President-elect Donald Trump has pledged to shake things up in Washington in his second term. Mass deportations, high tariffs on all imports, extended tax cuts, and greater deregulation are just a few of the commitments he made as a presidential candidate.
But how could Trump's policies affect the 54 million Americans who receive Social Security retirement benefits? Here are the two main changes he wants to make to Social Security.
Image source: Official White House photo by Shealah Craighead.
1. Eliminate federal taxes on Social Security benefits
Currently, around 40% of individuals pay federal income taxes on their Social Security benefits. Whether or not recipients are in this group depends on how much money they make.
Up to 85% of Social Security benefits may be subject to federal income taxes based on individuals' combined income (adjusted gross income plus nontaxable interest plus half of their Social Security benefits) and federal tax filing type.
Trump wants to eliminate these taxes for seniors. He isn't the first politician to propose doing away with federal taxes on Social Security benefits. One of the most recent efforts to do so -- the You Earned It, You Keep It Act -- was introduced in Congress earlier this year.
Throughout much of the history of the Social Security program, benefits weren't taxed at the federal level. That changed in 1984 when a bipartisan plan to financially strengthen Social Security was implemented.
2. Bolster Social Security's finances through more oil and gas drilling
During the race for the Republican presidential nomination, Trump criticized Florida Gov. Ron DeSantis' proposal to increase the full retirement age to maintain the Social Security program's solvency. Trump told Fox News host Sean Hannity in a town hall, "You don't have to touch Social Security."
Instead, Trump suggested that the U.S. has "liquid gold" (oil and gas) that could be used to bolster the program's finances. He said the country could also pay down its national debt by increased oil and gas drilling.
Will these changes happen in 2026?
It's unrealistic to expect major changes for Social Security in Trump's first year back in office. But could they happen in 2026? That could be a stretch, too.
The main challenge with eliminating federal income taxes on Social Security benefits is that doing so would cause the program's trust funds to run out of money earlier than projected. Trump would be highly unlikely to secure the 60 Senate votes needed to bypass an almost certain filibuster.
Could the GOP attach language to eliminate federal taxes on Social Security benefits in a budget bill that can't be filibustered? Nope. The Byrd rule prevents changing Social Security through the budget reconciliation process.
Maybe Republicans in the Senate could decide to scrap the filibuster altogether. However, this also seems unlikely considering that the incoming Senate majority leader, John Thune, and other GOP senators have committed to leaving the filibuster in place even if it means parts of Trump's agenda won't be passed.
Trump probably could incrementally boost U.S. oil and gas drilling, perhaps even before 2026. For example, he could make more federal land available for drilling and eliminate some regulatory barriers for the industry.
But domestic production is already at an all-time high. The industry could reduce production on its own if prices fall too much due to oversupply.
More importantly, though, increased drilling might not help Social Security very much. The nonpartisan Committee for a Responsible Federal Budget analyzed Trump's idea and found that using current oil and gas leasing revenue to fund Social Security would address less than 4% of its projected shortfall. It also determined that Social Security's financial issues wouldn't be solved even if all federal land was made available for drilling.
Presidents don't always get what they want. Because of the political and economic realities, it seems likely that Trump won't get what he wants with Social Security by 2026 -- and perhaps not by the time his second term ends in January 2029.
The $22,924 Social Security bonus most retirees completely overlook
If you're like most Americans, you're a few years (or more) behind on your retirement savings. But a handful of little-known "Social Security secrets" could help ensure a boost in your retirement income. For example: one easy trick could pay you as much as $22,924 more... each year! Once you learn how to maximize your Social Security benefits, we think you could retire confidently with the peace of mind we're all after. Simply click here to discover how to learn more about these strategies.
View the "Social Security secrets" »
The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
