New Tax Cuts Could Have Huge Implications For Social Security

Social Security payments have been helping seniors supplement their retirement income since the Social Security Administration was created in 1935. With the decline of employer pension plans, workers have become increasingly responsible for building their own retirement savings nest eggs.

Most seniors rely on consistent, monthly payments to get by in retirement, and the skyrocketing cost of living is making the need for a strong safety net for retirees more crucial than ever.

Though declining birth rates and the aging Baby Boomer population reaching retirement has threatened the future of Social Security, the proposed elimination of taxes on Social Security payments would remove a key component needed to help fund the program for future generations.

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The Trump administration has suggested removing taxes on tips, overtime work, and Social Security checks, which would worsen the program shortfall predicted in the next decade.

While this plan could benefit some workers in the long-term, it could have lasting effects on when and how Americans choose to retire.

While Social Security wasn’t included in Trump’s sweeping inaugural executive orders, experts are weighing the impacts of tax cuts on the already stressed program.

A retired couple is seen walking along a beach. Social Security benefits are crucial to supplementing retirement income for seniors, and some experts note that tax cuts would endanger the future of the program.

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Tax cuts could change when workers are able to receive Social Security benefits

According to the Congressional Budget Office, Social Security is on track to become insolvent by 2034, and benefits would need to be reduced by 23% to keep the program afloat. Experts estimate that eliminating taxes on earned tips, overtime, and Social Security checks would expedite this shortfall by three years, risking insolvency in 2031.

If Trump does enact the tax cuts he proposed on the campaign trail, it could have a lasting impact on how each generation approaches retirement planning.

A recent study found that nearly half of Americans would support eliminating taxes on Social Security payments, but that favorability is skewed toward older generations. 65% of Baby Boomers support the proposed tax cuts, while only 36% of Gen Z feels the same.

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People who are approaching retirement or are already receiving Social Security checks are far more likely to benefit from lower taxes on benefits, and are less likely to be impacted by the long-term effects of Social Security insolvency.

20% of Gen Z would retire later in life if the Social Security income tax is removed, in order to better plan and save for their retirement.

Though tax cuts appeal to those who benefit in the short-term, they could create long-term financial issues that threaten the foundation of the program.

Reducing Social Security revenue would have significant impact on retirees

The two main components of Social Security benefits are Old-age and Survivors Insurance (OASI) for retirees, their qualified dependents and survivors, and Disability Insurance (DI) for disabled workers and their qualified dependents.

Related: Dave Ramsey warns Americans on Social Security and 401(k)s

According to Garett Watson, senior policy analyst at the Tax Foundation, the tax revenue from Social Security benefits is split up for funding: half of the revenue is allocated to the OASDI fund, and the other half is designated for the Medicare Insurance Trust Fund.

Trump’s proposed tax cuts would diminish revenues by over $1 trillion from 2025 to 2034. Some experts recommend implementing an annual tax threshold adjustment to account for inflation instead of entirely cutting benefit taxes.

However, ensuring that any tax revenue lost through cuts is made up elsewhere is key to preserving the program’s benefits for generations to come.

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