Former President Donald Trump has recently proposed eliminating taxes on Social Security, a move directly aimed at the 67 million Americans who rely on the program’s monthly benefits. At a campaign rally in Harrisburg, Pennsylvania, Trump declared, “Seniors should not pay taxes on Social Security and they won’t.” This promise could resonate strongly with older voters, especially at a time when senior poverty rates are climbing, and millions of Americans are approaching retirement without any savings, as highlighted by the National Council on Aging and the U.S. Government Accountability Office.
However, experts caution that such a tax cut could have unintended consequences for Social Security itself. Currently, around 40% of Social Security beneficiaries pay federal income taxes on their benefits, contributing to the program’s funding. Eliminating these taxes could accelerate the insolvency of Social Security’s trust funds, potentially leading to earlier and deeper cuts in benefits than currently projected.
Revenue Impact: Income taxes on Social Security benefits contributed approximately $48.6 billion to the program’s revenue in 2022, accounting for about 4% of the total revenue, which primarily comes from payroll taxes
The taxation of Social Security benefits has been in place since 1984 when changes signed into law by President Ronald Reagan introduced taxes on benefits above certain income thresholds. Over the years, as these thresholds have not been adjusted for inflation, more middle-income seniors have found themselves paying taxes on their Social Security income. Today, about 40% of Social Security recipients are subject to federal taxes on their benefits, compared to just 26% in 1998.
For individuals, the tax impact varies depending on income. Single filers with a combined annual income between $25,000 and $34,000 may pay income tax on up to 50% of their benefits, while those earning more than $34,000 could see up to 85% of their Social Security income taxed. For married couples filing jointly, these thresholds are slightly higher, ranging from $32,000 to $44,000.
In making this promise, Trump may be trying to appeal to seniors who were unsettled by the Republican Study Committee’s proposal to raise the retirement age to 70 for Social Security and Medicare. Currently, the full retirement age for Social Security is 67, with Medicare eligibility beginning at 65.
While Trump’s proposals might attract attention, their feasibility remains uncertain. For these tax changes to become law, Congress would need to pass the necessary legislation, a challenging task if the Democrats control either the House or the Senate in a second Trump administration. Furthermore, as Paul Ashworth, chief North America economist at Capital Economics, noted, Trump has yet to release detailed plans for his tax proposals, which contrasts with his approach during the 2016 campaign when he presented a comprehensive tax plan early in the race.
As it stands, Trump’s proposal to eliminate taxes on Social Security is more of a campaign promise than a detailed policy plan. While it may offer immediate appeal to seniors feeling the squeeze from rising living costs, the long-term implications for Social Security’s solvency could be far more complex and concerning.
