Former President Donald Trump and Vice President Kamala Harris appear on screen during a debate viewing party at the Cameo Art House Theater on September 10, 2024 in Fayetteville, North Carolina.
Alison Joyce | Bloomberg | Getty Images
The Social Security Administration faces an impending funding crisis over the next decade, and the next U.S. president – Democratic nominee Kamala Harris or Republican nominee Donald Trump – is poised to inherit Social Security’s dilemma. It’s obvious.
Approximately 68 million Americans receive monthly Social Security payments. The benefits help older retirees, Americans with disabilities and surviving beneficiaries, but the future of the Social Security Administration has been in jeopardy for years.
Today, more than 11,200 Americans turn 65 every day. As more retirees begin claiming Social Security, there will not be enough workers contributing to the program to make up for the increase in benefit payments.
When such a shortfall occurs, Social Security relies on trust funds, money set aside to pay benefits and other administrative costs.
But the trust fund that Social Security relies on to pay retirement benefits is projected to run out in 2033. Program administrators say only 79% of benefits may be paid out at that point.
The average retired worker would see a reduction of about $403 from their current average monthly benefit of $1,920.
A recent CNBC poll found that most Americans rank Social Security as the “most important” or “very important” issue in deciding how to vote in November.
Both presidential candidates, former President Trump and Vice President Harris, vowed to protect Social Security benefits through their campaign platforms.
But restoring the program’s solvency will require changes such as benefit cuts, tax increases, or a combination of both. But some experts say discussions among the candidates have so far avoided specific details about how to address the shortage.
“No one is coming forward and saying, ‘Our major retirement system is looking at the possibility of insolvency in nine years, which could cut everyone’s benefits by almost 20%,'” Jason said. said. Fichtner is chief economist at the Bipartisan Policy Center and executive director of the Lifetime Income Alliance’s Retirement Income Research Institute.
President Trump promises not to tax Social Security benefits
Republican presidential candidate and former U.S. president Donald Trump speaks at a rally in Coachella, California, U.S., October 12, 2024.
Mike Blake | Reuters
During his campaign, Mr. Trump has touted an idea aimed at giving retirees more of their Social Security checks, eliminating taxes on benefits.
“Seniors should not pay taxes on Social Security,” President Trump wrote in all caps on the social media platform Truth Social on July 31st.
A recent ABC News/Ipsos poll found that 85% of voters support the idea.
Trump’s campaign platform promises to “fight for and protect Social Security and Medicare without any cuts, including changing the retirement age.” But President Trump said in a CNBC interview in March that he would consider cutting “entitlements,” a term used to refer to Social Security, Medicare, and Medicaid.
“There’s a lot that can be done when it comes to curtailing rights and even the theft and mismanagement of rights,” Trump said on CNBC’s “Squawk Box.”
Currently, retirees pay federal income taxes on up to 85% of their Social Security benefits, depending on their income.
The taxes that retirees pay on their benefits are based on a formula called total income, which is the sum of adjusted gross income, tax-free interest, and half of Social Security benefits.
Couples can pay taxes on up to 50% of their benefits if their combined income is between $32,000 and $44,000. If your income exceeds $44,000, up to 85% of your benefits can be taxed.
If an individual’s income is between $25,000 and $34,000, taxes may be due on up to 50% of the benefit. If your income exceeds $34,000, up to 85% of your benefits are taxable.
Because these standards do not change from year to year, more beneficiaries will pay taxes on their benefit income over time.
The end of taxing Social Security benefits would bring the Social Security Trust Fund more than a year closer to bankruptcy, according to the Committee for a Responsible Federal Budget.
Personal Finance Details:
Social Security Administration announces 2.5% COLA rate for 2025
House of Representatives could force a vote on a bill that would affect Social Security benefits for pensioners
72% of Americans worry that their Social Security benefits will run out in their lifetime
And it may not make much of a difference to retirees’ budgets, said Howard Gleckman, a senior fellow at the Urban-Brookings Tax Policy Center.
Because the median household income for retirees is about $50,000, the “vast majority” pay little or no taxes on their Social Security benefits, Gleckman said.
Exempting taxes on benefits would primarily help people with incomes between $63,000 and $200,000, according to a study by the Urban-Brookings Tax Policy Center.
But Gleckman said the top 20% of households would see an average tax cut of about $1,400 after eliminating taxes on Social Security benefits, while Trump’s plan to impose tariffs on imported goods would raise taxes by an average of $6,500. He explained.
“If you look at everything including the tariffs, the ultimate impact of what President Trump is going to do is probably going to be on retirees, even if they get some benefit from eliminating the tax on Social Security benefits,” Gleckman said. It will probably be a tax increase.”
The Trump campaign did not respond to requests for comment by press time.
Harris wants the “wealthiest Americans” to “pay their fair share”
Democratic presidential candidate Kamala Harris looks on as she participates in a “town hall” with radio host Charlamagne Tha God on October 15, 2024 in Detroit, Michigan, United States.
Kevin Lamarque | Reuters
The Harris campaign’s economic plan would “strengthen Social Security and Medicare and make sure that corporations and the wealthiest Americans pay their fair share of taxes to ensure these essential programs are a long-term solution.” I promise.
President Joe Biden similarly called for higher-income Americans to increase their participation in the program in his budget proposal and State of the Union address.
More specific details about how Democratic nominee Harris would restore the program’s solvency as president were not available by press time.
Employers and employees each pay 6.2% of their wages into Social Security up to the tax cap (self-employed workers pay 12.4%). In 2024, the income limit for Social Security payroll taxes is $168,600. High earners with gross annual wage income of $1 million stopped paying into the program starting March 2, according to the Center for Economic Policy Research.
Washington Democrats have proposed reimposing those taxes on earnings over $400,000 or $250,000 in a separate proposal, but they could also raise taxes on investment income. According to the proposal, these tax increases would improve the program’s solvency while also allowing for increases in certain benefits.
Gleckman said that if Harris sticks to the $400,000 threshold set by the Biden administration, her Social Security proposal would “not reach the vast majority of households” because about 95% to 98% of households would be below that amount. “It has no impact.”
“Vice President Harris and Governor Walz are committed to reducing costs and will always protect and strengthen Social Security and Medicare,” campaign spokeswoman Mia Ehrenberg said in a statement.
Older Americans may feel the impact of reforms
As Social Security’s exhaustion date approaches, reform changes need to be phased in more quickly.
People over 55, who are typically excluded from Social Security reform proposals such as raising the retirement age, could also feel the effects of some changes, Fichtner said.
“Once you’re over 55, you don’t have much time to change your retirement trajectory,” Fichtner said. “But right now, we’re so close to depleting the trust fund and it’s so large that I don’t know if we can actually afford to keep it intact from a financial standpoint.”
Regardless of who is elected, it remains to be seen how much the new president will be able to accomplish on Social Security.
Social Security reform would need 60 votes in the Senate to pass, and both parties would need to agree.
Experts say lawmakers may wait until the last minute to act on the issue.
“As the bankruptcy date approaches, it means that benefits have to be cut faster and faster, and it means that tax increases have to be deeper and faster,” Gleckman said. “So that makes it even more difficult.”
