The harsh reality of President-elect Donald Trump's Social Security plan cannot be ignored

Not all social security proposals lead to a positive result.

In October, more than 51 million retired workers won a benefit check averaging $1,924.35. Although this is a relatively small amount of money, it is still a fundamental item for most retirees.

Since 2002, the national pollster Gallup has surveyed retirees each year to assess the importance of their Social Security income to making ends meet. For 23 years, between 80% and 90% of respondents have noted that it represents a “major” or “minor” source of income, including 88% during the last survey (April 2024). In other words, nearly 9 out of 10 retirees would have difficulty covering their expenses if Social Security did not exist.

Despite the important role that Social Security has played in supporting our nation's aging workforce, its financial health is now in trouble. Current and future beneficiaries are looking to elected officials, as well as President-elect Donald Trump, for solutions that will strengthen America's best retirement program.

Unfortunately, not all Social Security proposals result in a positive outcome, including Trump's.

President Donald Trump delivers a speech. Image Source: Official White House Photo by Shealah Craighead.

Social Security funding gap exceeds $23 trillion

For more than 80 years, the Social Security Board of Trustees has published an annual report describing the current financial health of the program, as well as its projected long-term health, that is, the 75 years following the publication of 'a report.

Since 1985, the trustees' report had warned of a long-term funding gap. In other words, the trustees anticipate that employee benefits and administrative expenses will exceed those received as revenue. This financing gap has been growing steadily for four decades and will reach $23.2 trillion in 2024.

Even more pressing are forecasts for the Old-Age and Survivors Insurance (AVS) Trust Fund, which is responsible for making monthly payments to retirees and survivors. The latest report predicts that AVS reserves will be exhausted by 2033, leading to a drastic reduction in benefits of up to 21%.

Before going any further, let us clarify that Social Security is not at risk of going bankrupt or becoming insolvent. Social Security generates more than 91% of its revenue through the 12.4% payroll tax, which ensures that revenue is always flowing into the program for distribution to eligible beneficiaries. What is at risk for current and future beneficiaries is the existing payment schedule, including near-annual cost-of-living adjustments (COLAs).

OASI asset reserves are expected to be depleted by 2033. U.S. Old Age and Survivors Insurance Trust Fund assets, year-end data from YCharts.

President-elect Trump has a plan, but it only makes things worse for Social Security.

While on the campaign trail, before his victory in November, Trump introduced a Social Security proposal that drew thunderous applause from most retirees.

In July, on Trump's social media platform, Truth Social, the former and future president posted, “Seniors shouldn't pay Social Security taxes.”

The tax on Social Security benefits was part of the latest bipartisan overhaul of America's main retirement program. The 1983 Social Security Amendments gradually increased the full retirement age and payroll taxes, and introduced taxation of benefits.

Starting in 1984, up to 50% of Social Security benefits could be exposed to federal tax if provisional income (adjusted gross income + tax-free interest + half of benefits) exceeded $25,000 for singles and 32 $000 for couples filing jointly. In 1993, a second tier was added, allowing up to 85 percent of Social Security benefits to be taxed federally if provisional income exceeded $34,000 for singles and $44,000 for couples filing jointly. None of these thresholds have ever been adjusted for inflation, meaning that more households have been exposed to COLAs over time.

The thesis for eliminating this hated tax is that it would allow recipients to keep more of their Social Security check in order to combat inflation. The value of a Social Security dollar has fallen 20 percent since 2010 due to the effects of rising prices, according to an analysis by the nonpartisan senior advocacy group the Senior Citizens League.

But eliminating one of Social Security's three revenue streams would have disastrous consequences for a program facing a rapidly widening long-term funding gap and the possibility of sweeping benefit cuts within nine years.

Taxation of benefits is expected to bring in nearly $944 billion to Social Security between 2024 and 2033. Eliminating this revenue source, or even adjusting it for the effects of inflation over the past two decades, would accelerate the timetable for benefits. reductions in AVS benefits.

Image source: Getty Images.

Study: Top Trump Proposals Would Accelerate Timetable for Social Security Benefit Cuts

However, it is not just Trump's proposal to eliminate taxation of Social Security benefits that could potentially weaken Social Security financially.

In October, the Committee for a Responsible Federal Budget (CRFB), a nonpartisan, nonprofit organization based in Washington, D.C., released a report analyzing the impact of many of Trump's Social Security proposals. As might be expected, eliminating federal taxation of benefits has a detrimental effect on this vital program. But there are also incidental impacts.

For example, Trump's campaign proposals also included eliminating taxes on tipping and overtime, imposing tariffs of 60% on goods imported from China and up to 20% on all other countries , and the expansion of expulsions of undocumented migrants in the United States. These three additional proposals have the capacity to harm Social Security.

Ending the tip and overtime tax would likely reduce payroll tax revenue. The CRFB believes that significant tariffs on imports may result in higher cost of living adjustments, which would drain OASI's asset reserves even more quickly. Additionally, tariffs risk increasing the current rate of inflation, which could reduce taxable payroll. Strengthening the U.S. border would eliminate undocumented workers, which has had a decisive positive impact on Social Security, and could discourage legal net migration, essential to the financial health of the program.

According to the CRFB study, the median projection of major Trump proposals would increase the Social Security cash deficit by $2.25 trillion over 10 fiscal years (2026 to 2035) – the federal government's fiscal year ends on the 30th. september. the projected benefit date is reduced by three years to 2031 from the current Congressional Budget Office (CBO) projection of 2034.

Finally, it would ultimately lead to larger benefit reductions of 33% (based on CRFB's central estimate), compared to the current CBO forecast of a 23% benefit reduction.

The harsh reality of Trump's direct Social Security plan and adjacent proposals is that the program would be significantly worse off than it is now.

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