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

In October, more than 51 million retirees took home a benefit check worth an average of $1,924.35. Although this is a relatively modest amount, it is still essential for most retirees.

Since 2002, national pollster Gallup has surveyed retirees annually to find out how important their Social Security income is to making ends meet. For 23 years, between 80% and 90% of respondents say it is a “major” or “minor” source of income, including 88% in the most recent survey (April 2024). In other words, almost 9 out of 10 retirees would have trouble covering their expenses if Social Security didn’t exist.

Despite the important role Social Security has played in supporting our nation’s aging workforce, its financial well-being is now faltering. Current and future beneficiaries look to elected officials and President-elect Donald Trump for solutions that strengthen America’s most important retirement program.

Unfortunately, not all Social Security proposals have a positive outcome, including Trump’s.

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

The deficit in Social Security funding obligations has exceeded $23 trillion

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

Since 1985, the Trustees Report has warned of a long-term deficit in funding commitments. In other words, the trustees assume that more benefits and administrative expenses will be paid out than will be received as income. This funding deficit has been growing steadily for four decades and will reach $23.2 trillion in 2024.

The forecast is even more urgent for the old-age and survivors’ insurance (AHV) trust fund, which is responsible for the monthly payments to pensioners and survivors’ beneficiaries. The latest report predicts that the AHV’s asset reserves will be exhausted by 2033, which would lead to drastic benefit cuts of up to 21 percent.

Before we proceed, we want to make it clear that Social Security is not in danger of going bankrupt or insolvent. Social Security derives over 91% of its revenue from the 12.4% payroll tax, ensuring 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 payout schedule, including nearly annual cost of living adjustments (COLAs).

It is expected that the AHV’s asset reserves will be exhausted by 2033. US Old-Age and Survivors Insurance Trust Fund Assets at End of Year data from YCharts.

President-elect Trump has a plan — but it’s making things worse for Social Security

On the campaign trail, Trump put forward a Social Security proposal before his November election victory that drew thunderous applause from most retirees.

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

Taxing Social Security benefits was part of the latest bipartisan overhaul of America’s premier retirement program. The Social Security Amendments of 1983 gradually increased the full retirement age and the payroll tax and introduced taxation of social security benefits.

Beginning in 1984, up to 50% of Social Security benefits could be subject to federal taxation if provisional income (adjusted gross income + tax-free interest + half benefits) exceeded $25,000 for single filers and $32,000 for couples filing jointly. In 1993, a second tier was added, allowing up to 85% of Social Security benefits to be taxed at the federal level if provisional income exceeded $34,000 for single filers and $44,000 for couples filing jointly. None of these thresholds were ever adjusted for inflation, meaning more households were at risk due to COLAs over time.

The theory behind eliminating this hated tax is that it would allow beneficiaries to keep more of their Social Security check to combat inflation. The value of a Social Security dollar has fallen 20% since 2010 due to the impact 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 sources of revenue would have devastating consequences for a program grappling with a rapidly growing long-term funding deficit and the possibility of drastic benefit cuts in nine years.

Taxation of Social Security benefits is expected to raise nearly $944 billion from 2024 to 2033. Removing this source of income, or even adjusting it for the impact of inflation over the past few decades, would shorten the timetable for cuts in AHV benefits.

Image source: Getty Images.

Study: Trump’s key proposals would shorten the timeline for cuts to Social Security benefits

But it’s not just Trump’s proposal to eliminate taxation on Social Security benefits that has the potential to weaken Social Security financially.

In October, the Committee for a Responsible Federal Budget (CRFB), a nonpartisan, nonprofit organization based in Washington, DC, released a report analyzing the impact of many Trump proposals on Social Security. As expected, eliminating federal taxation of welfare benefits will have a detrimental impact on this vital program. But there are also side effects.

Trump’s campaign proposals also included eliminating taxes on tips and overtime, imposing a 60% tariff on goods imported from China and up to 20% for all other countries, and expanding deportations of undocumented immigrants in the United States. All three of these additional proposals have the ability to affect Social Security.

• Eliminating the tip and overtime tax would likely reduce payroll tax revenue.
• CRFB concludes that high import tariffs may lead to greater cost of living adjustments, which would deplete AHV asset reserves even faster. In addition, tariffs risk increasing the prevailing inflation rate, which could lead to a reduction in taxable payroll.
• Strengthening the U.S. border would exclude undocumented workers, who have been a critical positive impact on Social Security, and could hinder net legal migration, which is critical to the program’s financial health.

According to the CRFB study, the average forecast of Trump’s core proposals would increase Social Security’s cash deficit by $2.25 trillion over 10 fiscal years (2026 to 2035) – the federal government’s fiscal year ends September 30. More importantly, this would move the deficit forward by three years to 2031 from 2034 compared to the current Congressional Budget Office (CBO) forecast.

Ultimately, it would ultimately result in larger, widespread benefit cuts of 33% (based on the CRFB’s central estimate), compared to the CBO’s current forecast of a 23% benefit cut.

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