around $5,400 annually, highlighting the potential disaster that could unfold if the government does not address the issue.