Donald Trump has introduced a new plan to offer tax breaks on Social Security checks. This comes just weeks after he promised to remove taxes on tips. He shared this news at a campaign rally in Nevada, a key state with many service industry workers.
Eliminating the tip tax would mainly help a small number of workers since only 4.5% of jobs in 2023 involve tips. However, this change could also mean the government loses over $107 billion in revenue, according to the Tax Foundation.
Social Security Relief
Marc Goldwein, senior policy director at the Committee for a Responsible Federal Budget, says that Trump’s idea to stop taxing Social Security checks would help many older Americans right away.
But without a plan to make up for the lost money, it could hurt Medicare, the federal budget, and Social Security itself. This plan would especially help wealthier seniors but could also speed up the financial problems of Social Security and Medicare, leading to bigger cuts down the line.
Impact on Medicare
In a Sunday interview, Trump repeated his promise but didn’t explain how he’d make up for the lost revenue. He said he’d focus on cutting “waste” and “fat” from the federal government but didn’t give specifics on what would be cut.
According to an analysis by the Tax Policy Center, high-income households would benefit the most from the proposed changes. Middle- and upper-middle-income taxpayers would see the largest boost in their after-tax income, while lower-income households would get only minimal benefits.
Long-Term Effects
A review by a committee found that eliminating the tax on Social Security checks would increase government deficits by $1.6 to $1.8 trillion by 2035. This could lead to the Social Security retirement trust fund and the Medicare hospital insurance trust fund running out of money faster.
Social Security is expected to exhaust its retirement trust fund by 2033, after which it will only be able to pay 79% of the promised benefits. Similarly, Medicare is projected to only be able to cover 89% of all scheduled Part A benefits by 2036.
Seniors’ Concerns
Many seniors struggle to pay taxes on their Social Security checks. Max Richtman, who leads the National Committee to Preserve Social Security and Medicare, often hears complaints about this tax. Despite these complaints, Richtman is against getting rid of the tax because it could hurt the Social Security program’s finances. Instead, he supports raising the income limit and adjusting it for inflation, which is part of the Social Security 2100 Act proposed by Rep. John Larson. However, this act hasn’t been passed by Congress yet.
Trump’s idea to remove taxes on Social Security checks could help many seniors right away, especially those with higher incomes. But in the long run, it could harm Social Security and Medicare, making them run out of money faster and leading to bigger cuts.
Without a solid plan to make up for the lost revenue, this proposal could weaken the financial stability of these important programs. While getting rid of taxes on tips and Social Security checks might sound good, we need to think about the bigger financial picture.
FAQs
How would cutting Social Security taxes affect the budget deficit?
Cutting these taxes would increase the deficit by $1.6 to $1.8 trillion by 2035.
Who would gain the most from Trump’s Social Security tax plan?
Higher-income seniors would benefit the most.
How would it impact Medicare’s trust fund?
It could use up the Medicare hospital insurance trust fund six years sooner.
When is the Social Security trust fund expected to run out?
It is expected to run out by 2033.