Social Security is a major concern for retirees and policymakers alike, as rising inflation and demographic shifts threaten the future of the program.
Former President Donald Trump made bold promises during his 2024 campaign, particularly focusing on cutting taxes for Social Security benefits.
However, his proposed ‘Big, Beautiful Bill,’ recently passed by the House of Representatives, does not include his most significant Social Security promise.
Instead of tax cuts, retirees may see other forms of relief. But, is this a better alternative in the long run?
How Social Security Taxes Work
Social Security benefits are subject to taxes based on a metric called combined income. This is the sum of half of your Social Security income, your adjusted gross income, and any untaxed interest income.
When combined income exceeds certain thresholds, up to 85% of Social Security benefits can be taxed.
The thresholds have remained stagnant for over 30 years, meaning more retirees are being subjected to taxes on their benefits as their monthly checks increase.
| Combined Income | Percentage of Benefits Taxable |
|---|---|
| Up to $25,000 (Single) | 0% |
| $25,000-$34,000 (Single) | 50% |
| Over $34,000 (Single) | 85% |
| Up to $32,000 (Married) | 0% |
| $32,000-$44,000 (Married) | 50% |
| Over $44,000 (Married) | 85% |
For many retirees, this means higher tax bills, reducing the value of their monthly checks. Trump’s proposal to eliminate this tax was touted as a major relief, but the reality is more complicated.
The Social Security Trust Fund Crisis
The future of Social Security is under threat. According to the latest Trustees Report, the Social Security trust fund could be depleted by 2033. At that point, incoming revenue would only cover about 79% of benefits. Currently, three primary sources fund the Social Security trust:
- Payroll Taxes: A 12.4% tax on wages (split between employees and employers) up to $176,100 in 2025, bringing in over $1 trillion.
- Interest on Investments: The trust fund also invests in government bonds, generating net interest income of approximately $64 billion last year.
- Taxation of Benefits: Taxes on benefits accounted for $54 billion, but this source is increasingly important as more retirees face taxes on their benefits.
Trump’s proposal to eliminate taxes on Social Security benefits would reduce one of these critical revenue streams.
While it may help some retirees in the short term, it risks accelerating the depletion of the Social Security trust fund, potentially leading to even steeper cuts in benefits in the future.
The Impact of Eliminating Taxes on Social Security
At first glance, the idea of eliminating taxes on Social Security benefits sounds appealing, especially for seniors already struggling with inflation.
However, the policy would disproportionately benefit wealthier retirees while offering minimal relief to low-income seniors. Here’s why:
- Low-income Retirees: The bottom 40% of retirees pay almost no taxes on Social Security benefits. Their average tax burden is less than 1%. Eliminating the tax would offer negligible benefit.
- High-income Retirees: The top 20% of retirees pay about 20% in taxes on their Social Security income. While they stand to gain more, they are already better off and may not need the relief as much as lower-income seniors.
Trump’s ‘Big, Beautiful Bill’ – What It Offers Instead
Instead of eliminating the tax on Social Security benefits, the ‘Big, Beautiful Bill’ includes an additional $4,000 tax deduction for Americans aged 65 and older, as long as they meet certain income thresholds.
This deduction could provide significant relief for many seniors without further straining the Social Security trust fund.
This approach balances the needs of retirees with the realities of Social Security’s long-term sustainability.
By offering a deduction rather than eliminating the tax on benefits, the bill aims to help seniors while keeping Social Security intact for future generations.
While Trump’s promise to eliminate taxes on Social Security benefits sounded like a win for retirees, the reality of this policy could have long-term consequences for the program’s sustainability.
The current proposal, offering a tax deduction for seniors, seems like a more balanced approach that can provide relief without jeopardizing Social Security’s future.
FAQs:
What is Trump’s biggest Social Security proposal?
Trump proposed eliminating taxes on Social Security benefits, aiming to reduce the tax burden for retirees. However, this was excluded from the new tax bill passed by the House.
How does the government currently tax Social Security benefits?
Social Security benefits are taxed based on combined income, which includes half of your Social Security income, adjusted gross income, and untaxed interest. If your combined income exceeds certain thresholds, up to 85% of benefits can be taxed.
What does Trump’s ‘Big, Beautiful Bill’ include for seniors?
Instead of eliminating taxes on Social Security, the bill includes a $4,000 tax deduction for seniors aged 65 and older, helping them reduce their tax burden.