President Donald Trump has only been in office a few days, but he hit the ground running. He’s already made good on some of his campaign trail promises via executive orders. But so far, there hasn’t been any movement on his pledge to eliminate the Social Security benefit taxes that many seniors pay.
He’ll need the help of Congress to do that, and right now, it’s unclear whether he has the necessary support. It’s a bold change, and it could take $1.5 trillion in revenue from an already struggling program, according to a recent Tax Policy Center report. There are upsides as well, but they aren’t as significant or clear-cut as they might seem.
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The plan to eliminate Social Security benefit taxes
Seniors pay income taxes on a portion of their benefits if their provisional income — adjusted gross income (AGI), plus nontaxable interest from municipal bonds, and half their annual Social Security benefit — exceeds the following thresholds for their marital status:
|
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 |
Source: Social Security Administration.
These taxation thresholds have remained unchanged for 30 years. As benefits rise, more seniors encounter these taxes and must return a portion of their checks to the government. This is especially hard on those who lack personal savings to supplement their checks.
Trump proposed eliminating the benefit tax in a social media post during the 2024 presidential campaign. It’s easy to see why this would be appealing to struggling seniors. No more benefit tax means they could hold onto more of their Social Security benefits during the year.
Short-term gains
This seems like a proposal that would help low-income families, but that’s likely not how it would play out. The lowest-income retirees already don’t pay Social Security benefit taxes, so they wouldn’t notice any change. The people who would see the largest tax savings would be those who pay the most in Social Security benefit taxes: the wealthy.
A Tax Policy Center analysis found that seniors in the highest quintile of income would save about $1,430 in income taxes annually if the government eliminated Social Security benefit taxes. By contrast, those in the lowest quintile would notice no change and those in the second-lowest quintile — people earning between $32,000 and $60,000 per year — would only save about $90 per year.
However, since the wealthiest Americans usually don’t depend on Social Security to the same degree as lower-income seniors, it would likely have the biggest positive effects for middle-class Americans. This group often relies upon their checks for a significant portion of their retirement income yet still encounters the Social Security benefit tax.
Long-term losses
The short-term consequences of Trump’s plan are a bit of a mixed bag, but the long-term consequences are more clearly negative. Social Security is already in a tight spot. Its trust funds — one of just three sources of income it depends on — will be depleted in 2034. This would leave Social Security with just payroll and benefit taxes, which wouldn’t be enough to pay all scheduled benefits.
Eliminating benefit taxes would only accelerate the trust funds’ depletion. If the government did nothing, seniors would see their benefits cut by nearly one-quarter. That would drop the $1,976 average monthly benefit as of January 2024 to $1,522 per month. Overall, it amounts to a loss of more than $5,400 over the course of a year.
This likely won’t happen, but the government faces a difficult decision. Increasing funding for the program means taking it from somewhere else. That will likely mean higher payroll taxes for workers, reduced benefits for seniors, or a combination of the two. The closer the trust funds’ depletion date gets, the fewer options the government has to resolve the issue.
It’s important to remember that, though Trump may want to eliminate Social Security’s benefit tax, he cannot do it alone. Congress will need to pass a law, and he’ll have to find a lot of support to pull this off. His plan may not go anywhere, and Social Security may still have roughly a decade or so before we have to worry about potential benefit cuts or tax increases.