Former president Donald Trump has proposed repealing the tax on Social Security benefits which would lower taxes for US households by an average of $550, as per a new analysis by the Tax Policy Center. However, this tax cut would result in reducing Social Security and Medicare hospital insurance revenues by $1.5 trillion over the next decade, leading to insolvency of both programs faster, thus resulting in reduced benefits for many recipients. Low-income households may not benefit from this tax cut, and those in the top 0.1 percent of income may receive an average tax cut of nearly $2,500 in 2025, with middle- and upper-middle-income households being the biggest beneficiaries.
This seeming inconsistency is due to Social Security benefits being a significant portion of middle-income household earnings, therefore, repealing the tax on those benefits affects their after-tax income by a larger percentage than for very high-income households. An analysis found that less than 1 percent of the lowest-income households would receive a tax cut, while around 28 percent of middle-income households and about 20 percent of the top 0.1 percent would benefit. The Tax Policy Center’s analysis included all Social Security benefits and was unable to break down taxpayers by age due to data limitations.
Trump’s proposal to repeal the tax on Social Security benefits would accelerate the insolvencies of the Social Security and Medicare trust funds. Recipients earning over $34,000 annually are currently taxed on an additional 35 percent of their benefits, with the revenue going to support Medicare HI. Repealing this tax, in place since 1984, would cause Social Security to reduce promised benefits by one-quarter and lead to the old age trust fund becoming insolvent in 2032 instead of 2033. The Medicare HI trust fund would become insolvent in 2030 under Trump’s proposal, six years faster than under current law.
Low-income households would not only miss out on any tax cut under Trump’s plan, but they would also face significant financial challenges when Social Security falls into insolvency. A recent analysis found that under current law, Social Security insolvency would reduce annual median benefits by $5,900 by 2045 and push 3.8 million seniors into poverty, slashing incomes of the lowest-income 40 percent of households by one-fifth. Repealing the tax on Social Security benefits contradicts Trump’s promise to oppose cuts in the program, as stated in the 2024 Republican Party platform that he orchestrated. Instead of proposing solutions to shore up the retirement system, Trump’s agenda would ultimately result in the cuts he claims to oppose.
Trump’s proposal to repeal the tax on Social Security benefits is a stark contrast to his promise to protect the program without any cuts. This move conflicts with his previous stance on opposing cuts to Social Security and Medicare and his plan to strengthen these programs. By repealing the tax on Social Security benefits, Trump’s agenda would accelerate the financial woes of the program without offering alternative solutions to address the impending insolvency. This proposal highlights the potential impact on low-income households and raises concerns about the future sustainability of Social Security and Medicare under Trump’s plan.
