Trump Eyes Social Security Tax Cut After Tim Walz's Move – But His Proposal Has A Catch. Will It Work? Experts Weigh In

Social Security taxes remain one of the hottest political issues at the federal and state levels of government in the United States. Former President Donald Trump and current Governor of Minnesota – now allied with Vice President Kamala Harris–Tim Walz have forwarded plans to reduce the Social Security tax burden on beneficiaries.

Don't Miss:

• The average American couple has saved this much money for retirement — How do you compare?
• Can you guess how many Americans successfully retire with $1,000,000 saved? The percentage may shock you.

In a recent appearance on Fox & Friends, Trump made a bold promise: “We can do so much for the people,” he said. "People on Social Security are being killed, and one of the things I’m doing is no tax for seniors on Social Security, and I’ll get it done quick.” Some experts have called the potential elimination of Federal Income Taxes on Social Security revolutionary.

Richard Auxier, the critical policy associate at the Urban-Brookings Tax Policy Center, set Trump’s proposal in context. “What Trump is proposing would be transformative,” said Auxier, “Both in terms of cost and how it would impact the funding of Social Security.” Indeed, this policy could add around $1.6 trillion to the federal deficit within 10 years, according to estimates by the Tax Foundation.

Trending: A billion-dollar investment strategy with minimums as low as $10 — you can become part of the next big real estate boom today.

This significant increase in the deficit could have a long-lasting effect on other government-funded programs and services, potentially leading to underfunding. For instance, there is the likelihood of increased insolvency of Medicare trust funds and Social Security, shifting their insolvency dates from 2035 to 2033 for Social Security, while that of Medicare could move from 2036 to 2030.

Trump’s plan has opened up a can of worms that exists with federal taxation. A person’s Social Security payments are taxed based on their “combined income,” defined as their nontaxable interest, adjusted gross income, and half of the Social Security benefit payments. Depending on this combined income amount, up to 85% of these benefits could be required to be paid in federal taxes, affecting about 40% of U.S. citizens who rely on Social Security for income.

Trending: Warren Buffett once said, "If you don't find a way to make money while you sleep, you will work until you die." These high-yield real estate notes that pay 7.5% – 9% make earning passive income easier than ever.

Meanwhile, Gov. Tim Walz treats state levies on Social Security taxes differently. In 2023, Minnesota expanded the state tax exclusion on Social Security benefits, which was immensely helpful to seniors. Under the law, taxpayers with adjusted gross income below $78,000 – or $100,000 if married filing jointly – could deduct Social Security benefits from taxable income.

“The policy, exempting most seniors from income taxes on Social Security, puts Minnesota more in line with other tax codes,” said Jared Walczak, vice president of state projects at the Tax Foundation. How does that change put Minnesota in line with most states? Only nine states, according to an AARP study, as of June 2024, continue to tax Social Security benefits to varying degrees.

Trending: Commercial real estate has historically outperformed the stock market, and this platform allows individuals to invest in commercial real estate with as little as $5,000 offering a 12% target yield with a bonus 1% return boost today!

Auxier responded to the distinction between state and federal initiatives: “Minnesota’s was very targeted, and the revenue cost was much lower than Trump’s proposed federal tax exemptions. States can play this with different revenue, cost, and budget ramifications.”

These divergent approaches highlight the intricacies of balancing tax cuts for seniors with the provision of crucial services like Social Security or Medicare. Whether Trump’s grand plan for the country will work or be overridden by states like Minnesota, which have begun more focused policies, remains to be seen.

Read Next:

• IRS Finalizes 10-Year Rule For Retirement Withdrawals, Making Things ‘Even More Insanely Complicated’
• Don’t miss the real AI boom – here’s how to use just $10 to invest in high growth private tech companies.