Donald Trump’s proposal to eliminate taxes on Social Security benefits could worsen the program’s financial troubles, according to U.S. economic expert Veronique de Rugy. As the Republican presidential nominee, Trump has promised to cut taxes for the 67 million Americans receiving these benefits.
During a campaign event in Harrisburg, Pennsylvania, Trump declared, “Seniors should not pay taxes on Social Security, and they won’t.” This move comes as he seeks a second presidential term against Democratic nominee Vice President Kamala Harris.
In a recent article for The New York Sun, de Rugy, who serves as a senior research fellow at the Mercatus Center at George Mason University, offers her perspective on the proposal. She acknowledges the appeal of lower tax rates but points out that the current tax structure discourages some seniors from returning to work, creating problematic disincentives in the tax code.
While she believes that lowering Social Security taxes might encourage some seniors to rejoin the workforce, she warns that without significant reform to the Social Security system, the approach could lead to more severe issues.
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Social Security income was not taxable prior to 1983, when then-President Ronald Reagan introduced tax obligations for certain beneficiaries. Since then, the threshold for taxation has not kept pace with inflation, resulting in more seniors facing taxes on their benefits today than four decades ago.
Data from the Government Accountability Office reveals that about 40 percent of Social Security recipients pay federal taxes on their benefits, contributing approximately $87 billion annually to federal revenue. De Rugy notes, however, that despite these contributions, Social Security remains at risk of insolvency.
She argues that Congress had the opportunity to make crucial reforms back in 1983 but chose a politically expedient route instead. Today, she claims, we are experiencing the consequences of that decision as experts predict the Social Security trust fund could be depleted by 2033, which would lead to drastic cuts for beneficiaries—up to 23 percent.
De Rugy warns that eliminating taxes on Social Security income may further exacerbate inequality, as seniors tend to be overrepresented in higher income brackets while younger workers, who are currently funding these benefits, often occupy lower-income positions. She describes the move as a potential “slap in the face” for younger, less wealthy Americans.
Ultimately, she concludes that exempting Social Security benefits from taxation is not a sound strategy. So why propose it? De Rugy suggests that politicians may benefit from promising financial perks to voters, keeping their electoral prospects in mind.