MILLIONS of Americans are holding their breath awaiting to see whether Donald Trump will make promised changes to Social Security payments.
Low to middle income earners could save an “extraordinary” amount of money if Donald Trump abolishes taxes on Social Security benefits, according to retirement experts, with people earning under $100,000 a year set to benefit the most.
Retirement expert Aaron Cirksena says retirees could save a lot of money if Trump makes promised changes to Social Security[/caption]
Presidential-elect Donald Trump has promised to cut taxes on Social Security payments[/caption]
But economists are split on whether consumers will see lower bills at the grocery checkout, with some projecting inflation continuing to moderate while others warning prices could rise by up to 4% if the president decides to introduce sweeping tariffs on imported goods.
During the election campaign, Trump promised a number of tax breaks including eliminating federal taxes on tips, Social Security benefits and overtime pay.
Trump also wants to get rid of the cap on state and local tax deductions known as the SALT and lower the corporate tax rate for some companies to 15%.
While he has not outlined the full details of the plan, Trump has also flagged he would eliminate federal income tax and payroll tax.
With about half of Social Security beneficiaries currently paying federal income tax on their monthly payments, Trump said his policies would help the middle class and enable retirees to better combat cost of living issues.
Retirement and financial planning expert Aaron Cirksena told The U.S. Sun that Trump’s plan to cut taxes on Social Security would make an “extraordinary” difference for retirees currently paying up to 85% income tax on their government benefits.
Ciksena, who is the founder of MDRN Capital offering financial planning services, said a person earning about $100,000 annually of Social Security benefits and other income could see a $500 per month savings if Trump abolished tax on Social Security.
Calling the tax “the biggest pain point” for retirees, Cirksena said elderly people earning between $32,000 and $100,000 would benefit the most.
I can tell you from working with retirees that this tax is one of the biggest pain points they can have
Aaron Cirksena
“It is one of the things that irritates people the most, having paid taxes their whole life to put money into their Social Security and now they are still paying taxes again on their Social Security benefits, it is very irritating.
“It will absolutely impact them in a large way, and having a savings of up to $500 a month could be incredibly valuable for these people.”
SOCIAL SECURITY TO STRENGTHEN
Cirksena also noted that Trump’s focus on economic growth through tax cuts and deregulation could strengthen Social Security indirectly, saying “a sturdy job market leads to more payroll tax revenue feeding into the system.”
Peak Retirement Planning founder Joe Schmitz said lowering taxes on Social Security would benefit the middle class and help fuel the economy, arguing that there was “some value in having us have more control over our money than the government.”
He said politicians have historically avoided making changes to the nation’s Social Security framework, branding it “political suicide” given changes impact the finances of millions of baby boomers.
“It is such a significant policy and that’s why it has struggled so much without changes, as people don’t want to impact the elderly but obviously it is in big trouble and we need to be aware that it is going to run out and changes need to be made,” he said.
The comments come following projections from the Social Security Administration that the program will run out by 2035 meaning taxes will only be able to cover about 75% of scheduled benefits.
The agency says the shortfall is being triggered by the country’s aging population and decreasing birth rates.
WHAT WILL HAPPEN TO INFLATION?
But leading economist Larry Kotlikoff warned Trump’s proposals are “very expensive” and that his administration would need to find a way to pay for them.
While Trump has said he plans to pay for the tax cuts by boosting the economy and implementing foreign import tariffs, Kotlikoff is not convinced.
Trump has promised to slap tariffs on imported goods, an an additional 60% tax on all goods coming from China.
The National Retail Federation this week released modeling which found American shoppers could lose up to $78 billion in annual spending power if Trump followed through on his plan.
The study said the proposed tariffs would impact consumer product categories such as apparel, toys, furniture, appliances, footwear, and travel goods, particularly affecting items where China is a major supplier.
Kotlikoff, a Professor of Economics at Boston University and a Fellow of the American Academy of Arts and Sciences, said it would be impossible to pay for these policy changes without “completely blowing the debt out of the water”.
He noted estimates from The Tax Foundation which suggest America’s long term projected debt level would raise from 201% to 223% of GDP if Trump follows through on import tariffs.
“The Republicans are fully in charge and there’s no reason for them to do what was promised and that means they have all these tax cuts and have to pay for them with these tariffs income which is likely to raise prices significantly,” he said.
Kotlikoff, who is a New York Times best-selling author and was named one of the world’s most influential economists by The Economist in 2014, warned the price of goods and services could rise by up to 4%.
However, Cirksena said inflation was projected to moderate to with the Fed Reserve‘s target range of 2% by next year helping consumers pay for goods and services.
He said the Fed would continue to cut rates, stimulating the economy and helping people with cost of living issues.
Some economists are worried President-elect Donald Trump’s plan to introduce import tariffs may cause higher prices[/caption]
