President Donald Trump has recently stated that the Republicans’ mega tax and spending cut legislation will eliminate taxes on federal Social Security benefits. This claim has set off alarm bells among other experts who warn that the picture is not nearly that simple.
During that same appearance on Fox News’ “Sunday Morning Futures,” Trump had dutifully endorsed the bill in vigorish. He spotlighted the legislation’s key provisions, including no tax on tips, no tax on Social Security, and no tax on overtime. As he campaigns for re-election in the 2024 presidential election, the sustainability cut is a big promise to voters. He promises to repeal all taxes on Social Security.
The bill would create a temporary accelerated tax deduction from 2025 through 2029. Unfortunately, this deduction is phased out as individual income increases, so not all seniors will receive the same benefit. Garrett Watson, director of policy analysis at the Tax Foundation think tank, cautions that conflating this tax deduction with the claim of no taxes on Social Security could be misleading. As a consequence, too many seniors will find themselves disappointed.
“While the deduction does provide some relief for seniors, it’s far from completely repealing the tax on their benefits.” – Garrett Watson
The proposed deduction would provide an average increase in after-tax income of $670 per eligible senior. The Senate proposal includes a $6,000 senior deduction. This change could help a staggering 33.9 million older Americans— including those who do not currently receive Social Security benefits.
While the White House recently pointed to an analysis from its Council of Economic Advisers, which states that “88% of all seniors who receive Social Security — will pay NO TAX on their Social Security benefits,” experts warn that this statistic may not fully represent the nuances of the tax structure.
Watson highlighted his worry that it would create false expectations for seniors. He noted that while Trump’s claims may resonate with constituents, they do not accurately reflect the current tax landscape for Social Security benefits. Many seniors might still be taxed even with the new deductions.
The authors have provided evidence of the national benefits for the shortfalls that would result from this legislation. According to the University of Pennsylvania’s Penn Wharton Budget Model, the proposed changes would reduce federal revenues by $1.5 trillion over the next decade. Further, they assume more than a 7 percent hike in federal debt by 2054.
