Trump Could Eliminate Social Security Taxes: 5 Reasons Experts Warn Against It
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Heather Altamirano
5 min read
In just a few days, President-elect Donald Trump will return to the White House for a second term, and significant changes are expected, including eliminating Social Security taxes. It was an issue he often talked about on the campaign trail, and he reiterated his stance on the social media platform Truth Social on July 31, 2024, writing in all capital letters, “Seniors should not pay tax on Social Security.”
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While paying less taxes sounds like more money in your wallet, it could actually cost more in the long run according to finance experts. “Without this funding [from taxes], Social Security’s trust fund would quickly run dry, forcing cuts to benefits or even jeopardizing the program’s existence,” explained Shirley Mueller, founder at VA Loans Texas. “For many retirees who rely heavily on Social Security as a primary source of income, this could create severe financial instability, particularly for those without substantial savings or pensions to fall back on.”
If Trump does follow through with his promise to get rid of taxes on Social Security, there could be an immediate budget crisis, according to finance expert Andrew Lokenauth, founder of TheFinanceNewsletter.com. “Eliminating Social Security taxes would create a massive funding gap in the program — we’re talking about $1.4 trillion annually,” he explained.
“While you might see slightly bigger paychecks now (about $4,200 more annually for someone making $67,000), you’d likely face much higher taxes later or see your future benefits vanish completely, ” Lokenauth added. “It’s like getting a small bonus today, but losing your entire retirement savings tomorrow.”
Almost 68 million Americans receive Social Security, and 27% of retirees rely solely on the program for their entire income, per the Senior Citizens League, leaving many to fall into serious financial hardships without it.
“If we eliminate the tax that funds it, your retirement safety net disappears,” Lokenauth noted. “Think about this: the average retiree gets $1,800 monthly from Social Security. Without these benefits, you’d need an extra $400,000-$500,000 in personal savings to generate the same income. Most Americans (about 64%) don’t even have $10,000 saved for retirement.”
Increased Federal Debt
Our national debt currently sits at around $1.8 trillion, and some experts believe it could get worse if taxes on Social Security aren’t paid.
“The program accounts for a significant portion of government spending, and without this revenue, the deficit would skyrocket,” per Danny Ray, founder of PinnacleQuote. “This could lead to higher borrowing costs, inflation or cuts to other essential programs, impacting every American’s wallet in the long run.”
Economic Domino Effect
According to Lokenauth, the entire economy could be impacted if Social Security taxes aren’t paid.
“When you remove $1.4 trillion in annual spending power from retirees, disabled people and survivors, the whole economy takes a hit,” he explained. “For your personal finances, this means fewer customers for businesses, potentially lower property values, and a weaker job market. Consider this: every Social Security dollar generates about $2 in economic activity. Eliminating this multiplier effect would likely trigger a recession that could shrink your investment portfolio and reduce your job security.”
Generational Financial Burden
Higher taxes elsewhere could be implemented to cover seniors not paying Social Security taxes, which would create financial difficulties for other generations, according to experts.
“Here’s the really tricky part — the government would still need to pay benefits to current retirees who’ve paid into the system their whole lives,” Lokenauth explained. “Without the payroll tax, this money would have to come from somewhere else — probably higher income taxes or massive government debt. For your wallet, this means you could end up paying even more in other taxes while still needing to save extra for retirement. It’s like paying twice for half the benefit.”
Ray added, “Younger Americans would be forced to shoulder higher taxes or deal with fewer benefits when it’s their turn to retire. Overall, this approach undermines the intergenerational agreement that Social Security represents, leaving a heavier financial load on those who are just starting their careers or raising families.”
It’s no secret that Social Security is in trouble. The Social Security Board of Trustees project that by 2035, there will only be enough money to pay retirees 75% of their benefits. Without changes, younger generations won’t receive 100% of their benefits. Trump needs to act quickly to save the program, but cutting taxes isn’t the solution, according to Mueller.
“Rather than eliminating Social Security taxes, I’d argue for targeted reforms to ensure the program’s sustainability.” She added, “From my perspective, adjustments like raising the income cap on taxable wages or gradually increasing the retirement age could be more effective solutions that balance immediate needs with long-term viability.”
She also advised that a way to protect yourself against unfavorable policy changes is to “diversify your savings with 401(k)s, IRAs and other investments.”
