Former President Donald Trump is promising to repeal taxes on Social Security benefits, a campaign pledge some experts say could potentially cause more harm to the program than good.
With the election just a few weeks away, the proposal is meant to entice the 67 million U.S. households who receive monthly benefit checks from the retirement and disability program. Currently, up to 85% of Social Security benefits can be subject to federal tax, depending on a taxpayer’s combined income.
But with poverty rates among older adults and people with disabilities on the rise, people wonder who this proposed tax cut would help, given that Social Security recipients with low incomes already don’t pay taxes on their benefits.
“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.”
What’s more: Fully exempting taxes on Social Security benefits could drive the program’s retirement and Medicare hospital insurance trust funds into insolvency even faster, an analysis from the Committee for a Responsible Federal Budget found.
In other words, millions of beneficiaries would see reduced benefits as early as 2032. Here’s what the proposal could mean for your wallet.
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Eliminating taxes on Social Security benefits
The future financial stability of the Social Security Trust Funds has been a growing concern for many U.S. households. The million-dollar question is whether there will be any Social Security benefits left to claim by the time you retire. Without congressional support, federal officials expect Social Security’s combined reserves won’t have the funds to fully pay beneficiaries within a decade.
Once funds run dry, beneficiaries are projected to receive only 83% of their full benefits. The Social Security Administration expects these funds will be exhausted in 2035. However, the likelihood of that happening is slim.
“The funding shortfall is an action-forcing event,” Altman said. “There is absolutely zero chance that Congress is not going to act and let that go into effect.”
But Trump’s proposal would speed up that timeline.
By eliminating taxes on Social Security benefits, the program’s retirement trust fund would become insolvent one year earlier — in 2032 rather than late 2033. According to the Committee for a Responsible Federal Budget, Medicare’s insolvency date would advance by six years — as early as 2030.
“What Trump is proposing is just an indirect way of cutting benefits,” Altman explained.
How much would these tax cuts defund key Social Security benefits?
Slashing taxes on Social Security benefits would come at a price. This year, taxes on Social Security benefits are expected to raise about $94 billion.
Data from the Congressional Budget Office (CBO), show the total reduction in revenue would be $1.6 trillion between fiscal years 2026 and 2035— with $650 billion less for Medicare and $950 billion less revenue for Social Security.
Congress would have to come up with funds from somewhere, and the clock is ticking.
Tax cuts would benefit millionaires
Most U.S. households won’t see much difference in their wallets if taxes on Social Security benefits were repealed — that is unless you’re a millionaire.
The Tax Policy Center (TPC) estimates that lower-income households would get little to no benefit from Trump’s proposed tax cuts on Social Security benefits.
For instance, people making $32,000 or less wouldn't receive a tax cut since most of their Social Security income is already untaxed. Meanwhile, households earning between $32,000 and $60,000 annually would get an average tax cut of about $90.
- Less than 1% of the lowest-earning households (those making about $33,000 or less annually) would get a tax cut
- About 28% of middle-income households would get a tax cut
- About 20% of households earning more than $5 million a year would get a tax cut
Those earning between $63,000 and $200,000 would see an uptick as a percentage of their after-tax income, the analysis found. But only those in the top 0.1%, or those making $5 million or more annually would see the largest tax advantages. On average, they’d get a tax cut of nearly $2,500 per year.
According to TPC’s calculations, Trump’s plan to repeal taxes on Social Security benefits would lower taxes for U.S. households by an average of $550.
After-tax income could increase some
Should Trump’s proposal to repeal taxes on Social Security benefits come to fruition, the bottom 20% of the income spectrum would see no benefit at all, the Tax Foundation revealed. Eventually, all income groups would see a slight increase in after-tax incomes, averaging about 0.9%.
But as mentioned, cutting taxes on Social Security benefits would essentially reduce revenue for the program’s retirement and Medicare’s hospital insurance trust funds. Ultimately, it would leave millions of beneficiaries with fewer benefits in the long term.
“He’d repeal the tax on Social Security benefits, without proposing any way to shore up the retirement system by either raising other taxes or otherwise restructuring benefits,” Howard Gleckman, senior fellow at the Tax Policy Center wrote. “It is the latest example of how his agenda would result in exactly the kind of Social Security cuts he vows to oppose.”
Why it matters
According to the latest Social Security Administration’s statistics, the estimated 2024 monthly Social Security benefits consist, on average, of:
- $1,907 for all retired workers and $3,033 for retired workers with an aged spouse
- $1,537 for workers with disabilities and $2,720 for workers with a disability and a young spouse and 1 or more children
- $1,773 for aged surviving spouses without children and $3,653 for young surviving spouses with 2 children
Some tax policy experts say cutting these benefit amounts would cause millions of these families to slip under the poverty line. However, several proposals are floating on how to fix the funding problem before it reaches a cliff.
For instance, as Kiplinger reported, Minnesota Rep. Angie Craig (D-Minn.) proposed the You Earned It, You Keep It Act, which calls to eliminate taxes on Social Security benefits by raising the Social Security wage base, meaning higher earners would foot the bill.
Congressman John Larson(D-CT), is floating the Social Security 2100 Act, co-sponsored by nearly 200 House Democrats. The bill would expand benefits for all beneficiaries for the first time in nearly 50 years. It is also fully paid for by requiring those making above $400,000 a year to contribute to Social Security on more of their income, including unearned investment income.
These are just a couple of legislative proposals designed to help shore up Social Security for future generations. As the presidential election season progresses, stay tuned to what the candidates have to say on the issue.
Also, if you have questions or concerns about calculating taxes on your Social Security benefits, it's good to consult a qualified and trusted tax professional or financial planner.
