Image source: Max Goldberg via Flickr.
It may be well over a week since America elected Donald Trump to become the next president of the United States, but the surprise of his victory is still fresh in most Americans' minds, considering that every poll leading up to Election Day had suggested a different outcome. Perhaps no group is more surprised than senior citizens, who now collectively wonder what the future may hold for Social Security.
Trump's vision of Social Security
Based on data from the Social Security Administration, more than 60% of all seniors rely on Social Security for at least half of their monthly income. For unmarried elderly recipients, this figure is above 70%. Without Social Security income, many seniors would struggle to pay their bills and keep the lights on, meaning the longevity of Social Security is of the utmost importance.
However, Social Security's woes have been well-profiled. Demographic shifts that include the ongoing retirement of tens of millions of baby boomers and increasing life expectancies are weighing on the program. By 2034, based on the latest projections from the Social Security Board of Trustees, the program's more than $2.8 trillion held in spare cash will be depleted, and a benefits cut of up to 21% could be needed to ensure that benefits continue to be paid through 2090.
Throughout his campaign, Donald Trump has outlined a simple Social Security plan: Leave it alone. Trump wants to honor the pledge America has made to its retired workers, and aims to do so through indirect actions. Rather than changing Social Security itself, Trump's economic plan includes hefty individual and corporate income tax cuts, up to $1 trillion in infrastructure spending, and a plan to make America energy independent. Trump's view is that a faster-growing U.S. economy in which consumers and businesses have more capital at their disposal will lead to wage and income growth, and thus more payroll tax will be collected.
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Could Trump fix this age-old problem with Social Security?
But Trump's election should also lead seniors to wonder whether he and Congress may tackle a 33-year-old Social Security problem that's been plaguing beneficiaries: the federal taxation of Social Security benefits.
In 1982, Congress passed amendments to Social Security (which went into effect in 1983) allowing the federal government to tax a percentage of seniors' benefits if they earned too much money. The levels were set at $25,000 or more for individuals, and $32,000 and higher for joint filers. If Social Security recipients earned more in a year, 50% of their benefits became taxable by the federal government. In 1993, under the Clinton administration, an amendment was added that allowed the federal government to tax up to 85% of a recipients' benefits if they earned more than $34,000 as an individual or $44,000 as a couple in a given year.
When the taxes were implemented in 1983, they were expected to affect only about 1 in 10 households. Even when the Clinton administration added the second tier of taxes on beneficiaries, fewer than 20% of beneficiaries were affected. However, according to 2015 data from The Senior Citizens League, about 56% of seniors are now paying tax on their Social Security benefits. The reason? Over the past 33 years Congress hasn't adjusted the tax thresholds on Social Security benefits for inflation.
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Here's how a majority of seniors would benefit
Though Trump has made absolutely no mention of amending how Social Security taxes are collected, it's not out of the question that he and a Republican-led Congress that favors tax cuts could consider adjusting how much seniors are paying in tax on their benefits. Based on an analysis by The Senior Citizens League through 2015, if the tax thresholds had simply kept pace with inflation, then they shouldn't be kicking in until $57,107 for individuals and $73,097 for joint filers.
What's more, Social Security tax revenue accounts for only a very negligible part of annual revenue generation for the program. Data from the Social Security Administration shows that only 3.4% of total revenue in 2015 came from the taxation of benefits. Adjusting the taxation of benefits for inflation over 33 years wouldn't eliminate the collection of revenue, but it would likely reduce it by a small percentage. If Trump and Congress are confident in their economic plan, then adjusting these tax thresholds could make a lot of sense and give middle-income seniors more in monthly income to work with.
It's a bit early to speculate what could be in the cards for Social Security under President-elect Trump, but given his push for lower taxes, some degree of reform on the tax front could make sense. Seniors should be hopeful, but wise enough not to hold their breath.
