Trump’s Plan to Cut Social Security Taxes: What It Means for Retirees

During his campaign, President Trump said that Social Security should not be taxed by the federal government. Several lawmakers in Congress have recently proposed bills that would do the same thing.

Last month, President Trump also pushed Congress to pass a “big, beautiful” tax and spending bill that keeps a lot of his campaign promises. “In the coming weeks and months, we will pass the largest tax cuts in American history — and that will include no tax on tips, no tax on Social Security, and no tax on overtime,” he told us.

But those big changes to tax law are likely to hurt older people who get Social Security. This is why.

With the way taxes are set up now, Social Security payments could be cut by 23% in 2035.

The main source of money for Social Security is taxes. Ninety-one percent of the money comes from payroll taxes, four percent from taxes on benefits, and five percent from interest made on trust fund assets. The program often has deficits, which means it spends more money than it takes in. This is because the number of retired people who get benefits is growing faster than the number of people who pay taxes to support the program.

The Congressional Budget Office (CBO) says that by 2034, the Social Security Trust Fund will run out of money. This is the account that gives benefits to retirees, spouses, survivors, and disabled workers. Then there would be no more way to get money because the trust fund would no longer make interest. The leftover tax money would only be enough to cover 77% of the 2035 payments that were already planned. In 10 years, benefits could be cut by 23% if politicians don’t find a way to stop it.

If taxes were taken off of Social Security, benefits would be cut faster.

The CBO thinks that over the next ten years, Social Security will have a shortfall of $3.3 trillion. From that time to the next, taxes on benefits will bring in $1.1 trillion. Getting rid of that income would make a debt that was already pretty big even bigger. In turn, the trust fund would run out faster than the CBO thinks it will under current law. This would give Congress less time to avoid big cuts to benefits.

The exact date when the trust fund runs out relies on how much money comes in and how much money goes out. However, the Committee for a Responsible Federal Budget (CFRB) says that cutting taxes on Social Security would speed up the process by one year. On the other hand, a budget plan from Penn Wharton, an Ivy League school of business, says it would cut the trust fund’s life by two years.

In a broader sense, CRFB says that stopping taxes on tips, overtime, and Social Security—changes that President Trump wants to be included in the “big, beautiful bill” that Congress is currently debating—would push back the end of the trust fund by three years. If that happens, benefits will be cut in 2032 if politicians don’t fix the money problem.

Also, those changes to tax laws could cut Social Security’s income by as much as $2 trillion over the next ten years, which means that benefits would be cut even more than planned. CRFB thinks that payments will be cut by 33% by 2035. This is more than the 23% cut that CBO thought would happen under current tax law.

In the end: Representatives from both parties want to get rid of the taxes that are paid on Social Security payments. Even more, President Trump has said that tips and extra should not be taxed by the federal government. Even though those changes will increase benefits for people who currently owe tax on their Social Security checks, they may be bad for retired workers in the long run.

A few weeks ago, Nancy Altman, President of the non-profit group Social Security Works, told Kiplinger, “Trump is talking about getting rid of taxes, which will raise benefits, but the benefits that are taxed will be much lower.” To put it simply, it’s not an honest offer.”

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