During his campaign, Trump announced a plan to reduce taxes on Social Security benefits, but beneficiaries may pay more than they realize. After this week’s elections, Trump will become the 47th president of the United States, defeating Democratic opponent Kamala Harris in a close race.
During a July rally, he declared that he would enhance the program as one of his platform priorities and that he would not raise the retirement age “by one day”. In September, he announced a fresh vow to lower taxes on Social Security, overtime, and tips.
According to Nancy Altman, the head of the advocacy organization Social Security Works, that concept is quite popular. He does not have it paid for, which is the problem.
About four in 10 beneficiaries will pay federal income taxes on Social Security benefits
In the near term, many recipients would profit from lower Social Security taxes, but analysts cautioned that this would limit the amount of money that goes into the program’s trust funds. Social Security is already facing funding challenges.
According to the Committee for a Responsible Federal Budget, a nonprofit organization focused on public policy, the trust funds are likely to be depleted within a decade, and Trump’s plan to reduce taxes on Social Security payouts might hasten insolvency by three years.
According to the CRFB, beneficiaries might suffer a 33% drop in benefits, which is higher than the Congressional Budget Office’s current estimate of 23%.
There are two tiers that determine a beneficiary’s eligibility and amount of Social Security income taxes. Individuals without a spouse who earn between $25,000 and $34,000 in 2024 will be liable to pay taxes on up to half of their Social Security income. If their income exceeds the eligibility criteria, they may be required to pay taxes on up to 85% of their benefits.
According to the SSA, taxpayers who file joint returns may be required to pay taxes on up to 50% of their benefits if their income falls between $32,000 and $44,000, or up to 85% if their income exceeds that amount. These values are based on “combined income,” which is the sum of an individual’s adjusted gross income, nontaxable interest, and half of their Social Security payments.
According to Andrew Biggs, a senior scholar at the American Enterprise Institute, Social Security is funded by payroll taxes (workers and employers contribute a combined 12.4% of income up to $168,600) and Social Security benefit taxes.
According to the trustees’ report for 2024, revenue from benefit taxes is expected to climb further. More money will be collected through this revenue stream as time passes because the income levels have not changed, but people’s incomes and benefit amounts increase.
Experts warned that because Trump’s plan would put further strain on the program’s already tight budget, Congress would likely be pressured to cut Social Security payouts. “I believe his focus is on starving the beast and eroding its financing because he recognizes the politics of how controversial cutting it is,” Altman told me.
Trump’s approach would significantly harm the program. A more serious insolvency problem would push legislators to act, or at least consider their options for resolving the program. Despite years of debate, Congress has yet to fix the current situation.
According to Maria Freese, senior legislative representative at the National Committee to Preserve Social Security and Medicare, one way to address the insolvency issue is to reduce Social Security benefits, which the Republican Party has already proposed in a variety of ways, such as raising the retirement age or lowering the cost-of-living adjustment.
Furthermore, the Republican Study Committee, a group of conservative Republican members of the United States House of Representatives, claimed in its fiscal 2024 budget that money to expand Social Security could not come from general taxes since doing so would increase the national debt.
Furthermore, the group said that raising taxes to fund the program would hurt the economy and cause job losses. According to Freese, cutting taxes on Social Security payouts may be beneficial in the near term but “dangerous” in the long run.
According to Freese, while it looks to benefit some people, it will ultimately harm others. You’re talking about the center of the middle class. Republicans who want to cut the program would target the same people who benefited from the elimination of taxes.
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