(The Center Square) – Former President Donald Trump’s plan to prohibit taxes on Social Security could help struggling seniors in the short term, but experts say it will lead to larger spending deficits and speed up the insolvency date of Social Security’s retirement trust fund.
Trump, 78, promised voters that he’ll stop taxing Social Security income in the run up to the 2024 presidential election on Nov. 5. As with past tax cuts, Trump made the promise with few details about how such a plan would work.
“To help seniors on fixed incomes who are suffering the ravages of inflation, there will be no tax on Social Security,” Trump said at a rally in North Carolina on Wednesday. “With this vote, I will end this injustice.”
Without a replacement source of revenue – something the former president hasn’t proposed – Trump’s plan would increase deficits by $1.6 trillion to $1.8 trillion through 2035, according to an analysis from the Committee for a Responsible Federal Budget.
It would also increase Social Security’s 75-year shortfall by 25% – or 0.9% of payroll and nearly triple the Medicare Hospital Insurance 75-year shortfall, increasing it by 0.6% of payroll, the analysis found.
In addition, Trump’s plan would advance the insolvency date of Social Security’s retirement trust fund by over one year and advance the insolvency date of the Medicare Hospital Insurance trust fund by six years, according to the analysis.
Garrett Watson, of the Tax Foundation, put it another way.
“Exempting Social Security benefits from income tax would increase the budget deficit by about $1.6 trillion over 10 years, accelerate the insolvency of the Social Security and Medicare trust funds, and create a new hole in the income tax without a sound policy rationale,” he wrote.
Howard Gleckman, of the Tax Policy Center, said the plan has winners and losers. Trump’s plan would lower taxes for U.S. households by an average of $550, according to an analysis from the Tax Policy Center.
“Tax Policy Center estimated that lower-income households would get little or no benefit from the tax cut in 2025. Those making $32,000 or less would receive no tax cut because most of their Social Security income is untaxed. Those making between $32,000 and $60,000 would get an average tax cut of about $90,” Gleckman said. “In dollar terms, the biggest winners would be those in the top 0.1% of income, who make nearly $5 million or more. They’d get an average tax cut of nearly $2,500 in 2025. But as a share of after-tax income, the biggest beneficiaries would be middle- and upper-middle income households, those making between about $63,000 and $200,000.”
That’s in part because “Social Security benefits often account for a substantial share of middle-income household earnings,” Gleckman noted.
