I think we can all agree that President Trump is shaking things up with his second term in office. His administration's actions have touched many aspects of our lives, including the Social Security program, whose benefits Trump has repeatedly promised not to cut.
He actually pledged to take an important step that would increase benefits for many retiree households. If he succeeds in this, seniors could see a short-term boost to their Social Security checks. However, the long-term implications of some of his campaign promises paint a bleaker picture of the program's future. There are three things in particular that could prove devastating to Social Security over the next 10 years.
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1. Ending Social Security benefit taxes
Social Security benefit taxes force seniors to give the IRS a cut of their benefits if their provisional incomes -- adjusted gross incomes (AGIs), plus any nontaxable interest from municipal bonds and half your annual Social Security benefit -- exceed $25,000 for a single adult or $32,000 for a married couple. Some retirees owe ordinary income taxes on up to 85% of their benefits, which can amount to several thousand dollars.
Eliminating this tax would give these seniors some breathing room, at least in the short term. Those who stand to benefit the most are middle- to upper-income households. Low-income households may not notice a change because many don't pay benefit taxes under the current law.
What's more problematic, though, is that ending Social Security benefit taxes takes away one of only three funding sources for the program. The other two are Social Security payroll taxes that workers pay and interest earned on the money in the program's rapidly depleting trust funds.
The latest Social Security Trustees Report indicated that the trust funds would run out of money by 2035. That could be too optimistic since President Biden passed the Social Security Fairness Act earlier this year, which increased benefit payouts to select seniors.
When the trust funds are gone, Social Security will only have the income it earns from taxes to sustain it. If President Trump ends benefit taxes, the projected funding shortfall at the time of depletion would be even greater than the 22.3% cut the Congressional Budget Office predicts will occur under current law.
2. Ending tax on overtime and tips
President Trump has also expressed his support for ending taxes on overtime and tips in order to help working Americans hold onto more of their hard-earned cash. Again, there are obvious and immediate upsides to doing this. However, they come with a hidden consequence for Social Security.
If there's no more Social Security payroll tax on overtime and tips, the program will take in even less money every year. That will leave it with less income to pay out to current and future beneficiaries who need the money to pay their bills.
3. Imposing tariffs
President Trump's tariffs are part of a strategy he hopes will encourage domestic production, but many fear they could also lead to higher inflation. Inflation makes the cost of living more expensive, which is especially difficult for seniors living on a fixed income.
High inflation also means higher Social Security cost-of-living adjustments (COLAs). These increase how much the program pays out, so above-average COLAs could also accelerate when Social Security's trust funds run out of money.
What does this mean for Social Security?
It's still too early to say whether President Trump will succeed in making some of his campaign promises a reality. And we don't know the long-term effects of the tariffs he's working to put in place now. So, while there's the potential for President Trump to accelerate Social Security's insolvency date, it's not a guarantee.
It's also worth pointing out that while President Trump's moves may cause Social Security's trust funds to run out of money sooner, this doesn't mean benefit cuts are going to happen. Congress will likely get serious about reforming Social Security in the next few years to make the program sustainable for future generations.
We don't know yet what its reforms might look like, but it's possible that it could work around some of Trump's proposals, perhaps by increasing Social Security payroll taxes on income that remains taxable. Or increasing taxes on wealthy Americans so they pay more into the program.
For now, all we can do is reach out to our Congresspeople to share our thoughts on how they should handle Social Security's funding crisis and wait to see what happens next.
