Trump wants to cut income taxes for Social Security recipients. Here's how it would affect your benefits.

Former President Donald Trump is promising to eliminate taxes on Social Security, a promise that directly targets the 67 million Americans who receive monthly retirement and disability benefit checks.

“Senior citizens should not pay Social Security taxes and they won't,” Trump said at a campaign rally Wednesday in Harrisburg, Pennsylvania.

Such a pledge could be a powerful campaign argument at a time when poverty among seniors is on the rise, according to the National Council on Aging, and the U.S. Government Accountability Office has found that millions of older workers are approaching retirement with no savings. Currently, about 40% of Social Security recipients pay federal income taxes on their benefits, according to the agency.

But cutting income taxes on Social Security recipients would ultimately hurt the program by removing one of its funding sources — taxes — which in turn would likely accelerate the insolvency of its trust funds, experts told CBS MoneyWatch. If that happened, the Social Security Administration could be forced to make deeper benefit cuts a year earlier than currently planned.

“In some ways, Trump is really advocating for defunding Social Security,” Nancy Altman, president of Social Security Works, an advocacy group for the program, told CBS MoneyWatch. “It’s a sleight of hand: You give with one hand and take away with the other.”

The Trump campaign did not respond to a request for comment.

Payroll taxes, or FICA taxes taken from workers' wages, fund most of Social Security. But about 4 percent of its funding comes from income taxes that beneficiaries pay on their benefits, according to the Social Security Board of Trustees' most recent annual report.

While 4 out of 5 Social Security beneficiaries are seniors, the remaining beneficiaries are people eligible for disability benefits or are the children and spouses of deceased workers, according to the Center on Budget and Policy Priorities.

The Social Security solvency problem

Social Security's funding problems have been looming for years, partly because of changing demographics in the United States. With record numbers of baby boomers retiring and seniors living longer, the program is increasingly strained by growing financial demands.

Because of this change, Social Security now pays out more in benefits than it takes in revenue, eating into the $2.7 trillion in assets held in its trust funds — the reserves that pay retirement and disability benefits.

By 2033, the trust fund that pays Social Security benefits is on track to be depleted, at which point the Social Security Administration would be forced to cut beneficiaries' monthly benefits by 17 percent, according to the agency's latest report.

Trump's proposal to eliminate the income tax on welfare benefits would wipe out $950 billion in funding for Social Security over the next decade, according to an estimate released Wednesday by the Committee for a Responsible Federal Budget (CRFB), a nonpartisan advocacy group focused on fiscal policy.

This would have a dual effect, moving up the program’s insolvency date by a year, to 2032, and forcing the Social Security Administration to cut benefits even deeper than it currently plans, the group said. Beneficiaries would face a 25% reduction in their monthly checks in 2032, the CRFB estimated.

“Releasing them from taxes is a kind of increase in benefits, but [the Social Security Administration] “The income has to come from somewhere else, or the benefits will just be cut,” Altman of Social Security Works told CBS MoneyWatch.

Are social security benefits taxable?

Some Americans mistakenly believe that Social Security benefits are not taxable, which may reflect the fact that such income was not taxable until 1984. But under changes signed into law by President Ronald Reagan, Social Security income above a certain threshold became taxable.

Every year, more seniors are subject to taxes because those thresholds have not been adjusted for inflation since 1984, meaning that every year, more middle-income recipients are paying taxes on their Social Security checks. For example, the share of seniors who paid taxes on their benefits was 26 percent in 1998, according to the Congressional Budget Office. That figure is now 40 percent.

Taxpayers with a combined annual income (Social Security income and other income, such as retirement distributions or dividends) of between $25,000 and $34,000 may be required to pay income tax on up to half of their benefits. Individuals with incomes over $34,000 may pay income tax on up to 85% of their Social Security income.

Married couples with incomes between $32,000 and $44,000 may be required to pay income tax on up to 50% of their benefits, while married couples with incomes above $44,000 may be taxed on up to 85% of their benefits.

For example, a single taxpayer who receives an average annual Social Security benefit of $22,884, but whose total income is $50,000, would be taxed on 85% of his benefits, or $19,451. Only $3,433 of his Social Security income would be tax-free.

Trump's tax promises

This isn't the first time Donald Trump has promised to cut taxes for certain groups of people during his election campaign. The former president pledged in June to end taxes on tips for service-sector workers, a measure that experts estimate would cost $250 billion over a decade.

Many seniors may welcome the idea of ​​eliminating taxes on their welfare checks, Altman noted. Many older Americans feel they are falling behind after years of high inflation, despite the annual cost-of-living adjustment applied to Social Security checks, she said.

Trump’s Social Security proposal may be designed to appeal to seniors who have been turned off by a proposal from the Republican Study Committee, a conservative group in the House of Representatives, to raise the retirement age to 70 for Social Security and Medicare, Altman added. Currently, the full retirement age for Social Security is 67, while seniors can qualify for Medicare at 65.

“They were really targeting Social Security, and seniors noticed,” Altman said. Trump “is launching projects to try to win voters.”

Is Trump testing new campaign strategies? 04:19

If Trump were elected, it’s unclear whether his proposals to eliminate taxes on tips or Social Security benefits would come to fruition. For one thing, lawmakers would have to pass legislation to amend the tax code, which could be a hurdle if the House or Senate were to be controlled by Democrats under a second Trump administration.

Meanwhile, Trump has yet to release detailed plans for his tax proposals, unlike at this point in the 2016 campaign, according to Paul Ashworth, chief North America economist at Capital Economics.

“While Trump occasionally talks about eliminating tip taxes or lowering the corporate tax rate a bit more, these are rhetoric rather than specific proposals,” Ashworth wrote in a report this week. “At this point in the 2016 campaign, Trump had a (relatively) detailed plan to cut taxes by $7 trillion over the next decade.”

More information on CBS News

Aimee Picchi

Aimee Picchi is an associate editor at CBS MoneyWatch, where she covers business and personal finance. She previously worked at Bloomberg News and has written for national media outlets including USA Today and Consumer Reports.

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