Trump’s ‘Plan’ to Abolish Taxes on Social Security Benefits Is Good Politics and Horrible Budgeting

Donald Trump said earlier today that the federal government ought to stop taxing Social Security benefits. I know why Trump has proposed this in an election year. I can see its being popular, too. It’s a terrible idea nevertheless.

There’s no intrinsic reason that we should tax Social Security benefits. As a matter of fact, they weren’t taxed until 1983, at which point a levy was imposed to help shore the program up. Still, if we were going to make such a change, we certainly wouldn’t do so now. As of today, the federal government is $35 trillion dollars in debt; every year, we run trillion-dollar deficits; and, as far as I can see, we have absolutely no plan to fix that — or even to slow the rate of increase. Social Security is already running out of money; it already pays out beneficiaries more than they have put in; and, if no changes are made, this will result in an automatic 21 percent cut to benefits as early as 2033. Presently, taxes on Social Security benefits bring in around $87 billion of revenue each year — which, given inflation, would likely project out to about a trillion dollars per decade. Obviously, if we stop collecting those taxes, those revenues will disappear. Nomenclature to one side, that would be the mathematical equivalent of expanding Social Security by $87 billion per year.

Is it worth it? Economically, I cannot see the case for its being a priority even if the GOP were determined to cut taxes. Relative to other tax cuts, tax relief on Social Security benefits would not be particularly effective at fostering growth. Relative to other political goals (I’m not in favor of using the tax code for social engineering, but . . . well, we do), the case for categorically sending even more money to a group of older Americans who already enjoy a considerable share of the country’s wealth is pretty weak. And, if our aim were to help the poor or the middle-class, we’d be much better off cutting income taxes in the lower brackets or doing a payroll cut (or “holiday”) that spends more on Social Security in ways that help people who are still working.

And all that’s before we ask whether we need to cut taxes by nearly $90 billion per year in the first place — which, in my estimation, we do not. Don’t get me wrong: If I could I’d abolish quite a lot of the federal government’s expenditures and, with them, the 16th Amendment. But we aren’t going to do that. There is no appetite in either party to do that. There is, in fact, less enthusiasm for doing that than we’ve seen in about four decades. As far as I can tell, Trump wants to add this change on top of fully extending his tax cuts, eliminating taxes on tips, opposing any cuts to Medicare and Social Security, and (maybe) cutting the corporate tax rate from 21 percent to 15 percent. In a vacuum, that conversation would be worthwhile. But we’re not in a vacuum; we’re in the midst of a slow-motion fiscal crisis that nobody wants to address. Part of being a conservative is accepting that you’re starting from where you’re starting instead of starting where you want to be starting, and we are starting with a disastrous federal budget that is not getting better over time. I have no doubt that, if Trump adopts it as an official part of his pitch, “abolish taxes on Social Security” will be a killer line on the stump. In Microsoft Excel, however, it’ll be a good deal less useful.