Millions of Americans will be waiting to see if Donald Trump delivers on his campaign promise to cut taxes on Social Security benefits.
Experts have said that higher-income earners would benefit the most from the proposed changes, and the cut would come at a price for the Social Security program’s financial difficulties.
Up to 85 percent of Social Security benefits can be taxed based on the income of an individual or a married couple, and about 40 percent of retirees currently pay federal taxes on their benefits.
Americans earning less than $32,000 would not get a tax cut under Trump’s proposals, since most of their Social Security benefits are not taxable anyway.
Households earning between $32,000 and $60,000 would receive an average cut of about $90, according to analysis of the Urban-Brookings Tax Policy Center, a nonpartisan organization.
Middle-income Americans earning between $63,000 and $113,000 would save an average of $630, while those earning between $113,000 and $206,000 would typically save about $1,200 on their tax bill.
Millions of Americans will be waiting to see if Donald Trump delivers on his campaign promise to cut taxes on Social Security benefits.
In dollar terms, the biggest winners from the change would be those in the top 0.1 percent of incomes, earning nearly $5 million or more, the Tax Policy Center said.
In 2025, they would get an average tax cut of almost $2,500 a month.
Social Security benefits often make up a substantial portion of middle-income households’ income, according to the report.
Therefore, repealing the tax on those benefits reduces their average after-tax income by a larger percentage than that of very high-income households, which get a relatively small amount of their total income from Social Security.
About 28 percent of middle-income households would get a tax cut, and among the top 0.1 percent of earners, about 20 percent of households would get a tax cut.
But economists have warned that the proposal would weaken the solvency of the Social Security program, exacerbating existing funding problems.
It could also be difficult to achieve approval in Congress, even if Trump has a Republican majority in both the Senate and the House of Representatives.
Simply eliminating the tax on Social Security benefits, without making any other changes to the program to offset that loss of revenue, would cut into its already dwindling finances.
Up to 85 percent of Social Security benefits may be taxable based on the income of an individual or married couple.
Americans earning less than $32,000 would not get a tax cut under Trump’s proposals, since most of their Social Security benefits are not taxable anyway.
Trump’s plans would leave Social Security insolvent within six years, according to the nonpartisan Committee for a Responsible Federal Budget.
This is three years ahead of schedule.
At that time, recipients would see widespread cuts to benefits, which millions of Americans depend on.
“We found that President Trump’s campaign proposals would dramatically worsen Social Security’s finances,” budget group CRFB said in a blog post last month.
Any changes to the program would require at least 60 Senate votes.
“It’s hard for me to imagine that Democrats would be willing to provide votes to get over that 60-vote threshold and weaken the solvency of Social Security,” said Charles Blahous, senior research strategist at George Mason University’s Mercatus Center, who also served as a public administrator of Social Security and Medicare, said CNBC.
“I think a lot of Republicans would be upset about this, too,” he said.