Trump proposes tax-free Social Security payments

Former President Donald Trump, the GOP presidential nominee, floated a major new tax policy on July 31, using his social media platform to suggest making Social Security payments tax-free.

While the proposal could hold appeal to voters, its enactment would face practical and political challenges.

Though making Social Security payments tax-free would be a net-benefit for current recipients, early estimates by independent experts (using Congressional Budget Office data) suggest it could hasten the insolvency of Social Security and Medicare while significantly reducing federal revenues. This is because revenues from taxing Social Security benefits are designated for funding additional Social Security payments and Medicare. Social Security benefits become taxable once income exceeds $25,000 for single filers and $32,000 for joint filers.

Experts at the right-leaning Tax Foundation estimate that a blank tax-exemption for Social Security payments would accelerate insolvency of the Medicare and Social Security trust funds from 2036 to 2030 and from 2035 to 2033, respectively, while reducing federal revenues by $1.6 trillion over 10 years; other left-leaning think tanks drew similar conclusions. Benefits for the two main entitlement programs in the U.S. face significant cuts once those trust funds are depleted.

Without additional detail beyond the brief social media post in which he suggested the significant policy, it is difficult to determine how it would actually affect taxpayers, how popular the idea will be with voters, or how likely it would be to be enacted if Trump were re-elected.

The Social Security proposal follows another recent proposal to exempt tip income from tax, and shows Trump focusing increasingly on a more populist tax agenda. This could significantly impact tax deliberations in 2025 if Trump wins in November.

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