Former President Donald Trump, who is running for president in 2024, recently proposed a significant shift in Social Security Taxes. On June 13, Rep. Thomas Massie (R-Ky.) shared on X (formerly Twitter) that Trump had briefly suggested replacing income taxes with tariffs. This idea quickly caught the attention of various news outlets, prompting a wave of analysis from economists and experts.
Taxes are a major point of contention in this presidential election, distinguishing Trump’s stance from that of President Joe Biden. However, the practicality of Trump’s proposal remains uncertain.
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Current Social Security Taxes Benefits
Under the current system, Social Security benefits are not taxed for individuals with a combined income below $25,000, or $32,000 for couples. Combined income is calculated using adjusted gross income, half of Social Security benefits, and nontaxable interest. Above these thresholds, up to 50% of benefits may be taxable, with the revenue directed to the Social Security retirement trust fund. For those with combined incomes over $34,000 for individuals or $44,000 for couples, up to an additional 35% of benefits could be taxed, with those funds going to Medicare’s hospital insurance trust fund (Medicare Part A).
- The tax in question generates about $94 billion annually for Social Security, though its contribution to revenue is relatively modest.
- Due to rising benefits and high inflation, this tax has been growing.
- Eliminating this tax could increase the federal deficit by $1.6 trillion to $1.8 trillion by 2035.
- The Social Security trust fund would be depleted a year earlier than projected, and the Medicare trust fund would run out six years earlier.
- The Social Security trust fund is expected to be exhausted by 2033, reducing benefit payments to 79% of what is owed.
- Medicare Part A funds are projected to cover only 89% of scheduled benefits starting in 2036.
- If the trust funds are depleted, seniors could face reduced benefits that might outweigh any tax savings they could have received.
- Lower-income seniors would be particularly disadvantaged by these reductions.
While the Social Security Taxes benefit can be burdensome, with many seniors expressing dissatisfaction, experts like Max Richtman, CEO of the National Committee to Preserve Social Security and Medicare, argue against eliminating it. He suggests increasing the income threshold and adjusting it for inflation, as proposed in the Social Security 2100 Act by Rep. John Larson (D-Conn.), though this legislation has not advanced in the House.
| $1200 Stimulus Check 2024 |
| $12000 Stimulus Checks 2024 |
| Lump Sum Social Security Payment |
| Minimum Social Security Benefit |
| $4873 Social Security Payment |
Potential Benefits for Boomers
For some baby boomers, eliminating income taxes could be beneficial. Retirees with fixed incomes might find more disposable income available, helping with retirement budgeting. Many retirees have returned to work due to financial needs, with one in six considering re-entering the workforce and 55% of retirees returning to work for additional income, according to Paychex.
| Age Group | Median Weekly Earnings | Annual Earnings (52 weeks) | Standard Deduction | Taxable Income | Potential Tax Savings (if income taxes were eliminated) |
|---|---|---|---|---|---|
| 55 to 64 years | $1,197 | $62,244 | $14,600 | $47,644 | $1,160 – $5,000+ |
| 65 years and older | $1,154 | $60,008 | $14,600 | $45,408 | $1,160 – $5,000+ |
Furthermore, removing income taxes could simplify tax filing and potentially lower tax preparation costs, which might be advantageous for retirees. Paul Miller, CPA and managing partner at Miller & Company, also suggested that tariffs might boost domestic manufacturing and job creation, offering opportunities for boomers looking to return to work.
Potential Drawbacks for Boomers
However, several experts believe that replacing income taxes with tariffs could negatively impact retirees. Chris Orestis, president of Retirement Genius, noted that tariffs, which increase the cost of imported goods, could reduce the purchasing power of those on fixed incomes. This price increase could significantly affect those reliant on retirement savings, pensions, and Social Security.
Eliminating Taxes on Tips
In addition to his tax proposals, Trump has suggested eliminating taxes on tips, particularly appealing to service industry workers in swing states like Nevada. However, this proposal would benefit only a small portion of workers. In 2023, about 4 million people worked in tipped occupations, making up 2.5% of all employment. Among lower-income workers, only 5% are in tipped jobs, and a third of tipped workers faced no federal income tax in 2022 due to low earnings.
The proposal could potentially decrease federal revenue by at least $107 billion, as more businesses and employees might shift income from wages to tips, according to the Tax Foundation.
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