Trump’s Social Security tax break could make 2 fragile safety nets even weaker
Trump’s Social Security tax break could make 2 fragile safety nets even weaker Yahoo Finance
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Donald Trump’s call to exempt Social Security benefits
Donald Trump’s call to exempt Social Security benefits from income taxes may offer an alluring political sound bite.
But the move would undermine not just one critical safety net for seniors, but two.
Trump’s plan is expected to exhaust the reserve funds for both Social Security and Medicare faster than anticipated, according to tax policy experts.
That would saddle seniors with an even bigger cut in Social Security benefits than currently estimated and throw a healthcare program that covers 67 million into chaos. Taxes on Social Security payouts help fund Medicare’s hospital coverage.
Read more: Do you pay taxes on Social Security?
The plan would also add $1.6 trillion over 10 years to the country’s budget deficit with few economic gains, these experts said.
“It’s not setting the entitlements up for success, and it’s not putting our budget in a good position,” Garrett Watson, a senior policy analyst and modeling manager at the nonpartisan Tax Foundation, told Yahoo Finance.
‘Bottom half are losers’
Trump, the Republican presidential candidate, first floated the idea late last month at a rally in Harrisburg, Pa., vowing that “seniors should not pay taxes on Social Security and they won’t,” without offering further details.
On Wednesday, Trump stood by a banner that read “No tax on Social Security” at a campaign rally in Asheville, N.C., calling the tax a “cruel double taxation.”
As it stands now, about 40% of seniors must pay federal income taxes on their Social Security benefits. The tax is progressive, meaning those with the lowest incomes aren’t taxed, while wealthier seniors with substantial incomes outside of their benefits are.
Exempting benefits from income taxes would provide an effective 44% benefit increase for seniors with the highest incomes, a 6% increase for middle-income ones, and no increase for most in the bottom half, according to Marc Goldwein, a senior policy director for the Committee for a Responsible Federal Budget.
That’s before Social Security runs into trouble.
The tax seniors pay on their Social Security benefits also goes directly into funding the trust fund that supports the social program. Eliminating those taxes accelerates when the reserves for Social Security run out.
Currently, Social Security’s reserves are expected to be exhausted by 2035, at which point benefits will get cut by 21%. If Trump’s proposal is enacted, those reserves are estimated to run dry by 2033 and benefits would be slashed by 25%.
Even with the benefits cut, wealthier seniors come out slightly ahead with the tax break, pocketing a 9% increase, per Goldwein.
That’s not the case for lower-earning Social Security beneficiaries, who would see their benefits reduced by a quarter with no tax break.
“The bottom half are losers,” Watson said.
Overall, the plan would water down what is considered the biggest anti-poverty program in the United States.
“There is no world where this does not increase the elderly poverty rate,” Duke said.
‘That’s actually pretty scary’
Trump’s plan would also empty out the reserves that Medicare uses for hospital coverage — known as Medicare Part A — sooner than anticipated.
Right now, that fund is expected to run out in 2036. That moves up to 2030 under Trump’s plan, according to Watson.
The Medicare trustees have said the fund’s insolvency could first cause delays in payments to health plans and providers of hospital services. Additionally, seniors’ “access to healthcare services could rapidly be curtailed.”
“Nobody actually knows what happens when Medicare runs out of money,” Duke said. “And that’s actually pretty scary.”
‘Mechanically add to the budget deficit’
The implications for the federal deficit are also sizable.
Not taxing seniors’ benefits means $1.6 trillion in total revenue would not go to the trust funds that support Social Security and Medicare from 2024 to 2033, according to calculations that use data from the most recent Social Security and Medicare trustees reports.
“This would mechanically add to the budget deficit and go in the wrong direction in solving that problem,” Watson added.
There would be very little economic return from the proposal too, Watson found.
The country’s long-run gross domestic product would increase by 0.1%, while the economy would add around 64,000 full-time jobs. Wages would tick up by less than 0.05%.
“The intent [of the proposal] is trying to protect seniors who are operating on fixed incomes from inflation and provide more relief by not taxing it,” Watson said. “But if it’s done without offsets, it weakens the very entitlements they’re trying to protect.”
