Proposal to Repeal Tax on Social Security Benefits

President-elect Trump has repeatedly promised to repeal the tax on Social Security benefits.  Under current law, depending on a taxpayer’s income, up to 85% of Social Security benefit can be subject to federal income taxes.  Taxpayers with less than $32,000 (joint returns) or $24,000 (single filers) in annual income are not taxed on Social Security benefits.  When a taxpayer’s whose modified adjusted gross income plus one-half of their Social Security benefits exceeds these base amounts, they’re required to include in gross income the lesser of (a) 50% of the excess of such combined income over the base amount, or (b) 50% of the Social Security benefits received during the taxable year.  The percentage is increased to 85% for taxpayers whose income exceeds the “adjusted base amount” of $44,000 (joint returns) or $34,000 (single filers).

We asked two professors and authors of ALM’s Tax Facts with opposing political viewpoints to share their opinions about Trump’s renewed calls to eliminate federal income taxes on Social Security benefits.

Below is a summary of the debate that ensued between the two professors.

Their Votes:





Their Reasons:

Byrnes: The tax on Social Security tax is essentially a form of double taxation.  Social Security benefits are earned--they're based on the amount of Social Security taxes that the beneficiary actually paid into the system.  Taxing those amounts once again when the beneficiary reaches full retirement age is patently unfair.

Bloink: This proposal is never going to become law.  Sure, we all know that something is going to have to change to keep the Social Security system solvent--and no one wants to cut benefits being received by current Social Security beneficiaries.  However, repealing the tax on Social Security benefits that are being paid out is not going to do anything to help the system and it’s certainly not going to provide a tax cut for lower-income beneficiaries.  Some studies show that Trump’s proposal would actually speed up the Social Security fund’s insolvency by one year—giving Congress even less time to take action and shore up the system.

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Byrnes: The taxes imposed on Social Security benefits are in no way earmarked toward bolstering the system's solvency, so repealing that tax will not further jeopardize the system itself.  Americans on fixed incomes are struggling under the weight of inflation and deserve this tax cut to help them get back on their feet.

Bloink: Eliminating the tax on Social Security benefits would cost about $1.6 trillion over a ten-year period.  Where is that extra revenue going to come from?  Some new proposals have indicated that tax preferences for private retirement contributions could be slashed in order to increase revenue.  That reduces the private incentive to save for retirement at a time when we need to become more focused on finding ways to encourage taxpayers to save for their own retirements instead of relying on the Social Security system entirely.

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Byrnes: Eliminating the tax on Social Security benefits would put more money in Americans’ pockets at a time when they sorely need the extra cash.  Inflation has taken a massive toll on lower and middle Americans.  Every little bit counts when retired Americans are struggling to pay for basic needs.  Trump has also proposed imposing the Social Security tax on income above $250,000, which would create additional payroll tax revenue to offset the cost of eliminating the tax on Social Security benefits.

Bloink: We have to remember that many taxpayers with low incomes are already not required to pay taxes on their Social Security benefits—since those taxes are based on a family’s income levels.  Who is this proposed repeal really going to benefit?  It’s going to benefit the highest-income Americans who pay the highest tax rates when it comes to their Social Security benefits.  Those are the Americans who need the extra income the least—because they aren’t so reliant on Social Security to replace income during retirement.  This is yet another misleading ploy to benefit the super wealthy while Trump claims to cut taxes for low and middle-income Americans.