Former President Donald Trump's plan to eliminate taxes on Social Security benefits is coming under fire from economists for adding a projected $1.6 trillion in tax revenue over the next decade.
A recent study by the Committee for a Responsible Federal Budget projected that Trump's plan would indeed add to the spending power of some Social Security recipients, but at what costs? Between $1.6 trillion to $1.8 trillion through 2035, increasing the program's shortfall.
"These gains simply mean retirees who we already project would meet their expenses in retirement would be better off," an analysis by Morningstar concluded. "That's largely because the current tax is only levied on beneficiaries who have incomes above certain thresholds."
Current rules require retirees to pay taxes only 85% of their benefits for those receiving more than $34,000 annually for single filers. Under the current system, earnings above $168,600 for 2024 are not subject to Social Security payroll taxes.
That would mean wealthier retirees who are taking disbursements from 401(k)s and other retirement plans, and those working in retirement but making less than $168,000 would benefit from the plan. Others would see no significant changes in their benefits or taxes.
While Trump's plan would reduce the number of retirees struggling to make ends meet from 45% to 41%, according to the CRFB, the macroeconomics of the plan could be devastating to a Social Security system already in crisis. It would advance the insolvency date by over one year, and increase the insolvency of Medicare by six years.