Janna Herron is a Senior Columnist at Yahoo Finance. Follow her on X @JannaHerron.
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SDGs, Targets, and Indicators
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SDG 1: No Poverty
- Target 1.3: Implement nationally appropriate social protection systems and measures for all, including floors, and by 2030 achieve substantial coverage of the poor and the vulnerable.
- Indicator: Percentage of population covered by social protection floors/systems.
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SDG 3: Good Health and Well-being
- Target 3.8: Achieve universal health coverage, including financial risk protection, access to quality essential health-care services, and access to safe, effective, quality, and affordable essential medicines and vaccines for all.
- Indicator: Percentage of population with access to affordable essential medicines and vaccines.
-
SDG 8: Decent Work and Economic Growth
- Target 8.5: By 2030, achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work of equal value.
- Indicator: Employment-to-population ratio.
-
SDG 10: Reduced Inequalities
- Target 10.4: Adopt policies, especially fiscal, wage, and social protection policies, and progressively achieve greater equality.
- Indicator: Income growth of the bottom 40% of the population.
-
SDG 17: Partnerships for the Goals
- Target 17.1: Strengthen domestic resource mobilization, including through international support to developing countries, to improve domestic capacity for tax and other revenue collection.
- Indicator: Total government revenue as a proportion of GDP.
Table: SDGs, Targets, and Indicators
| SDGs | Targets | Indicators |
|---|---|---|
| SDG 1: No Poverty | Target 1.3: Implement nationally appropriate social protection systems and measures for all, including floors, and by 2030 achieve substantial coverage of the poor and the vulnerable. | Percentage of population covered by social protection floors/systems. |
| SDG 3: Good Health and Well-being | Target 3.8: Achieve universal health coverage, including financial risk protection, access to quality essential health-care services, and access to safe, effective, quality, and affordable essential medicines and vaccines for all. | Percentage of population with access to affordable essential medicines and vaccines. |
| SDG 8: Decent Work and Economic Growth | Target 8.5: By 2030, achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work of equal value. | Employment-to-population ratio. |
| SDG 10: Reduced Inequalities | Target 10.4: Adopt policies, especially fiscal, wage, and social protection policies, and progressively achieve greater equality. | Income growth of the bottom 40% of the population. |
| SDG 17: Partnerships for the Goals | Target 17.1: Strengthen domestic resource mobilization, including through international support to developing countries, to improve domestic capacity for tax and other revenue collection. | Total government revenue as a proportion of GDP. |
Analysis
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Which SDGs are addressed or connected to the issues highlighted in the article?
The issues highlighted in the article are connected to the following SDGs:
- SDG 1: No Poverty
- SDG 3: Good Health and Well-being
- SDG 8: Decent Work and Economic Growth
- SDG 10: Reduced Inequalities
- SDG 17: Partnerships for the Goals
-
What specific targets under those SDGs can be identified based on the article’s content?
Based on the article’s content, the specific targets that can be identified are:
- Target 1.3: Implement nationally appropriate social protection systems and measures for all, including floors, and by 2030 achieve substantial coverage of the poor and the vulnerable.
- Target 3.8: Achieve universal health coverage, including financial risk protection, access to quality essential health-care services, and access to safe, effective, quality, and affordable essential medicines and vaccines for all.
- Target 8.5: By 2030, achieve full and productive employment and decent work for all women and men, including for young people and persons with disabilities, and equal pay for work of equal value.
- Target 10.4: Adopt policies, especially fiscal, wage, and social protection policies, and progressively achieve greater equality.
- Target 17.1: Strengthen domestic resource mobilization, including through international support to developing countries, to improve domestic capacity for tax and other revenue collection.
-
Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?
Yes, there are indicators mentioned or implied in the article that can be used to measure progress towards the identified targets:
- Percentage of population covered by social protection floors/systems (Target 1.3)
- Percentage of population with access to affordable essential medicines and vaccines (Target 3.8)
- Employment-to-population ratio (Target 8.5)
- Income growth of the bottom 40% of the population (Target 10.4)
- Total government revenue as a proportion of GDP (Target 17.1)
Source: finance.yahoo.com
