Trump’s campaign proposals have sparked alarm, as a recent study by the Committee for a Responsible Federal Budget suggests they could jeopardize the future of Social Security in 6 years.
While Trump promises to ‘fight for and protect Social Security,’ his proposals may worsen the status quo of Social Security’s finances. This could be the reason of accelerated depletion of the trust fund, which could result in a substantial reduction of approximately one-third in benefits within the next 25 years.
The ominous forecast stems from Trump’s promise to abolish income tax on Social Security benefits, stop getting taxes on tips and overtime compensation, and impose 60% tariff on imports.
If implemented, this plan could lead to insolvency of the Social Security trust fund as early as 2031, which is three years sooner than current projections by the Congressional Budget Office (CBO).
Over a decade-long period, Trump’s proposed policies are predicted to remove a revenue source that currently supports Social Security funding, decrease payroll tax contributions directed to the Social Security trust funds, boost cost-of-living adjustments (COLAs) due to rising inflation or lower taxable payroll, and decrease the number of immigrant workers contributing to the Social Security trust funds.
Key Takeaways
Trump’s proposals could worsen the Social Security crisis by jeopardizing its future in 6 years, leading to a substantial reduction of approximately one-third in benefits within the next 25 years.
- Trump’s plan to abolish income tax on Social Security benefits and stop getting taxes on tips and overtime compensation could lead to insolvency of the Social Security trust fund as early as 2031.
- The proposed policies would remove a revenue source that currently supports Social Security funding, decrease payroll tax contributions directed to the Social Security trust funds, and boost cost-of-living adjustments (COLAs) due to rising inflation or lower taxable payroll.
- Trump’s tariffs and immigration measures could decrease Social Security funding by an additional $400 billion over ten years, making it harder for the program to recover from its current financial crisis.
Trump’s Plans Would Favor Higher-Income Voters
Donald Trump’s tax proposals, particularly regarding the elimination of federal taxes on gratuities and overtime pay, are designed to appeal to specific voter demographics but may disproportionately favor higher-income recipients.
Trump has pledged to eliminate federal income taxes on tips, which could significantly benefit tipped employees.
However, many of these workers are younger, unmarried, and financially disadvantaged, often earning too little to benefit from this change as they fall below the income tax threshold.
This means that while the policy aims to support low-income workers, it may not provide substantial assistance to those who need it most.
According to analysis from the Institute on Taxation and Economic Policy (ITEP), Trump’s overall tax plan would lead to a tax cut for the richest 5% of Americans while imposing tax increases on all other income groups.
For instance, households in the top 1% could see an average tax cut of about $36,300, while middle-income families might face tax increases averaging $1,500.
This disparity highlights how the proposed changes primarily benefit higher-income individuals rather than providing equitable relief across the income spectrum.
Eliminating Taxes on Tips and Overtime
Trump’s plan also includes abolishing payroll taxes on tips and overtime pay. He plans to scrap them, without elaborating further.
However, this reduction would come at a cost: Social Security benefits are calculated based on reported income history. Therefore, if tipped workers do not report their earnings due to the absence of payroll taxes, they will face reduced Social Security benefits upon retirement. With lesser deductions in their payroll, this means they are guaranteed lesser retirement taxes.
If these employees fail to disclose their income to the Social Security program, they will be eligible for smaller retirement benefits as a result of the link between reported income and benefit levels.
A significant number of tipped employees may not derive substantial benefits from exempting tips from federal income tax due to their demographic characteristics. Only about two percent of households can expect to benefit from a tax reduction.
Only a small percentage of families are expected to benefit from a tax reduction, which amounts to an average savings of approximately $1,700, but these sums are reduced significantly when considering those in the bottom income quintile, who might receive about $200 as a parting payment.
Trump’s proposed abolition of payroll taxes would give a considerable tax cut to most tipped employees, with the potential benefit being over $2,100 per person on average.
Ultimately, Trump’s decision would result in approximately $900 billion less in revenue for Social Security.
unleashing American energy, slashing job-killing regulations, and adopting pro-growth America First tax and trade policies
Karoline Leavitt
Trump’s Tariffs and Immigration Measures
Trump’s proposals to impose sweeping tariffs and deport millions of undocumented immigrants could decrease Social Security funding by an additional $400 billion over ten years.
Undocumented immigrants contribute to Social Security through payroll taxes but typically do not claim benefits, thus providing a net gain to the system.
These projections indicate that raising the tariff to 60 percent could boost customs duties on Chinese imports from around $65 billion to nearly $400 billion in FY 2035, generating $2.4 trillion in net revenue over a decade after factoring in offsets from income and payroll taxes.
However, analyzing this policy solely on a static basis does not provide a significant revenue estimate.
A substantial increase in tariffs would significantly decrease trade with China, as intended, resulting in much lower revenue than the static estimate suggests. Based on elasticities found in trade literature, we project that this tariff hike would reduce imports from China by approximately 85 percent.
Additionally, we may see a reduction in the number of those individuals contributing to Social Security through their earnings by stepping up efforts to stop people from entering the US without permission.
Experts Warn of Catastrophic Consequences
Maria Freese stated that Trump’s proposals include reducing taxes which contribute substantial income to Social Security’s trust funds.
The National Committee to Preserve Social Security and Medicare has endorsed Harris in her bid for president, signifying their commitment to ensuring the Social Security program’s continued effectiveness.
When evaluating the Trump campaign’s approach to Social Security, Andrew Biggs expressed skepticism about their sincerity in potentially undermining or eroding the social safety net.
A few of Donald Trump’s campaign promises target Social Security taxes, yet some of his policies regarding immigration may have considerable implications for the program’s long-term viability.
With Social Security’s trust funds facing a critical juncture due to their rapidly approaching depletion dates, it is essential that both presidential campaigns offer clear and comprehensive plans for reforming the program.
A Return to Work
The anticipated inadequacy of the 2025 Social Security cost-of-living adjustment (COLA) is expected to compel approximately 50% of retirees to return to work to supplement their income and cover living expenses.
A growing number of older Americans are learning through experience that they cannot rely exclusively on their Social Security benefits for a comfortable and secure retirement.
It’s essential to keep in mind that there are specific earnings-test limits in place for Social Security recipients who choose to work while still receiving their benefits, which become relevant once they have not yet attained their full retirement age.
I don’t think I’ve ever seen a plan that would have this big of a negative effect on solvency in a general election campaign
Marc Goldwein
From 2025 onwards, Social Security recipients who continue to work will have their benefits protected as long as they don’t earn more than the annual limit set at $23,400.
Any delayed Social Security payments due to exceeding the earnings threshold will be restored once you’ve reached your full retirement age.
If you’ve had your Social Security benefits held back because you earned too much, those payments will be restored once you’re eligible for full retirement benefits.
A Brighter Future for Retirement
With careful planning and possibly supplementing their income through part-time employment, retirees can ensure a secure financial future and enjoy their golden years without undue stress or worry, particularly when considering credits and financial matters, retirement and tax planning.
