Millions of Americans will be waiting to see if Donald Trump follows through on his campaign promise to cut taxes on Social Security benefits.
Higher earners would benefit the most from the proposed changes, experts have said, and the cut would come at a price for the struggling finances of the Social Security program.
Up to 85 percent of Social Security benefits may be taxed based on an individual’s or married couple’s income – and around 40 percent of retirees currently pay federal tax on their benefits.
Americans earning less than $32,000 would not get a tax cut under Trump’s proposals, as most of their Social Security benefits are not taxed anyway.
Households earning between $32,000 and $60,000 would get an average cut of about $90, according to analysis from the nonpartisan Urban-Brookings Tax Policy Center.
Middle income Americans earning between $63,000 and $113,000 would save an average of $630, while those earning between $113,000 and $206,000 would typically save around $1,200 on their tax bill.
Millions of Americans will be waiting to see if Donald Trump follows through on his campaign promise to cut taxes on Social Security benefits
In dollar terms, the biggest winners from the change would be those in the top 0.1 percent of income, who make nearly $5 million or more, Tax Policy Center said.
In 2025, they would get an average tax cut of nearly $2,500 a month.
Social Security benefits often account for a substantial share of middle-income household earnings, the report said.
So repealing the tax on those benefits reduces their average after-tax income by a larger percentage than for very high-income households, who get a relatively small amount of their total income from Social Security.
About 28 percent of middle-income households would get a tax cut, and among the top 0.1 percent of earners, about 20 percent of households would get a tax cut.
But economists have warned that the proposal would weaken the solvency of the Social Security program, adding to its existing funding issues.
It could also be difficult to get through Congress, even if Trump has a Republican majority in both the Senate and the House of Representatives.
Just eliminating the tax on Social Security benefits, without making any other changes to the program in order to make up for that loss in revenues, would cut into its already dwindling finances.
Up to 85 percent of Social Security benefits may be taxed based on an individual’s or married couple’s income
Americans earning less than $32,000 would not get a tax cut under Trump’s proposals, as most of their Social Security benefits are not taxed anyway
Trump’s plans would make Social Security insolvent in six years, according to the nonpartisan Committee for a Responsible Federal Budget.
That is three years sooner than existing forecasts.
At that time, beneficiaries would see across-the-board cuts to benefits, which are relied on by millions of Americans.
‘We find President Trump’s campaign proposals would dramatically worsen Social Security’s finances,’ the CRFB budget group said in a blog post last month.
Any changes to the program would require at least 60 Senate votes.
‘It’s hard for me to imagine that Democrats would be willing to provide votes to get over that 60-vote threshold and weaken Social Security solvency,’ Charles Blahous, senior research strategist at the Mercatus Center at George Mason University, who has also served as a public trustee for Social Security and Medicare, told CNBC.
‘I think a lot of Republicans would have heartburn about it, too,’ he said.