ANOTHER WEEK, ANOTHER IDEA: Former President Donald Trump threw another curveball into this year’s campaign last week, when he floated the idea of scrapping the current tax on Social Security benefits. Now, Democrats and Republicans are gearing up to try and shape public opinion on that proposal. Key Democrats have already argued that Trump’s plan to exempt income from Social Security benefits is just the latest example of the GOP trying to heap tax relief on those at the top end who need it the least, while ignoring people of more modest means. That’s a similar refrain to what Senate Democrats said last week after Republicans in the chamber blocked a bill that would expand the Child Tax Credit, among other provisions. And as it happens, the Urban-Brookings Tax Policy Center just released some new figures outlining who would benefit the most from getting rid of any taxes on those benefits. MORE ON THAT IN A BIT. But first, thanks for joining us once more at Weekly Tax. We’re also totally bummed to have missed this bear in Central Park story when it first happened a decade ago. Blaze of glory: Today marks 98 years since the illusionist Harry Houdini conducted his final public stunt, spending some 90 minutes underwater in an airtight coffin. (Houdini died a couple months later.) Take our breath away. Send some great scoops. You can reach us at bfaler@politico.com, bbecker@politico.com, bguggenheim@politico.com and teckert@politico.com. You can also reach us on X, formerly known as Twitter, at @berniebecker3, @brian_faler, @ben_guggenheim, @tobyeckert, @POLITICOPro and @Morning_Tax. Want to receive this newsletter every weekday? Subscribe to POLITICO Pro. You’ll also receive daily policy news and other intelligence you need to act on the day’s biggest stories. WHO GAINS THE MOST? Currently, around two in five beneficiaries have to pay taxes on what they receive from Social Security, according to government figures. Individuals making between $25,000 and $34,000 a year pay taxes on up to half of their benefits, while up to 85 percent of benefits might be taxable for those making above that amount. (For joint filers, up to 50 percent of benefits might be taxable if they make between $32,000 and $44,000.) With those thresholds, it’s not particularly surprising that vanishingly few people at the bottom of the income ladder pay taxes on their Social Security benefits, according to the Tax Policy Center. The group also found that, on a pure cash basis, the top 0.1 percent would save the most money if taxes on those benefits were erased. But by at least one very key metric — after-tax income — the biggest winners under such a plan wouldn’t be the millionaires and billionaires. It would actually be households more in the middle, if still tilted at least somewhat toward the higher end — those making between $63,000 and $200,000 a year. It makes sense when you think about it, as the Tax Policy Center’s Howard Gleckman noted. In short, Social Security benefits are more likely to make up a big chunk of income for those in the middle-class than at the very top end, so they’d also be expected to see a larger spike in after-tax income. In any event, those findings could feed into some interesting politicking over Social Security and taxes. Keep in mind that the group of biggest beneficiaries, according to the Tax Policy Center, comes in well below the $400,000 level under which both President Joe Biden and Vice President Kamala Harris, the Democrats’ new standard-bearer for November, have vowed to protect people from tax increases. Also worth noting: All of this would also come at a substantial cost, according to multiple outside analyses — in the neighborhood of $1.5 trillion over a decade, or roughly even to the initial revenue loss of the GOP’s 2017 tax law (at least when not trying to account for any economic growth). That could also put a further crimp on Social Security’s finances. But Trump has brushed off that concern, recently telling Fox Business that it would simply speed up the process by which a deal would need to be cut to shore up the entitlement program. Washington has been known to need a deadline to spring into action, as we might see again at the end of next year — when all sorts of temporary provisions from the Trump tax cuts are set to expire. But it’s also worth pointing out: Taxing Social Security benefits was a key plank in the last bipartisan deal to prop up the program four decades ago. So on some level, Trump is proposing to unwind parts of the last grand agreement on Social Security, potentially to hasten the next one. OH, TELEPHONE LINE, GIVE ME SOME TIME: Over the years, the national taxpayer advocate, the IRS’s in-house watchdog, hasn’t been shy in arguing that the agency needs to do a better job answering the phone. Now, another watchdog, Treasury’s inspector general for tax administration, is reporting that the national taxpayer advocate needs to follow that advice as well. In a new report, TIGTA said that it called the lines of all 76 local offices of the taxpayer advocate service, and got very little response. Those calls were answered at only two of those 76 offices, while some lines weren’t in service at all and other offices had full voicemail boxes. The inspector general reported that the taxpayer advocate moved quickly to make some corrections, and that the office is looking into ways to better transcribe voicemail messages. But the taxpayer advocate’s office also told TIGTA that it doesn’t have enough staff to fully implement all of the inspector general’s recommendations and that a tiny percentage of its cases stem from its local offices.
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