President-elect Donald Trump has promised to eliminate taxes on Social Security benefits. However, experts say it’s too early to factor such changes into financial plans, even with a Republican majority in Congress. Eliminating taxes on benefits without other changes to make up for the loss in revenue would be challenging.
It would require at least 60 Senate votes, necessitating some Democratic support. It’s hard for me to imagine that Democrats would be willing to provide votes to get over that 60-vote threshold and weaken Social Security solvency,” said Charles Blahous, senior research strategist at the Mercatus Center at George Mason University and former public trustee for Social Security and Medicare. “I think many Republicans would have heartburn about it, too,” he added.
Ending taxes on Social Security benefits, along with other Trump proposals like ending taxes on tips and overtime, imposing tariffs, and deporting immigrants, could severely impact Social Security’s finances, according to the Committee for a Responsible Federal Budget. The Trump campaign has disputed these findings. According to the program’s actuaries, the Social Security trust fund, used to help pay retirement benefits, is projected to be depleted by 2033.
Trump’s proposed changes to Social Security
At that time, beneficiaries could face across-the-board benefit cuts. Experts indicate that eliminating taxes on Social Security benefits would benefit higher-income seniors most.
According to research from the Urban-Brookings Tax Policy Center, households with incomes between $63,000 and $200,000 would benefit the most. Lower-income households making $32,000 or less would not receive a significant tax cut since most of their Social Security benefits are not currently taxed. Those with annual incomes between $32,000 and $60,000 may see about $90 in tax cuts.
Up to 85% of Social Security benefits are subject to tax based on an individual’s or married couple’s income. These taxes are calculated based on a combined income formula, which includes adjusted gross income, nontaxable interest, and half of Social Security benefits. Financial advisors caution that it is too early to include the elimination of benefits taxes in financial plans.
“You don’t know what the law or policy is going to be if it hasn’t even been properly drafted yet, much less adopted,” said David Haas, a certified financial planner and owner of Cereus Financial Advisors in Franklin Lakes, New Jersey. “I wouldn’t jump to any conclusions,” he added.
