There seems to be no way around taxes, even when talking about Social Security income. But the truth is that these taxes are a fairly new thing. In 1984, people whose income went over a certain level were taxed by the federal government on their benefits. The law was put in place after Congress totally changed the program to keep the Social Security trust fund from running out of money.
When the new tax policy began in 1984, less than 10% of beneficiaries owed tax on their benefits. This meant that only the wealthiest Americans had to pay. However, the Social Security Administration (SSA) reports that because the thresholds have not been updated often enough to keep up with the cost of living, about 40% of beneficiaries now owe tax on their checks.
Trump’s Social Security campaign promise
During the election, Republican presidential nominee Donald Trump threatened to repeal the tax, asserting firmly on his social media “Seniors should not pay tax on Social Security” He later reiterated the notion in interviews, establishing it as one of his campaign promises.
His base, which consists of seniors, hopes to see this new strategy adopted, though it may be more complicated and ineffective than they anticipate.
The first thing everyone should know is that Social Security payouts are not taxed separately at the federal level (or at the state level; only nine US states tax Social Security benefits). What is taxed is the total income. Combined income is defined as the total of adjusted gross income (AGI) plus nontaxable interest and one-half of the Social Security payment, therefore people with no other savings are already tax-free.
For individuals with some funds, the tax threshold is rather high, yet some people may be required to pay the lowest sums. The SSA provides the following information so that seniors can determine whether or not their benefits are taxed:
| Taxable Portion of Benefits
|
0%
|
50%
|
85%
|
| Single Filers
|
Under $25,000
|
$25,000 to $34,000
|
Above $34,000
|
| Joint Filers
|
Under $32,000
|
$32,000 to $44,000
|
Above $44,000
|
Remember that, in any situation, only 50% of your benefits will be taxed, as the tax is based on your joint income.
Unfortunately for seniors, the abolition of this tax is unlikely to occur anytime soon; Social Security is already experiencing a shortfall, and abolishing the tax on benefits would exacerbate the situation.
The harsh truth about eliminating the tax on Social Security benefits
Trump is not the only one who has proposed abolishing this tax; Rep. Angie Craig (D-Minn.) filed a bill earlier this year that would exempt Social Security from taxable income beginning in 2025, and it followed many others. Congress has not authorized any of them due to Social Security’s obvious funding shortfall.
The Social Security Board of Trustees predicts a $22.6 trillion financial gap through 2098, but without congressional assistance, the Social Security trust funds will be drained by 2035, leaving only 83% of planned benefits due. This would be worse if the combined income tax were repealed, given it helps support the program.
While Trump’s notion appeals to his supporters, it is not a viable approach, as Rep. John Larson (D-Conn.) stated in an August interview with CNBC. “He comes out and says he’s going to have a tax break but doesn’t say how he’s going to pay for that,” Larson told reporters. “In essence, his proposal would end up cutting the Social Security trust fund.”