Why there's no tax break for Social Security benefits in the new tax bill

Social Security concerns

Social Security concerns 14:12

Republican-backed authorities present winding its mode done the House includes a fig of tax breaks promised by President Trump during the campaign, specified arsenic eliminating taxes connected idiosyncratic tips and overtime pay, arsenic good arsenic sharply lowering lowering rates connected corporations. One taxation interruption that isn't successful the bill: Mr. Trump's suggestion last twelvemonth that seniors shouldn't person to wage income taxes connected Social Security benefits. 

"Seniors should not wage taxes connected Social Security and they won't," Mr. Trump said while during an August run rally successful Harrisburg, Pennsylvania.

A proviso to destruct taxes connected Social Security isn't included successful the measure approved by the House Ways and Means Committee connected Wednesday. If the measurement passes the House, it would past determination to the Senate. The measure would marque Mr. Trump's 2017 taxation cuts imperishable portion besides adding a big of different impermanent reductions.

The crushed for the Social Security exclusion boils down to a prohibition connected making changes to the status programme done the alleged reconciliation process, a legislative process Republicans are relying connected to walk the bill, said Maria Freese, the elder legislative typical astatine the The National Committee to Preserve Social Security and Medicare. That process represents a fast-track enactment that obviates the 60-vote threshold typically required to beforehand a measure successful the Senate, she said.

Trying to alteration the Social Security programme done reconciliation would person violated what is known arsenic the Byrd rule, a regularisation (named aft precocious West Virginia Sen. Robert Byrd) that limits what tin beryllium included successful reconciliation bills, she explained. 

Instead of eliminating taxes connected Social Security benefits, the House measure includes a caller taxation interruption for elder citizens: an other $4,000 deduction for filers who are 65 and older. 

Called an "enhanced deduction for seniors," it would beryllium disposable to radical who some itemize and those who instrumentality the modular deduction. That could assistance little taxes for the astir 56 million radical successful the U.S. who are 65 oregon older.

Currently, astir 40% of Social Security recipients — oregon astir 27 cardinal radical — wage national income taxes connected their benefits, according to the Social Security Administration.

"I'm definite determination are a batch of seniors who would beryllium rather disappointed they volition proceed to wage taxes" connected their benefits, Freese said. 

Social Security's fiscal outlook

Social Security benefits were excluded from income taxes until 1984, erstwhile changes signed into instrumentality by President Ronald Reagan introduced taxes connected Social Security income supra a definite threshold. 

Because that threshold wasn't indexed to inflation, the fig of older Americans who are required to wage income taxes connected their benefits has steadily risen. The stock of seniors who wage taxes connected their benefits is present 40%, up from was 26% successful 1998, according to the Congressional Budget Office.

Those taxes straight enactment the Social Security and Medicare programs, providing astir $50 cardinal successful yearly revenue, according to the latest annual report from Social Security's committee of trustees.

Meanwhile, eliminating taxes connected Social Security benefits would wounded the semipermanent outlook of some the status programme and of Medicare, the wellness security programme for radical 65 and older, according the Peter G. Peterson Institute, a deliberation vessel focusing connected fiscal policy. 

Without that root of revenue, the spot money for Social Security would beryllium depleted successful 2032, 1 twelvemonth earlier than presently projected, portion Medicare's spot money would beryllium depleted successful 2030, six years earlier than forecast now, the radical added. 

The effect would beryllium "automatic cuts for millions of beneficiaries," the institute noted. 

Scrapping taxes connected Social Security mightiness dependable appealing to galore elder citizens successful the near-term, but implicit the agelong word that would weaken the stableness of the program, Freese said. 

"We viewed it arsenic a bait and switch," she said. "You springiness immoderate seniors a payment upfront, but don't archer them that each seniors would tally the hazard of across-the-board cuts sooner than they would nether existent law."

In:
• Taxes
• Social Security