Crisis: Tax Cuts On Social Security Benefits Could Hurt New Yorkers

Republicans are proposing to cut taxes on Social Security benefits, which sounds great, right? Not so fast! The move could have a horrible effect on Social Security benefits in the future. There have recently been major changes to Social Security, including office closures, staff layoffs, restricted access to online accounts, and more. These modifications seem to be designed to make it harder for New Yorkers to access their benefits.

As of 2024, the Social Security tax rate is 12.4% on income up to $168,600. According to SmartAsset,

"In 2022, more than 3.7 million New York State residents received payments from Social Security’s main Old Age, Survivors and Disabilities Insurance (OASDI) program, including 2.7 million retired workers, 122,422 spouses and 44,582 children."

KEEP READING: 50% Of Social Security Benefits Will Be Seized From Some New Yorkers

Republican Representative Jeff Van Drew of New Jersey in January announced the 'No Tax on Social Security Act.' On the surface, it sounds like a win for New Yorkers who receive Social Security benefits, but it is not. Trump also promised, "In the coming weeks and months, we will pass the largest tax cuts in American history -- and that will include no tax on tips, no tax on Social Security, and no tax on overtime."

According to The Motley Fool, the money that funds Social Security comes from three primary sources - payroll taxes (91%), taxes collected on benefits (4%), and interest earned on trust fund assets (5%). Because Social Security is already in a deficit, cutting taxes on benefits could cause future problems.

KEEP READING: Massive Change To Social Security Affects New Yorkers This Summer

The Congressional Budget Office estimates that at some point the fund would no longer earn its interest income because the Social Security Trust Fund will run out by 2034, which is less than a decade from now. The CBO estimates that remaining tax revenue would only cover 77 percent of the payments in 2025. Benefits could be cut 23 percent in 10 years. Per the CBO, cutting taxes on benefits would cause the anticipated $3.3 trillion deficit to grow. The taxes that Social Security benefits pay would contribute $1.1 trillion, which would vanish if taxes on benefits are cut.

For New Yorkers receiving benefits now, who may not be receiving benefits within the next decade, not paying taxes is music to their ears. However, for New Yorkers who plan to start receiving benefits within the next 10 years or beyond, it poses quite a problem. The Committee for a Responsible Federal Budget estimates that ending taxes on Social Security would speed up the depletion of the trust fund by one year. Nancy Altman, President of Social Security Works, told Kiplinger,

“He’s talking about getting rid of the taxation, which increases the benefits, but the very benefits that are subject to taxation will be much reduced. So basically, it’s not an honest proposal.”

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