Former President Donald Trump this week promised retirees that he would end the tax on Social Security benefits if elected – and policy experts have been quick to critique that idea.
The problem is that the money to make the system solvent must come from somewhere, a concept that politicians have long been leery of touching, especially when campaigning. It’s common to pledge to protect Social Security and to not raise taxes that would fund it, and those routes are incompatible.
“The reason politicians don’t want to touch it is because the brain is hardwired to fight to protect the individuals from loss. Nobody wants to have to face benefit cuts,” said Mary Johnson, an independent Social Security and Medicare analyst. “Anybody who dares touch Social Security is going to have to answer to the electorate about the choice of avenues they take to do that. If action is not taken, these promises not to touch benefits are basically allowing a 22 percent benefit cut to take place. No action is equivalent to allowing a benefit cut.”
Vice President Kamala Harris, the presumptive nominee on the Democratic ticket, has not presented a tax plan for her campaign, though her team will likely do so after the Democratic National Convention later this month, Johnson said.
But the media has already started examining the Social Security track record of her VP running mate, Minnesota Gov. Tim Walz. During a debate in 2010, Walz reportedly agreed in principle to the idea of increasing the retirement age over time and adjusting the wage cap for the payroll tax that funds Social Security. However, the Harris campaign responded to the press that Walz does not support raising the retirement age.
And as governor, Walz expanded exemptions on Social Security benefits for state income taxes, according to another report.
Currently, Social Security benefits are taxed by the federal government. Individuals with combined income of $25,000 to $34,000 – adjusted gross income plus nontaxable interest and half of Social Security benefits – pay taxes on up to half of Social Security benefits. The rate is up to 85 percent for those with combined incomes of more than $34,000. For joint filers, those ranges are $32,000 to $44,000 (up to 50% of Social Security benefits being taxed) and above $44,000 (up to 85 percent).
About 40 percent of Social Security recipients are taxed on their benefits.
It’s notable that the income ranges, set in 1983, have not been adjusted for inflation, meaning that the amount of tax on Social Security benefits has increased for years, Johnson said. But it’s also problematic that the cap on the payroll tax used to fund Social Security has not increased along with income levels. The widening wealth gap has meant that less income overall is taxed for Social Security.
Adjusting the payroll tax cap could fix at least half of Social Security’s funding shortfall, representing the single most effective way to address it, Johnson said.
“There is pretty broad support for adjusting the payroll tax,” she said.
There is also support for adjusting the income limits for taxes on Social Security benefits, particularly among retirees, she said.
“A lot of people are paying a considerable portion of their Social Security benefits that are added to their taxable income. This taxation of benefits is really difficult for people if they are not preparing for it in advance,” she said.
Still, doing away with taxes on it, as Trump has proposed, would simply make the Social Security trusts run out of money six months to a year sooner than projected, currently 2033, she said.
In a column for MarketWatch, Center for Retirement Research director Alicia Munnell called the proposed elimination of all taxes on Social Security benefits “supremely unhelpful.”
The president of Social Security Works, Nancy Altman, told CBS MoneyWatch that the idea “is, in some ways, Trump advocating defunding Social Security.”
However, getting that change through Congress, especially in a politically divisive environment, would be difficult, Johnson said.
“The proposal simply to end those revenues would be draining that money out of Social Security that is needed to pay for the benefits of today’s retirees,” she said. “If people were to understand that, it would be the same as a benefit cut.”
Industry report details decades-long trends in expense ratios, 2024 fee movements, and how shifts in advisor compensation have played a role.
The Republican leader's call to end the death tax, part of a long and growing wish list of cuts and reductions, would offer relief to a small but important sliver of America's wealthiest taxpayers.
The 2024 bump in bonuses made for the largest total pool in records going back to 1987, but economic uncertainty and federal changes weigh on this year's outlook.
'I feel like they have created an addictive gaming culture, which is not healthy for investing.'
The collaboration gives Dynasty's $105 billion network of over 500 advisors access to new custodial services, asset management, and lending expertise.
This wealth management platform finally delivers on the technology promises other firms couldn't - giving advisors a better way to scale and serve
In an industry of broad solutions, firms like intelliflo prove 'you just need tools that play well together'
