Trump's Social Security Tax Cut Is An Economic Nightmare

Does anybody in politics understand tax policy these days? The Biden-Harris Democrats want to raise tax rates to Thomas Piketty French socialist levels.

Republicans want to cut taxes, but they want to do so for specific groups to buy their votes. They’ve all lost the growth plot.

Mr. Trump’s tax fumbling is especially disappointing because his 2017 cut in tax rates was the policy foundation for the strong pre-pandemic U.S. economy. But so far in this campaign he’s proposing hugely expensive tax cuts for different voting groups that won’t do much for growth.

Trump has promised not to tax tipped income. Then last week he averred on Truth Social that “SENIORS SHOULD NOT PAY TAX ON SOCIAL SECURITY!” He needs to win the senior vote against Kamala Harris by a large margin, so he’s going right for their pocket book. We favor lower taxes as a matter of principle, but not all tax cuts have equal benefit. And this one is likely to backfire in spectacular fiscal and economic ways.

Taxing benefits is projected to raise between $1.6 trillion and $1.8 trillion over 10 years.

That’s a big tax cut—larger even than the static-revenue cost of Mr. Trump’s 2017 reform. Yet unlike that reform, it would provide little economic bang for the buck. Corporate tax reform encouraged more investment and savings that led to higher productivity and living standards. A Social Security benefit tax cut is essentially an increase in benefits by another name.

As an economic incentive, it is arguably anti-growth. At the margin it could induce seniors to retire earlier than they otherwise would since they would have to keep paying income tax on wages but not on benefits.

A smaller workforce would be a drag on growth.

Eliminating the tax on benefits is an income transfer to seniors who have been able to accumulate assets across their life spans.