Trump Has Big Plans For Social Security. Could It Put More Money In Your Pocket?

Many Americans might find themselves curious, confused, or even worried about some of President-elect Donald Trump's proposed economic policies. From his cabinet selections to his tariff threats, there can be a lot to unpack about what might happen economically come January 20, 2025. One topic in particular that has consumers and experts especially worried is Social Security. While there was a stark divide between how Vice President Harris would handle Social Security compared to former President Trump, the results of the November election have all but guaranteed a worse financial situation for the program. In fact, one watchdog group in particular, The Committee for a Responsible Federal Budget (CRFB), has said that Trump's policies would hasten Social Security's insolvency by as much as three years.

As of 2024 estimates from the Social Security Board of Trustees, Social Security's trust funds are due to run out in 2035. This means that, if nothing else happens to offset Social Security's funding (either positive or negative) beneficiaries can expect to receive about 83% of their scheduled benefit amounts at that time. However, a worsening financial situation courtesy of certain policies could speed up when Social Security's funds might run out. To make matters worse, a hastening of insolvency can also lead to an even bigger decline in benefits payments once the funds do run out. While current projections only estimate a 17% decline in benefits amounts, the CRFB projects that Trump's policies could leave beneficiaries receiving just 67% of their scheduled amounts once funding runs dry.

The most significant policy proposal Donald Trump has put forward that could ultimately affect Social security's financial stability is eliminating taxation on Social Security benefits. According to the Social Security Administration, about 40% of Social Security beneficiaries pay some federal income taxes on their benefits amounts. For those who aren't familiar, retirees who earn over a certain income amount while receiving benefits are subject to income tax on part of their benefits amounts (depending on their income). This means that, if Trump's policy to eliminate taxation on Social Security benefits is enacted, retirees could end up with larger take home amounts from their Social Security benefits.

The quickest way to calculate your combined income when determining if and/or how much you might currently be getting taxed is to add up your gross income from all other income sources (plus any nontaxable interest) and add half of your total annual Social Security benefits amount. For individuals earning between $25,000 and $34,000 annually, you might be paying income tax on up to 50% of your benefits amount, while those earning more than $34,000 could face taxation on up to 85% of their benefits. Plus, nine states currently collect taxes on some Social Security income. For married couples, a joint income of between $32,000 and $44,000 could lead to income tax on up to 50% of your benefits, while a combined income over $44,000 could mean that up to 85% of your benefits end up being subject to taxes.

While, in the short term, retirees could enjoy extra money in their pockets every month, the consequences of Donald Trump's financial policies are steep. In addition to speeding up Social Security's insolvency and reducing benefits amount for retirees at the time of insolvency, Trump's policy proposals to eliminate taxation on overtime and tip income would also further hurt Social Security. Not only would these policies reduce the government's payroll tax income (which is used to fund Social Security), but the implementation of Trump's proposed tariffs could hurt all consumers. The potential for these tariffs to not only cause increased inflation (which would lead to increased COLA adjustments) but also reduce taxable payroll through job loss is significant.

Another policy that consumers should keep in mind is Trump's promise to strengthen the border. While illegal immigration can lead to other economic concerns, those same immigrants ultimately pay into Social Security's trust funds through payroll taxes. According to the Institute on Taxation and Economic Policy, undocumented immigrants paid a whopping $96.7 billion in federal, state, and local taxes in 2022 alone. The only potential financial offset that Trump has proposed to help correct Social Security's shortfall is to increase domestic oil and gas drilling. However, another report from the Committee for a Responsible Federal Budget found that dedicating the U.S.'s current oil and gas leasing revenues (which are already at an all-time high) directly to Social Security would address less than 4% of the program's projected shortfall.