As President-elect Donald Trump prepares to return to the White House, among his proposals that are being scrutinized is his plan to end taxes on Social Security benefits.
During the campaign, Trump wrote on his Truth Social platform, “Seniors should not pay taxes on Social Security,” and repeated the pledge while campaigning. A report by CNBC analyzes the proposal’s prospects and its implications.
Though Republicans will soon control both the Senate and the House of Representatives, the report notes that any changes to Social Security would require at least 60 Senate votes, and with Republicans holding a 53-47 majority, some Democratic support would be needed.
That could be a hurdle, given the fact that a non-partisan budget group predicted that Trump’s agenda would make Social Security insolvent in six years. The analysis by US Budget Watch 2024, a project of the Committee for a Responsible Federal Budget. said that eliminating the taxes without making up for the loss of revenues would expand Social Security’s cash shortfall by trillions of dollars and lead to larger benefit cuts in the coming years
“It’s hard for me to imagine that Democrats would be willing to provide votes to get over that 60-vote threshold and weaken Social Security solvency,” said Charles Blahous, senior research strategist at the Mercatus Center at George Mason University, who has also served as a public trustee for Social Security and Medicare. “I think a lot of Republicans would have heartburn about it, too,” he told CNBC.
When the report was released, Trump spokeswoman Karoline Leavitt said, “The so-called experts at CRFB have been consistently wrong throughout the years,” and added that Trump “will continue to strongly protect Social Security in his second term.”
Currently, up to 85% of Social Security benefits may be taxed based on an individual’s or married couple’s income. Those taxes are determined based on combined income, or the sum of adjusted gross income, nontaxable interest and half of Social Security benefits.
Another study examined who would benefit the most from eliminating the taxes on Social Security benefits. The Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution, found that households making nearly $5 million or more annually would get an average tax cut of nearly $2,500 in 2025.
Middle- and upper-income households, those earning between $63,000 and $200,000, would see a tax cut between $1,190 and $1,430.
Lower income households making $32,000 or less would not get a tax cut, as most of their Social Security benefits are not currently taxed. Those with between $32,000 and $60,000 in annual income may see about $90 in tax cuts.
“You’re giving a tax break to the higher-income senior population, so that might wind up mitigating its political sale ability as well,” Blahous said.
“He’s talking about getting rid of the taxation, which increases the benefits, but the very benefits that are subject to taxation will be much reduced,” Nancy Altman, president for Social Security Works told Kiplinger. “So basically, it’s not an honest proposal.”
Amid the uncertainty over the proposal’s legislative future, financial advisors say it is too soon to incorporate the impact into people’s financial plans.
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