The Sad Reality of President Trump’s Social Security Plan

As of 2022, the median retirement savings balance among Americans aged 65 to 74 was just $200,000, per the Federal Reserve. Given that statistic, it’s easy to see why so many retirees wind up reliant on Social Security. But unfortunately, it’s not a given that you’ll get to keep your Social Security benefits in full.

Federal taxes have long applied to Social Security benefits. And the problem is that the income thresholds at which they apply are very low.

Compounding the problem is that the income thresholds that determine whether Social Security is taxed were established decades ago and have not been updated since. Meanwhile, over the past several decades, Social Security benefits have increased substantially due to the program’s automatic cost-of-living adjustments. That’s made it so that retiree households with modest incomes are facing taxes on their benefits.

President Trump isn’t a fan of taxing Social Security. So he’s proposed lifting taxes on retiree benefits. But his plan has a pretty notable flaw.

Social Security can’t afford to lose out on revenue

President Trump’s plan to get rid of taxes on Social Security stands to benefit seniors — at least in theory. But while it might provide near-term relief, there’s a big risk.

As it is, Social Security is facing a revenue shortfall that could result in broad benefit cuts in about a decade’s time. If taxes on benefits go away, all that does is strip the program of even more revenue.

Now it is worth noting that Social Security’s primary source of revenue is payroll taxes. Taxes on benefits represent a much smaller percentage of the program’s revenue overall.

Still, Social Security is looking at potential benefit cuts in about a decade’s time, which means it can’t afford another financial hit. Eliminating taxes on benefits might put more money back in seniors’ pockets in the near term. But if it results in benefit cuts, it’s not going to do retirees much good in the end.

Lawmaker support is the big question mark

In order for taxes on Social Security benefits to go away, lawmakers need to vote in that change. And while there may be support from different corners, whether there’s enough broad support is the big question.

It’s also worth pointing out that while President Trump has pledged to put an end to taxes on Social Security, he’s yet to put out a plan for compensating for that lost revenue.

Furthermore, while Trump has declared that he’s looking to end taxes on Social Security benefits, his pledge applies to federal taxes on benefits. But some states tax Social Security individually. There are nine states that currently impose taxes on Social Security, though that list has shrunk in recent years.

All told, President Trump’s Social Security plan has merit in that it’s designed to provide immediate relief for cash-strapped seniors. But unfortunately, his thought process on the matter may be incomplete.

If Social Security loses out on key tax revenue, it could spell disaster as far as benefit cuts go. So until Trump is able to come up with a viable source of replacement income for Social Security, his idea to end taxes on benefits may have to be put on hold.

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