Social Security tax cuts would reduce benefits for low-income retirees

• Donald Trump wants to cut Social Security taxes, affecting current and future beneficiaries.
• Fiscal policy experts warn that the cuts could deplete the Social Security fund sooner than expected.
• Low-income baby boomers and younger generations would be most hurt by Trump’s proposal.

Donald Trump plans to make changes to America’s social security system upon his return to the White House in January.

The president-elect promised on the campaign trail to lower taxes on Social Security benefits in his second term.

“People on Social Security are getting killed, and one of the things I’m doing is no tax on seniors on Social Security, and I’m going to get it done quickly,” Trump told “Fox & Friends” in August.

For some baby boomers, lower Social Security taxes could mean bigger monthly checks in the short term. But fiscal policy experts predict that the Social Security tax cuts, along with other campaign promises Trump has made, could quickly drain the national Social Security fund. That would jeopardize benefits for low-income retirees and younger generations who may rely on that income as they age.

“It’s designed to help retirees, but the people it’s going to hurt are people who rely on Social Security the most,” Taylor Lee, a certified financial planner at Belmont Capital Advisors, told BI about Trump’s proposed tax cut social security.

More than 72 million Americans receive Social Security, and the estimated average monthly check in October was $1,924.35according to the Social Security Administration. Americans can start taking Social Security at age 62 or wait until their full benefits start at 67, the national retirement age.

Trump’s campaign promise came as Business Insider heard from older adults with limited retirement savings, many of whom were struggling to afford necessities like housing and groceries on their fixed Social Security income. Social Security income taxes apply to all beneficiaries with an annual household income over $25,000, and most pay tax on at least 50% of their benefits. Beneficiaries with lower incomes pay less in tax.

Social Security tax cuts would hurt low-income retirees, younger generations

US Social Security is about to be exhausted for the next decade without congressional action. The fund is funded largely through payroll taxes that Americans contribute to throughout their careers.

A report published in October by the non-partisan Committee on a Responsible Federal Budget said Trump’s campaign pledge — which, too include eliminating taxes on tips, lowering some income taxes, expanding deportations and introducing tariffs — would take a toll on the Social Security fund, rendering it “insolvent” within the next six years. That’s three years ahead of the Congressional Budget Office’s current estimate.

The report said those policies would also lead to a 33% benefit reduction by 2035, a 10% increase over what the Congressional Budget Office projects under current law.

Lee said low-income boomers and younger generations will likely feel the brunt of those cuts.

Low-income boomers living on Social Security already pay less in income taxes, so they wouldn’t see the benefits Trump promised. Lee said many have no other retirement savings to fall back on if their benefits are cut.

He added that older Americans who are wealthy or middle class would feel less stress from Social Security cuts and could benefit in the short term from Trump’s tax plan.

“It would help people in the middle class, people who have the luxury of having a 401(k) or an IRA and have multiple sources of retirement income,” Lee said. “But the people who are going to be hurt the most are people who don’t have the traditional retirement income.”

Lee said it was possible that younger generations would have lower Social Security benefits, requiring them to rely more on retirement savings.

To be sure, any changes Trump hopes to make to the tax or Social Security systems must be approved by Congress. Working in his favor is that The Senate will have a Republican majority. (Votes for House representatives are still being counted.) Lee noted that tax funding isn’t the only challenge facing Social Security: People are living longer, which means more benefits are required per person. person.

As for other retirement savings, such as 401(k) accounts and investments, it’s unclear what impact another Trump term will have. The president-elect plans to impose tariffs on foreign goods and enact broad tax cuts, a move likely to drive inflation and raise the cost of living.

With the future of Social Security uncertain, Lee said, it’s important for retirees to build a strong financial plan.

“There’s a lot of planning that we can still do,” Lee said. “Government policy – we really can’t influence that. So we just have to control what we can control.”

Are you dependent on Social Security when you retire? Are you adjusting your retirement plans based on Trump’s return to office? If so, contact this reporter at [email protected].

Correction: November 11, 2024 — An earlier version of this story used an outdated average for monthly Social Security checks. The Social Security Administration said the average monthly check for retired workers was $1,907 in January, but it was $1,924.35 in October.