President Donald Trump Just Called for a Drastic Social Security Change — but It Comes With Unintended Consequences

Key Factors

• America’s main retirement program is staring down the potential of sweeping profit cuts for retired staff and survivor beneficiaries by 2033.

• Final week, Trump doubled down on a proposal to take away the least preferred facet of Social Safety.

• Whereas the president’s plan would enhance some retirees’ checks within the very quick run, it might additionally exacerbate Social Safety’s long-term money deficit and expedite the timeline to profit cuts.

In March, greater than 52 million retired staff took residence a median Social Safety advantage of practically $2,000. Whereas this can be a comparatively modest month-to-month sum, this earnings has proved very important to serving to retirees make ends meet.

Since 2002, Gallup has been conducting annual surveys to decipher how vital the earnings retirees obtain from Social Security is. Over this 23-year stretch, between 80% and 90% of respondents have constantly famous their month-to-month profit is required, to a point, to cowl their bills.

Defending and strengthening Social Safety ought to be a precedence for our elected officers. Nonetheless, studies counsel Social Safety’s monetary basis has been weakening for many years.

Present and future retirees want to their elected officers on Capitol Hill — together with President Donald Trump — to enact reforms that’ll bolster Social Safety. The one downside is, not every idea is necessarily a good one.

Social Safety profit cuts are a projected eight years away

Earlier than diving into what Trump has completed by way of his first 100 days in workplace, in addition to what he plans to do, it is vital to grasp what awaits America’s main retirement program if nothing is completed.

Ever for the reason that first retired-worker profit verify was mailed out in January 1940, the Social Safety Board of Trustees has printed an annual report that, intimately, examines the monetary well being of this system. Along with outlining each greenback obtained and the place these {dollars} find yourself, the Trustees Report is probably finest recognized for its forward-looking projections.

The Trustees Report takes under consideration a variety of elements, together with altering financial and monetary coverage, in addition to ongoing demographic shifts, to forecast how financially sound Social Safety will probably be over the approaching 75 years (what it defines because the “long run”). For the final 40 years, the Trustees Report has warned of a long-term funding deficit.

Primarily based on the 2024 Social Safety Board of Trustees Report, this system is staring down a $23.2 trillion funding obligation shortfall. In different phrases, projected earnings assortment will not be adequate to cowl outlays, which primarily contains advantages, but additionally accounts for the prices to function Social Safety.

Making issues worse, the Trustees count on the asset reserves — i.e., extra money constructed up since inception — of the Outdated-Age and Survivors Insurance coverage Belief Fund (OASI) to be exhausted by 2033. Although the OASI is in no hazard of chapter and does not require its asset reserves to dole out advantages, the continuity of the present payout schedule, together with cost-of-living changes (COLAs), is in danger past 2033.

If the OASI’s points aren’t addressed and the asset reserves run dry, retired staff and survivor beneficiaries may see their month-to-month payout slashed by as much as 21% in eight years.

President Trump has made adjustments already — however the largest continues to be on the docket

Most elected officers, together with President Trump, acknowledge that Social Safety wants consideration. In the identical respect, lawmakers additionally worry making adjustments that upset future voters, which is why little has been completed during the last 4 a long time.

Since Inauguration Day for Trump’s second time period, he is made 5 notable adjustments to Social Safety:

1. By means of his commissioning of the Division of Authorities Effectivity (DOGE), Trump is overseeing the discount of the Social Safety Administration’s (SSA’s) employees by 7,000 to 50,000.

2. Trump signed an government order to finish paper Social Safety checks, efficient Sept. 30, 2025.

3. He oversaw the alteration of non-public identification strategies utilized by the SSA.

4. Trump reversed former President Joe Biden’s overpayment and restoration guidelines by implementing a 50% clawback fee on an individual’s month-to-month profit till the overpayment is recovered in full.

5. The president nominated Frank Bisignano to turn out to be the brand new SSA commissioner.

Nonetheless, it is the drastic change Donald Trump desires to make that might actually shake up Social Safety.

On April 29, Trump doubled down on his want to cross a flurry of tax cuts, which incorporates eliminating the tax on Social Safety advantages.

The Social Safety Amendments of 1983, which is the final bipartisan overhaul of this system, step by step raised the complete retirement age and payroll tax, in addition to launched the now-hated taxation of advantages.

When the tax on advantages went into impact in 1984, as much as 50% of advantages may very well be taxed on the federal fee if provisional earnings (adjusted gross earnings + tax-free curiosity + one-half of Social Safety advantages) topped $25,000 for a single filer or $32,000 for a pair submitting collectively. A second tax tier was added a decade later that allowed as much as 85% of advantages to be taxed on the federal fee when provisional earnings surpassed $34,000 for single filers and $44,000 for collectively submitting {couples}.

4 a long time in the past, this tax was anticipated to impression round 10% of senior households. However for the reason that provisional earnings thresholds have by no means been up to date to account for the consequences of inflation, the mix of upper wages and COLAs over time means round half of all senior households are subjected to this tax at the moment.

Trump’s effort to rid Social Safety of the tax on advantages will backfire

Hypothetically, if Trump had been profitable in amending the Social Safety Act to take away the tax on advantages, it might present a right away enhance to the take-home earnings of round half of all senior households. Whereas beefing up Social Safety earnings may sound like a can’t-miss proposal, what’s well-liked is not at all times what’s finest for America’s main retirement program.

The prevailing challenge with Trump’s “no tax on Social Safety advantages” proposal is that it might remove one of many three sources of funding for this system.

In 2023, Social Safety collected roughly $1.351 trillion in earnings from three sources:

1. The 12.4% payroll tax on earned earnings (relevant between $0.01 and $176,100 in 2025), which accounted for greater than 91% of what was collected in 2023.

2. The curiosity earned on the OASI’s and Incapacity Insurance coverage Belief Fund’s asset reserves, that are invested in special-issue authorities bonds, as required by legislation.

3. The taxation of Social Safety advantages.

Regardless that the payroll tax does a lot of the heavy lifting, funding supply No. 2 goes to dwindle because the OASI’s asset reserves shrink. If Trump additionally eradicated funding supply No. 3, Social Safety could be lacking out on a important portion of its annual earnings.

Primarily based on the 2024 Trustees Report, taxing advantages is forecast to generate virtually $944 billion in combination earnings for Social Safety from 2024 by way of 2033. Eradicating this earnings would virtually actually expedite the OASI’s asset reserve depletion timeline and doubtlessly exacerbate how a lot payouts would have to be reduce for retired staff and survivor beneficiaries.

Additional, the retirees paying some degree of tax on their advantages are within the mid to excessive finish of the provisional earnings scale. Thus, Trump’s proposal would do nothing to financially help the lifetime low earners who rely most on their Social Safety earnings to make ends meet.

To spherical issues out, amending the Social Safety Act would require 60 votes within the Senate, which is a determine the president may have a nearly inconceivable time attending to. Democrats within the higher home have proven no assist for Trump’s proposal, and it is not but clear if members of Trump’s personal occasion would assist his proposal on condition that the short-term payout enhance would shortly give option to doubtlessly steeper long-term profit reductions.

Trump’s plan could also be nicely intentioned, however it comes with some very critical unintended penalties.

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President Donald Trump Just Called for a Drastic Social Security Change — but It Comes With Unintended Consequences was initially printed by The Motley Idiot