President Trump during his campaign proposed exempting Social Security from federal income tax. Several lawmakers in Congress have recently introduced legislation that aims to accomplish the same goal.
- Rep. Angie Craig (D-Minn.) in January announced the You Earned It, You Keep It Act.
- Rep. Jeff Van Drew (R-N.J.) in January announced the No Tax on Social Security Act.
- Rep. Thomas Massie (R-Ky) in February announced the Senior Citizens Tax Elimination Act.
Additionally, President Trump last month pushed Congress to approve a “big, beautiful” tax and spending bill that fulfills several other campaign promises. “In the coming weeks and months, we will pass the largest tax cuts in American history — and that will include no tax on tips, no tax on Social Security, and no tax on overtime,” he said.
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However, those major changes to tax law would likely hurt retired workers on Social Security. Here’s why.
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Social Security benefits could be cut 23% in 2035 under current tax law
Social Security is primarily financed by taxes, but there are three revenue sources: 91% comes from payroll taxes, 4% from taxes collected on benefits, and 5% from interest earned on trust fund assets. The program is regularly running deficits, meaning it’s spending more money than it brings in, because the retired population that draws benefits is growing more quickly than the taxpaying population that supports the program.
The Congressional Budget Office (CBO) estimates the Social Security Trust Fund — the financial account that pays benefits to retirees, spouses, survivors, and disabled workers — will be exhausted by 2034. At that point, one funding source would disappear because the trust fund would no longer earn interest. The remaining tax revenues would cover only 77% of scheduled payments in 2035. That means benefits could be cut 23% in 10 years unless lawmakers find a solution.
Ending taxes on Social Security means benefit cuts would happen sooner
The CBO estimates Social Security will run a $3.3 trillion deficit over the next decade. Taxes on benefits will contribute $1.1 trillion to revenue during that period. So, eliminating that income would make an already-substantial deficit much larger. In turn, the trust fund would be exhausted sooner than CBO anticipates under current law, meaning Congress would have less time to avoid substantial benefit cuts.
Importantly, while the precise time to trust fund depletion depends on the discrepancy between cash inflows and outflows, the Committee for a Responsible Federal Budget (CFRB) says ending taxes on Social Security would move trust fund depletion forward by one year. Alternatively, a budget model from Ivy League business school Penn Wharton estimates it would hasten trust fund depletion by two years.
More broadly, CRFB estimates ending taxes on tips, overtime, and Social Security — changes President Trump wants included in the “big, beautiful bill” currently being debated in Congress — would collectively bring trust fund depletion forward by three years. In that scenario, benefits would be cut in 2032 unless lawmakers fix the financing problem.
Additionally, because those tax law modifications could reduce Social Security’s revenue by as much as $2 trillion over the next decade, the resultant benefit cuts would be even larger than expected. CRFB estimates payments would be slashed 33% by 2035, up from the 23% cut projected by CBO under current tax law.
Here’s the bottom line: Representatives from both political parties have proposed eliminating taxes on Social Security benefits. President Trump has gone even further in suggesting tips and overtime should be exempt from federal income tax. Those changes may ultimately be a bad thing for retired workers, despite increasing benefits for individuals that currently owe tax on their Social Security checks.
Nancy Altman, President of nonprofit group Social Security Works, recently told Kiplinger, “[Trump’s] talking about getting rid of taxation, which increases benefits, but the very benefits that are subject to taxation will be much reduced. So basically, it’s not an honest proposal.”
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Wasn’t the trust fund raided years ago? Cutting tax from benefits will be a raise for most recipients, which is fair IMO. Find your revenue elsewhere! Cut your spending elsewhere! Fix the problem YOU created with the trust fund by adding funds back that were stolen.
Taxes on SS benefits only account for 4% of current benefits funding. As a current SS benefit recipient, I would be thrilled with a simple inflation-adjustment of the income thresholds where the benefits become taxable. Those are still in 1983 dollars. That would be fair.
Why don’t we pit all the waisted money spent ny the previous administration back into social security? Our government, sworn to protect our rights and our money sure don’t abide by the constitution! Make this whole again before citizens get smart and even!
Eliminating tax on tip income is certainly help to poor people, but eliminating tax on overtime is not at all good. Those who have regular jobs are also doing good and getting overtime income taxed are not unhappy. Congress or senate might have voted for their own family benefits. When country is running in deficit, it’s not good idea to cut down the Tax revenue, in turn increasing budget deficit, which pays for social security also. Future of Social Security looks dark. Trump is trying to become famous by cutting taxes, but such step should only be taken when social security going to become bankrupt or working people start feeling hungry. Everybody knows that President tried his best for the people, that’s enough. Now main problem is budget deficit and atmosphere getting overwarming sign, electric vehicles could help somewhat if helped to reduce prices. Cutting down the salary of top executives can certainly help lowering down prices of several company’s products and reducing inflation also. Earnings of top executives in several millions is completely unjustified. No body in the country should earn too many millions or more than the salary of the President. Highly educated skilled people are earning several thousands and running their family life happily. Save America!