A major concern for many voters in the 2024 U.S. Presidential election was the state of Social Security.
Seniors are worried that Social Security isn’t doing enough to help them keep up with rising inflation. The Senior Citizens League estimates that someone who started collecting Social Security in 2010 has seen their monthly check lose 20% of its buying power over the last 15 years.
Meanwhile, younger voters are concerned about whether Social Security will even be able to pay them benefits when it comes time for them to retire. As it stands, the Social Security Trustees expect the program to deplete its trust fund by 2033. At that point, incoming tax revenue will only cover an estimated 79% of scheduled benefits.
The timeline for major Social Security reform is shrinking, and President-elect Donald Trump will play a pivotal role in shaping its future. Unfortunately, his campaign promises around Social Security come with some major drawbacks.
Image source: Official White House Photo by Shealah Craighead.
Trump’s big Social Security promises
Trump’s campaign pledges included two key points for Social Security. First, Trump wants to get rid of federal taxes on Social Security income. Second, he promised not to change the full retirement age.
Social Security taxes present a challenge for many seniors using their monthly checks to supplement income from retirement accounts or work. That’s because the federal government will tax a portion of your Social Security income if your “combined income” exceeds a certain threshold. Combined income is equal to half of your Social Security benefits, plus your adjusted gross income and any nontaxable interest income.
In 2025, a portion of your Social Security benefits becomes taxable income starting at a combined income of $25,000 for individuals or $32,000 for couples. If those limits seem low, that’s because they’re the same limits that Congress initially established in 1983. They haven’t been adjusted for inflation since then.
As benefits increase for inflation every year, more and more seniors are facing a significant tax bill on their Social Security checks. Getting rid of the taxes could help alleviate the reduction in Social Security’s buying power that many seniors are feeling these days.
Image source: Getty Images.
Raising the full retirement age would effectively cut benefits for future retirees. The age at which you claim relative to your full retirement age is a big factor in determining the size of your Social Security check. The Social Security Administration reduces your check by a certain percentage for each month you claim benefits before your full retirement age. If you raise the full retirement age, you increase the size of the reduction at any given age.
Even those waiting until they can max out Social Security would see a cut in benefits if Congress raised the full retirement age. The Social Security Administration gives delayed retirement credits to those who wait to claim benefits beyond their full retirement age. But those credits stop accumulating at age 70. If there’s an increase in the full retirement age, seniors will have less time to accumulate those credits.
At face value, both of Trump’s proposals sound like great things for seniors currently worried about getting more out of their Social Security benefits. But the long-term consequences of such policies could permanently damage the program.
The unfortunate truth about Trump’s Social Security plans
While ensuring seniors are taken care of in 2025 is an important consideration for any changes to Social Security, the Trump campaign’s promises could end up hurting everyone much more in the not-too-distant future.
As mentioned, the Social Security trust fund is set to deplete its surplus by 2033 without any changes to the program. Trump’s plan to end Social Security income taxation will accelerate that timeline because the federal taxes on Social Security income get fed back into the trust fund. The Committee for a Responsible Federal Budget estimates that ending Social Security income taxation would increase Social Security’s cash deficit by $950 billion over the next 10 years. Combined with other Trump policy proposals, the committee estimates that Social Security will deplete its trust fund faster, and it will have to make even bigger benefits cuts when that happens.
One way to counteract the forthcoming shortfall in Social Security is to raise the full retirement age. That said, even the most aggressive increases in full retirement age will only eliminate a portion of the projected shortfall in scheduled benefits.
Some of the most effective proposals to ensure Social Security can pay out full benefits in the next decade include increasing the amount of income subject to Social Security tax or increasing the tax rate. Trump’s proposal to eliminate taxes on tips and overtime works directly against that idea.
Trump’s campaign promises are somewhat near-sighted when it comes to maintaining the value of Social Security. The unfortunate truth about his stated Social Security plans are that they accelerate the challenges currently threatening the long-term health of this important government program.
Real reform to protect Social Security will be much more complicated and challenging to get done — and the clock is ticking for Trump and Congress to act.
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The Unfortunate Truth About President-Elect Donald Trump’s Social Security Plan was originally published by The Motley Fool
