Is Trump’s Plan Not to Tax Social Security Actually a Cut to the Program?

On July 21, Donald Tump posted on Truth Social that “SENIORS SHOULD NOT PAY TAX ON SOCIAL SECURITY!” That same day, he said at a Pennsylvania rally,“I will not cut one cent from Social Security or Medicare,” and “seniors should not pay taxes on Social Security. And they won’t.”

In response, More Perfect Union—a progressive media site founded in 2021 by Faiz Shakir, a senior adviser to Bernie Sanders—released a video arguing that Trump’s proposal was actually “a $1.6 trillion cut to Social Security and Medicare in disguise.”

In the video, journalist P.J. Evans claims that exempting Social Security benefits from income taxes would drain the programs’ funding and hurt the poorest retirees. 

The video is mostly true, though its claim that the proposal would cut Social Security benefits by 25 percent for the poorest seniors is misleading. Trump’s proposal would decrease the income going into Social Security and Medicare’s trust funds over the long term, shortening the amount of time before both programs become insolvent.

How are Social Security benefits taxed?

As of 2024, retirees with a yearly combined income—meaning the sum of a person’s adjusted gross income, earnings from nontaxable interest, and half of their Social Security Income—of less than $25,000 (filing individually) or $32,000 (filing jointly) do not pay any taxes on Social Security benefits. 

Up to 50 percent of Social Security benefits can be taxed as regular income for individuals making between $25,000 and $34,000 (filing individually) or between $32,000 and $44,000 (filing jointly). For retirees with incomes above these amounts, up to 85 percent of their Social Security benefits can be taxed as ordinary income. According to the Social Security Administration, in 2022, about 48 percent of Social Security beneficiaries paid income taxes on a portion of their benefits.

Because taxes paid on Social Security benefits are distributed into Social Security and Medicare’s trust funds, a cut in tax receipts would lead to a decrease in Social Security and Medicare’s yearly incomes. The Congressional Budget Office (CBO) reported that Social Security’s trust funds received $51 billion from taxed benefits in 2023, representing approximately 3.8 percent of their total income for the year. While this is a relatively low percentage today, the revenue collected through benefits taxation continues to grow over time. Social Security benefits payments typically rise to accomodate inflation, but the income thresholds that exempt benefits from taxation do not. As a result, a growing percentage of seniors become eligible for benefits taxation as payments increase. According to CBO projections, income from benefits taxation will rise to $110 billion in 2033, or 5.8 percent of Social Security’s total income. 

Medicare’s Hospital Insurance trust fund also receives income from benefits taxation: $35 billion in 2023, according to a 2024 report by its board of trustees, or about 8.4 percent of its total income. Income from benefits taxation for Medicare is projected to rise to $95.4 billion by 2033, or approximately 14 percent of the program’s total income.

The impact of Trump’s proposal.

According to Garrett Watson, a senior policy analyst at the Tax Foundation, the proposal would increase after-tax income by an average of 0.9 percent for Social Security beneficiaries. However, Watson believes that the marginal benefit of full tax exemption to beneficiaries now is not necessarily worth the long term trade-off. “The revenue cost here is going to accelerate insolvency by several years,” Watson told The Dispatch Fact Check. “You’re actually undermining stability for those same beneficiaries”.

By exempting all Social Security benefits from income taxes, Trump’s proposal would reduce income for both Social Security and Medicare. According to the programs’ trustees, eliminating benefits taxation would reduce revenues for the two programs by about $1.6 trillion between now and 2033.* The Tax Foundation estimates that the proposal would cut revenue by approximately $1.4 trillion between 2025 and 2034, while the Committee for a Responsible Federal Budget (CRFB) estimates that revenues would decrease by around $1.8 trillion between fiscal years 2026 and 2035.

A decrease in trust revenue for Social Security and Medicare would bring both programs closer to insolvency. According to Watson’s analysis of the proposal for the Tax Foundation, the proposal could move Social Security’s insolvency up by two years, and Medicare’s insolvency by six years. CRFB estimates that the proposal would make Social Security insolvent one year earlier than under current law, and Medicare six years earlier.

The post’s claims that Trump’s proposal would cut benefits by 25 percent for the poorest seniors, however, is slightly misleading. If Social Security reaches insolvency, benefits would be limited to revenues collected and would be cut 21 percent based on current projections of program income. Under Trump’s proposal, given the reduced revenue, CRFB estimates that benefits would need to be cut by a slightly higher 25 percent. That is only a 6.25 percent decrease in payments compared with current income projections. It would only kick in when or if Social Security becomes insolvent.

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Correction, August 8, 2024: According to the Social Security and Medicare programs’ trustees, eliminating benefits taxation would reduce revenues for the two programs by about $1.6 trillion between now and 2033, not now and 2023.