(NewsNation) — President Donald Trump wants to eliminate income taxes on Social Security benefits, but a new analysis shows that plan comes at a steep cost and would worsen the program’s financial shortfall.
Ending taxes on benefits would reduce government revenues by $1.5 trillion over 10 years and increase the federal debt by 7% by 2054, according to estimates from the nonpartisan Penn Wharton Budget Model.
Nixing taxes would also move up the date when the Social Security trust fund is expected to run out.
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As it currently stands, retirees could see their benefits slashed by 21% in roughly a decade if Congress doesn’t fix the program, which pays out more than it brings in.
Trump’s plan to end income taxes on benefits would accelerate the estimated depletion date of the Social Security Trust Fund by two years, from December 2034 to December 2032, according to the Penn Wharton Budget Model.
“I think it is a bad idea not to tax benefits for people receiving them,” said Alex Nowrasteh, the vice president for economic and social policy studies at the libertarian Cato Institute.
Nowrasteh pointed out that the Social Security Fairness Act, which Joe Biden recently signed into law, will also accelerate the program’s financial woes.
“The government is not taking seriously the fiscal problems that Social Security has,” Nowrasteh warned.
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Experts previously told NewsNation that Trump’s Social Security tax promise would be hard to keep but that hasn’t stopped Republican lawmakers from trying.
Representatives Thomas Massie, R-Ky., and Daniel Webster, R-Fla., recently reintroduced the Senior Citizens Tax Elimination Act, which would end federal income taxes on Social Security benefits and boost the retirement income of older Americans.
Who gets taxed on their Social Security benefits?
About half of Social Security beneficiaries pay income tax on their benefits, according to the latest estimates from the Congressional Budget Office.
The amount of tax owed varies depending on one’s income.
As of now, individuals who earn more than $25,000 may have to pay taxes on up to 50% of their Social Security retirement benefits. For those who earn more than $34,000, up to 85% of benefits could be taxable.
One of the main critiques of the current system is that those thresholds don’t go up with inflation, so over time, more retirees have been subject to taxes on their benefits.
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The counter-argument is that taxing benefits helps the government fund Social Security. Income from taxation makes up roughly 4% of what the program brings in, about $50 billion that Social Security would have to find elsewhere.
The Penn Wharton Budget Model said 95% of retirees would benefit if Trump’s campaign promise was implemented, but “all future generations would be worse off.”
And if taxes on Social Security benefits are eliminated, the biggest gains would go toward high-income retirees.
Some high-income households, who currently pay the most in taxes on Social Security benefits, would gain more than $100,000 over their lifetimes, the analysis found.
However, households in the lowest two income quintiles would see more modest gains, ranging from $1,000 to $2,000.
Meanwhile, those younger than 30 would be worse off, with newborn households losing about $10,000 in lifetime welfare, the analysis said.
The report concluded: “The policy primarily benefits high-income households nearing or in retirement while harming households under thirty and all future generations across the entire income distribution.”
