Harris' running mate Tim Walz cut taxes on Social Security in his state. Here's how it differs from Trump's proposal Tim Walz cut state taxes on Social Security. Here's how it's different from Trump's plan
Vice President Kamala Harris' new running mate Minnesota Gov
As many retirees struggle to afford the basics, there's been bipartisan support to exempt Social Security from income taxes.
That policy has spilled into the 2024 election with a federal proposal from Former President Donald Trump and recent state legislation from Vice President Kamala Harris' new running mate Minnesota Gov. Tim Walz.
"We can do a lot of things to help the people," Trump said during a "Fox & Friends" interview on Wednesday morning. "People on Social Security are being killed, and one of the things I'm doing is no tax for seniors on Social Security, and I'll get it done quickly."
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Of course, there are key differences when comparing a federal tax proposal with state legislation, including the political and fiscal landscape, policy experts say.
Trump's plan 'would be transformative'
Federal income taxes on Social Security are based on "combined income," which includes your adjusted gross income, non-taxable interest and one-half of Social Security benefits.
If your combined income is between $25,000 and $34,000 — or $32,000 and $44,000 for married couples filing jointly — up to 50% of Social Security benefits are subject to tax.
For combined income above those thresholds, up to 85% of your Social Security benefits may be taxable.
Roughly 40% of Americans who receive Social Security pay federal income tax on those benefits, according to the Social Security Administration.
What Trump is proposing would be transformative.Richard AuxierPrincipal policy associate for the Urban-Brookings Tax Policy Center
"What Trump is proposing would be transformative," both in terms of cost and funding Social Security, said Richard Auxier, a principal policy associate for the Urban-Brookings Tax Policy Center.
If enacted, Trump's proposal to exempt Social Security from federal income tax could boost the budget deficit by $1.6 trillion over 10 years, according to estimates from the Tax Foundation.
The policy could also accelerate insolvency for the Social Security and Medicare trust funds.
For Social Security (including the disability portion of the program), it may move insolvency up two years, from 2035 to 2033, and for Medicare, it may move it up six years, from 2036 to 2030.
Trump's campaign didn't respond to CNBC's request for comment by press time.
Minnesota's 'targeted' exemption
Enacted in 2023, Minnesota expanded the state tax exemption for Social Security, which eliminates the levy for most seniors.
For 2023, taxpayers with less than $78,000 adjusted gross income, or $100,000 for married couples filing jointly, can subtract Social Security benefits from earnings.
The policy, which exempts most seniors from income taxes on Social Security, helps Minnesota "mirror other tax codes," explained Jared Walczak, vice president of state projects at the Tax Foundation.
As of June 21, only nine states tax Social Security to varying degrees, according to AARP research.
Minnesota's policy "was targeted and the revenue cost was significantly lower" than Trump's proposed federal tax exemptions, Auxier from the Tax Policy Center explained.
"States can make this play and it has different revenue, cost and budget ramifications," he added.
This story originally appeared on: CNBC - Author:Kate Dore, CFP®
