Social Security could be in for at least one big change as a result of Tuesday’s presidential election providing a second term for Donald Trump.
President-elect Trump said repeatedly during his 2024 candidacy that if elected, he would end the tax on Social Security benefits.
In late July, in an all-caps post on his conservative social media platform Truth Social, Trump proclaimed: “SENIORS SHOULD NOT PAY TAX ON SOCIAL SECURITY!” No further explanation was offered, but Trump doubled down on his stance in an interview with Fox & Friends mere days later, calling for changing the federal rules on Social Security taxation for retirees. “We can do a lot of things to help the people,” Trump said. “People on Social Security are being killed, and one of the things I’m doing is no tax for seniors on Social Security, and I’ll get it done quickly.”
Now that he will be returning to the White House in January 2025, how might that happen?
The administration would need to draft a bill detailing the repeal of taxes on Social Security benefits. This proposal would outline the specifics of the tax elimination and address potential fiscal impacts.
The proposed legislation would then need to be introduced in Congress, where it would undergo committee reviews, debates, and potential amendments. Both the House of Representatives and the Senate would need to pass the bill by majority votes. If approved by Congress, the bill would be presented to President Trump to be signed into law.
With Republicans winning control of the Senate for the next two years in Tuesday’s election, and the House still up for grabs as of Wednesday, such a bill could conceivably sail through Congress if Republicans also maintain control of the House.
Potential sticking point
One potential problem with Trump’s pledge to end the tax on Social Security benefits? He hasn’t outlined how it would be paid for, and without a way to make up that lost revenue, it would drastically hasten Social Security’s pending insolvency.
“President-elect Trump’s suggestion to eliminate the taxation of Social Security benefits is likely to be popular with many older voters, but it could have the unintended consequence of causing Social Security to go insolvent two years sooner than currently forecast—by 2033,” Mary Johnson, an independent Social Security and Medicare policy analyst, told 401(k) Specialist.
Under current law, the revenues from the taxation of Social Security benefits are earmarked for funding Social Security and Medicare benefits. Over the next 10 years Social Security Trustees estimate that the Social Security Trust Funds (retirement and disability) would receive about $939 billion in revenues paid by Social Security recipients and representing roughly 5% of total program funding from 2024 through 2033.
“Unless those revenues were replaced with other revenues, Social Security would become insolvent sooner than currently forecast. Insolvency would cause all Social Security benefits to be reduced by more than 20% as benefits would be adjusted to the amount of revenues received by the program,” Johnson added. “Vague political promises not to touch Social Security benefits are meaningless.”
If the tax on Social Security benefits were to end without an offset, a recent estimate by the nonpartisan Committee for a Responsible Federal Budget (CRFB) found that insolvency window would shrink to only six years.
And instead of 23% reduction in benefits in 2035 forecast by the Congressional Budget Office back in August (which would mean a $16,500 cut facing a typical couple retiring just before insolvency), Trump’s agenda being enacted would also bump it up to a 33% across-the-board cut to all benefits, according to the analysis released in October.
If enacted today, a 33% benefit cut would mean that the average 2024 monthly Social Security benefit check of $1,907 would be reduced by $629 per month to $1,278.
“President Trump’s proposals to eliminate taxation of Social Security benefits, end taxes on tips and overtime, impose tariffs, and expand deportations would all widen Social Security’s cash deficits,” the CRFB report said.
Under CRFB’s central estimate, these policies would add about $2.3 trillion to Social Security’s cash deficit between FY 2026 and 2035, which is about 1.8% of current law taxable payroll once phased in. This includes $950 billion from ending the income taxation of Social Security benefits, about $900 billion from ending payroll taxes on tips and overtime pay, and roughly $400 billion from changes to tariffs and immigration.
In response to the report, Trump campaign spokesperson Karoline Leavitt said in an emailed statement to CBS MoneyWatch that, “The so-called experts at CRFB have been consistently wrong throughout the years. President Trump delivered on his promise to protect Social Security in his first term, and President Trump will continue to strongly protect Social Security in his second term.”
Leavitt added that Trump’s plans for “unleashing American energy, slashing job-killing regulations, and adopting pro-growth America First tax and trade policies” would put Social Security “on a stronger footing for generations to come.”
Shannon Benton of The Senior Citizens League acknowledged that Trump has indicated a preference for policies prioritizing economic growth and reducing government spending. While this could lead to increased payroll tax revenues, Benton added that he has not directly proposed specific solutions to the program’s financial challenges.
“This issue has been well-known for years and needs to be addressed soon, regardless of the political landscape,” Benton told 401(k) Specialist. “The Senior Citizens League will be closely monitoring any developments, particularly any efforts to cut benefits, raise the retirement age, or implement other significant reforms.”
Johnson: Fix without benefit cuts possible
Johnson said fixing Social Security’s cash crunch without benefit cuts—while making the Social Security benefit taxation more fair and reasonable for all—is possible.
“It can be done in such a way that’s fair for more working adults, while providing enough revenues to significantly reduce the taxation of Social Security benefits for most older and disabled taxpayers,” Johnson said.
Here’s how she says it could be done:
• Working adults: Under current law, 90% of Social Security’s finances come from workers who earn less than $168,600 a year. Wage earners who make more than the taxable maximum amount don’t pay Social Security taxes on earnings over the wage cap. But because Social Security benefits are based on earnings, the benefits of the highest earners are capped as well. Applying the Social Security payroll tax to all wages earned by workers would be enough to provide up to 75 years of solvency according to Social Security estimates. In addition, such a change can be structured to provide credit toward benefits for higher earners.
• Social Security recipients: While income tax brackets and the standard deduction are adjusted annually to keep up with inflation, Social Security income is treated very differently under the tax code. The income thresholds that subject Social Security benefits to taxation have never been adjusted since benefits first became taxable in 1984. In 1984 less than 10% of Social Security recipients were affected by the taxation of benefits. Today, more than half of Social Security households pay tax on a portion of their benefits. Under current law when combined income is more than $25,000 (single filers) or $32,000 (couples filing jointly) up to 85% of benefits can be taxable. If those income thresholds were adjusted to today’s dollars the $25,000 level would be about $77,079 and the $32,000 level about $98,660. Adjusting the income thresholds to today’s dollars and then annually thereafter would provide greater tax fairness while allowing Social Security recipients to keep more of their benefits.
“By applying Social Security payroll taxes to all wages, Congress and the President could make Social Security solvent for the next 50-75 years, while offsetting the cost of providing very significant tax relief to most Social Security recipients,” Johnson concluded.
EDITOR’S NOTE: This article has been edited to add in comments from The Senior Citizens League.
SEE ALSO:
• Group Warns on ‘Cost of Doing Nothing’ About Social Security
• Trump Social Security Plan Would Hike Benefit Cuts, Speed Up Insolvency: CRFB Analysis
• DOL Fiduciary Rule, ESG Considerations Likely DOA Under Second Trump Term
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.
