Goodbye to taxes on Social Security benefits with new government plan – Problem is, it could backfire on retirees

During his campaign, Trump announced a plan to cut taxes on Social Security benefits, but this may cost beneficiaries more than they know. After the elections this week, Trump will become the 47th president of the United States after defeating Democratic opponent Kamala Harris in a close contest. He stated that he would strengthen the program in his list of platform concerns and that he would not raise the retirement age “by one day” during a rally in July. In September, he made a new pledge to reduce taxes on Social Security payments, overtime, and tips. According to Nancy Altman, head of the lobbying organization Social Security Works, that plan is very well-liked. He doesn’t have it paid for, which is the issue. 

About four in 10 beneficiaries will pay federal income taxes on Social Security benefits

In the short term, many recipients would save money if taxes on Social Security benefits were reduced, but experts warned that this would reduce the amount of money that goes into the trust funds that fund the program. Social Security is already experiencing funding issues. According to the Committee for a Responsible Federal Budget, a nonprofit organization focused on public policy, the trust funds are likely to be drained within a decade, and Trump’s plan to cut taxes on Social Security benefits might accelerate insolvency by three years. According to the CRFB, beneficiaries might face a 33% reduction in their benefits, which is higher than the Congressional Budget Office’s current estimate of 23%.

A beneficiary’s eligibility for and amount of Social Security income taxes are determined by two levels. Individuals without a spouse who make between $25,000 and $34,000 in 2024 would be required to pay taxes on as much as 50% of their Social Security benefits. They may have to pay taxes on up to 85% of their benefits if their income exceeds that threshold. According to the SSA, taxpayers who file joint returns may be required to pay taxes on up to 50% of their benefits if their income is between $32,000 and $44,000, or up to 85% if their income is over that threshold. “Combined income,” which is the total of an individual’s adjusted gross income, nontaxable interest, and half of their Social Security payments, is the basis for these numbers. 

Based on Andrew Biggs’s claim, a senior scholar at the American Enterprise Institute, Social Security is funded through payroll taxes (workers and employers contribute a combined 12.4% on up to $168,600 in income) and Social Security benefits taxes. In the 2024 trustees’ report, it is anticipated that the revenue derived from benefit taxes will continue to increase. More money will be taken in through this revenue stream as the years pass because the income thresholds have not altered, but people’s incomes and benefit amounts rise with time. 

Experts predicted that because Trump’s plan would further strain the program’s already tight budget, Congress would likely be under pressure to reduce Social Security benefits. “I believe his focus is on starving the beast and eroding its financing because he recognizes the politics of how controversial cutting it is,” Altman stated. Trump’s stance would essentially damage the program. With a more serious insolvency crisis, legislators would be forced to act, or at least evaluate their alternatives for resolving the program. However, even though solutions have been batted around for years, Congress has yet to resolve the current issue. 

As stated by Maria Freese, senior legislative representative at the National Committee to Preserve Social Security and Medicare, one way to address the insolvency issue would be to reduce Social Security benefits, which the Republican Party has already suggested doing in a variety of ways, such as raising the retirement age or reducing the cost-of-living adjustment. Moreover, the Republican Study Committee, a group of conservative Republican members of the U.S. House of Representatives, stated in its fiscal 2024 budget that money for strengthening Social Security could not come from general revenues since doing so would result in a larger national debt. 

Additionally, the group said that increasing taxes to support the program would harm the economy and result in job losses. Therefore, according to Freese, lowering taxes on Social Security benefits can be advantageous in the short run but “dangerous” in the long run. In the end, it appears that it may benefit some individuals, but recipients will ultimately suffer, according to Freese. The center of the middle class is what you are discussing. Republicans who wish to reduce the program would target the same individuals who profited from the removal of taxes.

Note: Thank you for visiting our website! We strive to keep you informed with the latest updates based on expected timelines, although please note that we are not affiliated with any official bodies. Our team is committed to ensuring accuracy and transparency in our reporting, verifying all information before publication. We aim to bring you reliable news, and if you have any questions or concerns about our content, feel free to reach out to us via email. We appreciate your trust and support!