A new proposal seeks to provide tax relief to millions of retired Americans who use Social Security benefits to live with dignity month to month. This is an idea from Republican presidential candidate Donald Trump, following his previous promise to eliminate taxes on tips.
The former president’s initiative seeks to exempt older people from paying taxes on their Social Security benefits, an issue that has generated both support and controversy in the American public.
Trump has said on his Truth Social platform that seniors should not pay taxes on their Social Security benefits, but the proposal has raised doubts and uncertainties. Marc Goldwein, policy director for the Committee for a Responsible Federal Budget, warns that while the proposal could bring temporary relief to many retirees, it could jeopardize the long-term sustainability of Social Security and Medicare.
Putting Social Security Benefits at Risk
Goldwein said, “Certainly, seniors would enjoy it for several years, but it accelerates the insolvency of Social Security and Medicare, and increases the size of the across-the-board cut.”
The main concern is, primarily, how sustainable the Social Security program will be without its primary income: it lies in how to compensate for the loss of income that currently helps fund these crucial programs.
In an interview with Fox News, Trump mentioned eliminating government “waste” as a possible solution, but did not provide concrete details on the specific cuts needed to balance the budget.
How the Social Security System Is Financed With Taxes
The tax on Social Security benefits was introduced in 1984 as part of a reform to strengthen the program’s finances. Currently, seniors with combined incomes less than $25,000 for individuals or $32,000 for couples do not pay taxes on their benefits. However, those with income above those thresholds may face taxes on up to 85% of their benefits.
This tax system has helped nourish the Social Security and Medicare trust funds for decades, helping to maintain their viability. According to the Committee for a Responsible Federal Budget, eliminating this tax could increase the federal deficit by $1.6 to $1.8 trillion through 2035, depleting trust funds much sooner than expected.
The doubts don’t come from nowhere: In fact, the Social Security trustees indicate that the retirement trust fund will be depleted in 2033, and Medicare Part A will be depleted in 2036, meaning that eliminating tax funding will jeopardize the system in the long term.
If the tax is eliminated, these funds will be depleted even more quickly, resulting in benefit cuts for retirees. “Seniors whose benefit cuts are greater than their tax savings will lose out,” Goldwein explained.
The Elimination of Small Taxes — A Mere Electoral Ploy?
This is not the first time that the former president, who has become a Republican presidential candidate, has proposed eliminating taxes, as part of his various campaign promises.
He also recently suggested eliminating tip taxes while speaking at a campaign event in Nevada, an extremely important state for his get-out-the-vote strategy, as there are several hundred thousand service workers there.
However, this policy ploy would benefit only a small portion of workers: About 4 million people worked in tipped occupations in 2023, or about 2.5% of total employment, Ernie Tedeschi, director of of economics at the Yale Budget Lab and former chief economist of the White House Council of Economic Advisers in the Biden administration.
Digging deeper into these numbers, Tedeschi found that among workers at the bottom of the income scale (earning $17.66 an hour or less) only 5% have tipped jobs.
We will see what happens if Trump wins the White House and what the impact will be of eliminating Social Security taxes and eliminating tip taxes.
