On July 31, Donald Trump declared on Truth Social: “SENIORS SHOULD NOT PAY TAXES ON SOCIAL SECURITY!”
This may sound like a blessing to retirees on fixed incomes, who make up one of the largest and most reliable voting blocs in the country. But how much would retirees actually benefit if Trump wins the election and succeeds in repealing the tax on Social Security benefits?
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It turns out that the proposal, which at first glance would help the most vulnerable groups, would actually benefit wealthy retirees the most – and the cost in lost revenue could jeopardize the future of the program and lead to benefit cuts for everyone.
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How social security benefits are taxed
About 65 million Americans receive Social Security benefits, with the average retiree receiving $1,869.77 per month, or about $22,440 per year.
Most recipients lose nothing against the IRS.
According to the Social Security Administration (SSA), “about 40% of welfare recipients must pay federal income taxes on their benefits.”
Kiplinger pointed out that the IRS taxes not only retirement benefits but all payments taken from the program’s trust funds, including disability and survivor benefits, but Supplemental Income Security (SSI) payments are exempt.
In addition, some states also tax Social Security income, but the president does not have the power to change that. The federal government taxes (or does not tax) benefits based on the recipient’s total income, which includes the monthly Social Security checks.
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For individuals:
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For total income between $25,000 and $34,000, up to 50% of benefits may be taxed.
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If your income is over $34,000, up to 85% of your benefits may be taxable.
For couples filing jointly:
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For incomes between $32,000 and $44,000, up to 50% of benefits may be taxable.
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If your income is over $44,000, up to 85% of your benefits may be taxable.
Those who need the least help would get the most
The former president’s plan provides tax relief for the 40 percent of recipients who earn more than the current income limit.
“If Donald Trump’s proposal to eliminate the income tax on Social Security benefits becomes a reality, it could mean significant savings for many retirees, depending on their income and tax bracket,” says Eliza Gwendalyn, a certified public accountant, tax expert and founder of New York-based accounting firm Book Media Inc.
“Currently, up to 85% of Social Security benefits can be taxable, which feels like an additional burden if you’re already on a fixed income,” she explained. “For example, if you receive $30,000 in Social Security benefits and you currently pay a 12% tax rate on half of that, you could potentially save $1,800 if those taxes were eliminated – a relief that could make a significant difference to your budget.”
However, the lion’s share of the profits would go to the rich.
According to the Tax Policy Center, “The biggest winners would be the top 0.1% of earners, those earning just under $5 million or more. They would receive an average tax cut of nearly $2,500 in 2025.”
Those who need help the most would get nothing at all
The 60% of recipients who are not taxed by the IRS keep all of their payments because their income is not sufficient to qualify for taxation.
Trump’s plan would not leave them with a single additional dollar.
“For lower-income retirees who are already exempt from these taxes, nothing would change,” says Devin Carroll, a senior adviser at retirement planning firm Carroll Advisory Group, where he specializes in Social Security and whose YouTube and blog content on the topic receives more than a million views a month.
Overall, it would cost much more than it would be worth and could jeopardize the future of the program
The majority of recipients would not receive a tax relief, and for most who did, the savings would be negligible.
“Eliminating taxes on Social Security income would provide some financial relief to retirees, but the impact would be relatively small,” Carroll said. “According to the Tax Foundation, eliminating these taxes would increase the net income of higher-income retirees by as much as 1.1%, with the average increase being only 0.6%. Lower-income retirees who are already exempt from these taxes would see no change.”
The Tax Policy Center’s analysis found that repealing the tax reform would reduce the average tax bill by $550. But that amount is inflated by the fact that wealthy households with incomes of $5 million or more would benefit the most. Retirees with middle-income incomes between $32,000 and $60,000 would only receive a tax cut of about $90 on average.
While every dollar counts, $90 in savings pales in comparison to the $1.5 trillion in projected revenue losses over the next decade. The Tax Policy Center said this would “pull Social Security and Medicare (HI) into insolvency faster, resulting in significant benefit cuts for tens of millions of recipients.”
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This article originally appeared on GOBankingRates.com: Trump wants to abolish Social Security taxes: This is how much the average retiree would save
