Hot on the heels of his proposal to eliminate the tax on tips from service workers, Donald Trump has proposed another tax cut: the elimination of all taxes on Social Security retirement income.

“SENIORS SHOULD NOT PAY TAXES ON SOCIAL SECURITY!” Trump wrote on Truth Social on July 31, appealing to the tens of millions who receive monthly Social Security benefits ahead of the upcoming 2024 presidential election. About 40 percent of beneficiaries currently pay federal income taxes on retirement, spousal and disability benefits—not including Supplemental Security Income (SSI).

Under current Internal Revenue Service (IRS) rules, individuals earning between $25,000 and $34,000 per year must pay taxes on up to 50 percent of their Social Security benefits. If you earn more, up to 85 percent of the benefits provided by the Social Security Administration (SSA) may be taxable.

But experts criticize Trump’s plans from both a cost and political perspective, warning that they could further exacerbate the SSA’s looming funding crisis and increase the federal deficit.

The costs

Trump’s proposal to exempt Social Security benefits from federal income tax would increase budget deficits by $1.6 trillion to $1.8 trillion by 2035, according to an analysis by the Committee for a Responsible Federal Budget (CRFB).

Perhaps most important for the average U.S. worker who will receive Social Security benefits in the future is the following SSA Trustees Report 2023, released earlier this year: The trust funds that support the nation’s largest benefit system for retirees, survivors and the disabled will run out of funds in 2035. By then, recipients are expected to receive only 83 percent of their full benefits unless Congress takes action to ensure the system’s solvency.

Since Social Security revenues are allocated to the Social Security and Medicare trust funds, a cut would naturally dampen revenues to fund the SSA. The CRFB has calculated that exempting Social Security from federal income tax would advance the insolvency date of the Social Security retirement fund by over a year. The Tax Foundation, which called the policy “fiscally irresponsible,” predicted that it could deplete the funds two years earlier than currently projected — in 2033.

“The revenue from taxing these benefits is significant – over $50 billion in 2023, or just under 4 percent of total Social Security revenue,” said Devin Carroll, owner and senior advisor at Carroll Advisory Group News week.

“That number is expected to triple over the next decade as more retirees fall into the taxable brackets,” he continued. According to a CRFB forecast, taxes on Social Security benefits are expected to raise about $94 billion this year.

Carroll said that eliminating a source of revenue for the SSA without a viable replacement would “exacerbate the government agency’s already looming deficit” and could potentially “lead to even more drastic benefit cuts in the future.”

Newsweek has reached out to Trump’s campaign team and asked for comment and clarification on how the tax cuts will be financed.

The effects

“Eliminating taxes on social benefits would provide some financial relief to pensioners, but the impact would be relatively small,” Carrol said.

According to the Tax Foundation, abolishing these taxes would increase the net income of retirees with income above the tax threshold by as much as 1.1 percent, or 0.6 percent on average. But for retirees with less money in their pockets – who are already exempt from taxation on benefits – there would be little change.

“Eliminating taxes on Social Security income could provide relief to many retirees and potentially improve their quality of life and ability to access essential care and services,” said Neal Shah, CEO of health technology and elder care startup CareYaya, Newsweek“This change would particularly benefit pensioners and people who are close to retirement, as their income would immediately increase.”

But Carroll said the financial impact for current workers is less positive. “Current workers would not directly benefit from the tax exemption because they are not yet receiving benefits,” he explained. “However, they may perceive it as a future benefit that could influence their opinions or voting. Overall, however, the proposal is more of a political maneuver than a significant financial improvement for either group.”

The policy

Victoria Haneman, professor of trust and estate law at Creighton University School of Law, said Newsweek that politicians who promise tax cuts “without discussing the cost of this tax cut and who will bear the cost of this tax cut” are engaging in “political theater.”

“We tend to give media attention to any politician who mentions the word ‘tax cut,’ regardless of party. Tax cuts for seniors are always popular, in part because voter turnout is always highest among 65- to 74-year-olds,” she said.

“I don’t want to sound cynical, but politicians know what they are doing when they discuss tax cuts for the broadest section of the electorate. This is political theater.”

Haneman argued that a “better option would be to index the income limits on Social Security taxes to inflation,” but acknowledged that this would have little appeal to voters. “But if a politician wants to make political theater, it’s far more difficult to sell indexing to inflation as an important change.”