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Donald Trump, the former U.S. President, has been vocal about his intention to introduce new tax cuts to stimulate economic growth.

According to Hot Air, Trump's latest proposal has stirred concern at the New York Times. The former President has suggested abolishing taxes on Social Security payments, a policy change long advocated by AARP and other senior interest groups. This proposal could pose a challenge for Harris and Tim Walz, especially for the latter.

Initially, Trump proposed a tax cut for hotel and restaurant workers in Nevada, a swing state, by exempting tips from taxes. Subsequently, he suggested cutting the corporate tax rate in a meeting with influential CEOs in Washington, alleviating business community concerns about his candidacy. Now, Trump is advocating for the cessation of taxing Social Security benefits, a move that could benefit retirees, a politically significant group in the US.

This idea is so politically potent that it's surprising it hasn't been proposed until now. However, as the New York Times points out, it has been proposed before, notably by Democrats. In fact, one Democrat managed to implement this policy for state income taxes.

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August 09, 2024

There is bipartisan support for this concept. Earlier this year, some House Democrats introduced legislation to stop taxing Social Security benefits while raising payroll taxes on higher-income Americans to fund the program. As governor of Minnesota, Tim Walz, whom Vice President Kamala Harris selected as her 2024 running mate, signed legislation that exempted Social Security payments from state taxes for many seniors.

This could make it challenging for Harris or Walz to argue against the proposal. However, there are valid arguments against it, particularly concerning fiscal stability. The New York Times highlights that this would eliminate $1.8 trillion in revenue over the next decade, at a time when the US is grappling with massive annual deficits that continue to add to the national debt. Trump himself has criticized the Biden administration's rapid expansion of deficits during his campaign.

Charles Blahous, a former Social Security trustee, wrote that the lost income would destabilize the fund on which the benefits depend. Trump's proposal could also disproportionately benefit those who need relief least, as the current system already protects low-income seniors to some extent.

The Committee for a Responsible Federal Budget calculated that eliminating these taxes would exacerbate shortfalls for Social Security and Medicare Hospital Insurance by 25% and 170%, respectively. It could render the latter insolvent by 2030, six years earlier than expected.

Exempting Social Security benefits from taxation could also be regressive. It would not benefit the 60% of seniors who already pay no income taxes on their benefits and would channel gains to the top 40% by income. Over the past few decades, the median wealth for Americans in their 60s and 70s has significantly increased, while younger adults wealth has lagged behind.

The political appeal of eliminating taxes, particularly for seniors who are more likely to vote, is clear. However, doing so would violate the principle of equal taxation for equal income, exacerbate Social Security and Medicare's financial problems, and transfer more income to wealthier households. If we value Social Security and Medicare and those who rely on them, the status quo should be maintained.

This proposal could still be viable if it were accompanied by a significant restructuring of both Social Security and Medicare. Such a restructuring is long overdue, but neither party wants to take ownership of such a plan. Previous attempts by George W. Bush and Paul Ryan were met with strong opposition from Democrats. Trump has refused to consider reforming either program, so this would be the kind of revenue cut that Blahous warns about.

While it may be challenging to pass in Congress, it's generally easier to pass tax cuts than reforms that cost voters benefits and money. Seniors and activists, having raised their expectations, will expect Trump to deliver.

Bill Sweeney, the senior vice president for government affairs at AARP, stated that any changes to Social Security should protect the programs finances. He added that his groups members were not shy about expressing their distaste for taxes on Social Security.

Of course, the success of these proposals depends on Trump winning the election. This is precisely what he wants seniors to understand when they decide which candidate to support. The New York Times also understands this, which is why they're concerned that this tax proposal might have struck gold.

Vice Presidential candidate Tim Walz, selected by Kamala Harris for the 2024 Democratic ticket, has a history of supporting policies that favor illegal immigrants.