Former President Donald Trump recently suggested repealing income tax on Social Security benefits. Is it pandering, or is it an idea with merit? Trump wrote on Truth Social, “SENIORS SHOULD NOT PAY TAX ON SOCIAL SECURITY!” Whether you think paying income tax on Social Security is appropriate or not, what actually happens?
The government levies taxes to pay for Social Security which mostly comes from payroll taxes on those still working. If the government is providing a benefit; why does it make sense to gross up the amount of the benefit to then decrease the benefit by paying income taxes? That is basically what we do.
Social Security is a social safety net benefit. The rich really don’t need it, and the poorest among us cannot live without it. So, does it make sense to tax the benefit? Why not simply have one disbursement and eliminate the IRS from the transaction entirely? Why pay IRS people to process zero-tax-due filings?
We want to thank Marc Abear for this Contribution. Submit yours to steve@granitegrok.com
All the money to pay Social Security comes out of the Treasury, and all the taxes due go back to the Treasury. Eliminating income tax on Social Security payments saves time at the IRS and makes the Social Security disbursement simpler—two savings.
The Social Security Administration says, “About 40% of people who get Social Security must pay federal income taxes on their benefits.” This means 60% of those income tax filings, in round numbers, are a waste of processing time.
The Tax Foundation projects that repealing the tax on Social Security benefits could cost $1.6 trillion over ten years. Based on the FY2023 budget of 6.1 trillion, this means that over ten years, we would be taking in about 2.6% less tax revenue.
