Back in June 2024, during a campaign rally, President Donald Trump assured his followers, ‘As your president, I will not subtract a single cent from Social Security or Medicare.’ In a strikingly similar comment made in July 2024 on a digital platform, Trump insisted that ‘There will be no deductions in Social Security or Medicare under my supervision, and there won’t be an additional day added to the retirement age.’ Until now, President Trump has adhered to these vows since his re-election for a second term. However, he has hinted at, and in some instances initiated, modifications that concern the Social Security program. Here is a rundown of what retirees need to understand.
The Trump administration’s Department of Government Efficiency (DOGE) is focused on decreasing expenses related to Social Security. In January, President Trump sanctioned an executive order that brought the Department of Government Efficiency (DOGE) into existence. The department’s initial duties encompassed enhancing productivity by upgrading the federal technological equipment and software. However, later executive orders have widened DOGE’s scope to include staff optimization, expenditure savings, and deregulation.
In response, the Social Security Administration (SSA) has planned a reduction in its employee target to around 50,000 employees, a significant decrease from the current 57,000 employees. The SSA has also recognized potential areas of cost-saving in contracts, grants, property, and technological avenues, as well as practical strategies concerning printing, traveling, and purchase card rules. The SSA projects that total savings will surpass $800 million in fiscal 2025.
While this figure represents a sizeable fraction of the estimated $6.5 billion of administrative expenses, it pales in comparison to the $110 billion deficit projected in the fiscal 2025 budget. The deficiency is embedded in the budget, emphasizing that despite these cost-saving efforts, the scale of the issue extends far beyond these remedies.
President Trump has shown eagerness to stop the taxation of Social Security advantages. During his campaign, Trump expressed on a digital platform that ‘Elderly citizens should not bear the burden of tax on Social Security.’ He has since reinforced this stance. In February, White House spokesperson Karoline Leavitt stated that Trump would enforce the ‘most significant tax relief in history,’ incorporating the annihilation of taxes on Social Security benefits.
While the concept is attractive on the surface, the Social Security trust fund is predicted to run dry by 2035 as it stands. Eradicating taxes on benefits would hasten this prognosis, leading to potential benefit deductions sooner. To elucidate, the trustees forecast that tax revenue will only be adequate to cover 83% of the arranged benefits when the trust fund becomes insolvent in 2035. Therefore, if Congress doesn’t come up with a solution for the finance issue, benefits would be automatically reduced by 17%.
Social Security, as it stands, sources 4% of its funding from taxes. This might appear as an insignificant proportion, but the existing funding issue would only intensify if the tax revenue was eradicated. Consider this: a financial model from the prestigious Penn Wharton business school indicates that Social Security could lose around $1.5 trillion in revenue in the coming decade if Trump implements the abolition of taxes on benefits.
Under such a scenario, the trust fund would become insolvent two years earlier than the current predictions. This would mean that beneficiaries, such as retired workers and other recipients of Social Security, could witness reductions in benefits starting from 2033, two years earlier from the previous estimate of 2035.
With that being said, it’s important to note that Congress has historically managed to keep the Social Security trust fund from becoming insolvent. There are reasonable expectations that lawmakers will devise an effective solution for the finance issue before benefit cuts become unavoidable even this time around.
However, the proposition of terminating taxes on Social Security can still present challenges. It would eventually give Congress a shorter timeframe to come up with the necessary solution for the issue. As we navigate through these changes, beneficiaries will need to stay informed and aware of the potential impacts on their retirement planning and financial security.