Trump's right about not taxing social security benefits: Seniors earned it, they should keep it
Former President Donald Trump threw another curveball into the presidential race this week by suggesting that Social Security benefits should not be taxed. Just as with the Trump idea earlier this summer to stop taxing tips, Democrats are publicly objecting and privately wondering: why didn't we think of this ourselves?
Many Democrats have in the past supported this policy through a plan called "You Earned It, You Keep It." But now they howl that it will put Social Security in danger and benefit the rich. That's insulting to the millions of middle-class seniors who work.
Currently, Social Security recipients with incomes below $25,000 individually or $32,000 for couples are exempt entirely from the tax. Those with higher incomes can get taxed on up to 85% of their benefits received. This is a big disincentive to work. It's also unfair to seniors who do continue to work after age sixty-five.
TRUMP DECLARES SENIORS SHOULD NOT PAY TAXES ON SOCIAL SECURITY
Right now, the Social Security Administration estimates that about half of seniors on Social Security pay taxes on their benefits because of other income. That's millions of seniors ensnared in this tax.
Taxing these benefits reduces the incomes of seniors but also makes no sense economically.
As the system currently works, the government takes about 12.6 percent of each worker's paycheck through a payroll tax. Then the government pays a small benefit worth less than half of what workers paid in (plus a fair rate of return) when the worker retires. The average benefit is around $2,000 a month -- loosely dependent on how much that person paid in and how much they worked.
By the way: who can live on $2,000 a month? This is why, in addition to this new Trump plan, the most critical and urgent reform of Social Security is to immediately allow young workers the option of putting the 12% tax into a 401k plan that earns a rate of return and that they own. Young workers would get three times the benefit they are scheduled to get when they retire.
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A big benefit of the Trump proposal is that it rewards seniors - who have already spent a lifetime paying into the system -if they continue to work and invest. Right now, the tax on working for seniors can be well over 50 percent or more of their paycheck. This is because they pay regular income tax on the earnings plus the tax on the benefits.
Seniors who continue to work pay the highest tax rates in the country. This is why all supply siders should embrace this idea.
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We WANT and NEED seniors to continue to work if they are able-bodied and they want the extra income. Donald Trump is in his mid-70s and he works six to seven days a week. And he's healthier for it. The evidence is clear that the longer you work, the longer you live.
As our society ages, life spans increase, and some 75 million baby boomers reach retirement age, we need to encourage seniors to stay on the job or perhaps work part-time in other endeavors. This is especially true because the number of workers per retiree will soon be close to only two to one.
Without policies to incentivize those in their 60s and 70s and even 80s to continue to produce, our economy could collapse under fiscal strain. We can bring in immigrants - but we need our native talent too.
It's also a matter of fairness. When grandma and grandpa retire, they shouldn't have so much of their earnings taxed away. Nor should they be taxed yet again when they die.
When it comes to tax policy, working seniors often pay the heaviest toll. Ending Social Security benefit taxes is a smart policy proposal and (even smarter politically given the importance of the elderly vote).
Congratulations to Trump for once again being one step ahead of the Democrats.
Stephen Moore is a co-founder of Unleash Prosperity. He is a senior economic advisor to the Trump campaign.