President Donald Trump wants to give half the salary increase to all Social Security retirees – but it can backfire

Key points

• The leading U.S. retirement plan will face a long-term funding shortage of $23.2 trillion and the possibility of cutting benefits in 2033.

• Trump has a popular plan to put more money into half of all Social Security retirees’ pockets.

• While the president’s plan will bring near-term rewards to certain retired workers beneficiaries, it will come at a huge cost.

For the vast majority of retirees, Social Security represents more than a monthly check. This is the financial lifeline they strive to do.

According to data from the Budget and Policy Key Centers, Social Security will pull 22 million people above the federal poverty line in 2023, with more than 16.3 million people aged over 65. Meanwhile, Gallup conducted an annual survey of 23 years and found that 80% to 90% of retirees rely on their Social Security income in some capacity to pay for their expenses.

Nothing is more important than keeping a social security financial position, and nothing is more important than President Donald Trump’s strengthening program.

While Trump has maintained a dynamic approach primarily on social security and focused on cost-cutting programs based on efficiency, he has a huge change that will ultimately give half the pay raises for all retired workers beneficiaries. Unfortunately, this is also a counterproductive suggestion.

U.S. leading retirement plans need reform

In January 1940, the first social security retired worker’s welfare check was mailed. Since then, the Social Security Commission has released a report every year that intricately detailed the internal functioning of the program. These annual reports allow the public to carefully read every dollar of income in income and where those dollars eventually arrive.

However, these annual reports are often more insightful and forward-looking predictions. These forecasts take into account ongoing demographic changes, as well as changes to fiscal and monetary policy, to determine how financial status after the release of the report is within 75 years (i.e., the trustee’s definition of “long-term”).

In each of the past 40 years, the trustees have pointed out the long-term financial obligations. In short, the estimated revenue collected within 75 years after the report is not sufficient to cover expenditures, which mainly includes benefits, but also illustrates the administrative expenses to oversee the plan. Trustee reports that the 75-year funding shortage is $23.2 trillion – a figure that has been growing over time.

A more pressing focus is the asset reserves of the Older and Survivor Insurance Trust (OASI), which are estimated to be exhausted in 2033. OASI’s asset reserves represent excess cash that has been paid since its inception, which is not paid as a benefit or used to pay administrative expenses. The excess income is currently invested in special issuances of interest-based government bonds as required by law.

If lawmakers fail to take action and OASI’s asset reserves are already exhausted, retired workers and survivors of deceased workers will reduce benefits by 21% monthly in eight years.

President Trump wants to raise half of all retired workers’ beneficiaries

Donald Trump oversees many changes in social security in the first 100 days of his second discontinuous term. However, these efficiency-driven measures will not result in a long-term funding shortage of $23.2 trillion or meaningfully address the expected depletion of OASI asset reserves in 2033.

But the president does have a proposal to bring more money into the pockets of older people.

In a July 31 social media post, Trump announced in all capital letters: “Elderly people should not pay social security taxes.”

His sentiment in recent weeks has doubled that retirees should not tax the Social Security benefits they receive. President said while speaking at the City Hall event

Over the next few weeks and months, we will pass the largest tax cuts in U.S. history – which will not include tips and Social Security taxes do not include taxes on overtime. It is called “a big, beautiful Bill”.

In 1983, due to nearly exhaustion of social security’s asset reserves, bipartisan Congress passed it, and then President Ronald Reagan signed the 1983 Social Security Amendment, becoming law. The amendment gradually increased the full retirement age and payroll tax on Americans and introduced a tax of total disdain for benefits.

When welfare tax comes into effect in 1984, benefits for temporary income (adjusted total income + tax-exempt interest + half of benefits) may be subject to up to federal tax rates, $25,000 for single filers and $32,000 for co-apply couples. Ten years later, a second tier is added if the single filer and the couple jointly file a temporary income of $34,000 and $44,000, allowing up to 85% of the benefits to be levied on federal taxes.

When this tax came into effect in 1984, it is expected to affect 10% of all senior households. But because these income thresholds did not adjust to inflation decades ago, about half of senior households now pay a certain level of tax on the benefits they receive.

If President Trump succeeds in eliminating this nasty tax, he will give half of all retirees a salary increase (in a sense, they no longer need to pay taxes on certain benefits of their own).

Donald Trump’s kind proposal is expected to backfire

On the surface, current and future retirees will receive a lot of support to end the tax on benefits. In informal polls conducted by the Elderly Union, the vast majority of retirees believe that Social Security benefits should not be taxed.

Unfortunately, this well-intentioned program puts more money into half of all current social security retirees’ pockets, which will be a short-term relief that leads to larger long-term problems.

To combat the decline in Oasi’s asset reserves, the leading U.S. retirement plan needs to collect every income. Currently, there are three ways of social security:

• Of the $1.3.5 trillion collected in 2023, more than 91% comes from a payroll tax of 12.4% of income income, which includes wages and wages, but does not include investment income. In 2025, all incomes with a maximum income of $176,100 will be paid for payroll tax.

• About 5% of interest income from asset reserves from OASI and Disability Insurance Trusts (DIs), which, as mentioned earlier, has been invested in government bonds undertaking interest.

• The rest of social security income comes from taxing social security benefits.

The good news is that the share of the Lion’s social security income will continue to be taken from the payroll tax. As long as Americans continue to work hard and pay taxes, the Social Security Bureau will always have funds allocated to qualified beneficiaries.

On the other hand, the plan’s interest income will be reduced as OASI’s asset reserves steadily run out. The interest income generated by DI asset reserves represents a small share.

Eliminate taxes on benefits, while social security interest income is expected to decrease over time, which will weaken the program. According to estimates from trustee reports in 2024, revenue generated from tax benefits is expected to jump from $50.7 billion in 2023 to $132.8 billion in 2033.

Although half of all retirees (the highest temporary income) will have a short salary increase, Oasi’s asset reserves will be exhausted and will not even be exhausted from the benefits taxation. In plain English, Trump’s plan will speed up the welfare limit schedule and potentially increase percentage benefits (i.e., exceeding the current 21% cut estimate) to maintain the plan for 75 years.

It shows that popular ones are not always the best solution.

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President Donald Trump wants to give half the salary increase to all Social Security retirees – but it was originally published by Motley Fool