The Trump administration is set to unveil what it’s calling “the largest tax cut in history.” A key part of the ambitious package is eliminating federal taxes on Social Security benefits for seniors, per White House press secretary Karoline Leavitt.
Who will be affected?
That could impact millions of Social Security beneficiaries.
Nowadays, 40 percent of Social Security recipients pay federal income tax on their benefits.
According to SSA, there are 67.5 million beneficiaries as of March 2024:
- 75.1% are retired workers.
- 10.8% are disabled workers.
- 8.6% are family members of deceased workers.
- 5.5% are family members of retired or disabled workers.
Read now: Social Security payments at risk: why are some Americans having their payments suspended?
Why it matters
During his 2024 presidential campaign, Donald Trump promised broad tax cuts. His proposals include:
- No tax on tips.
- No tax on Social Security benefits.
- No tax on overtime pay.
- Extending the 2017 middle-class tax cuts.
- Adjusting the SALT cap.
- Closing tax loopholes for billionaire sports team owners.
- Eliminating the carried interest tax deduction.
- Offering tax cuts for products “made in America.”
Trump claims that revenue losses will be offset by tariffs, but economists remain skeptical.
Public opinion on tax cuts
Many Americans worry about tax cuts increasing the national debt.
- A January poll by the Peter G. Peterson Foundation found that 78% of Americans oppose tax cuts that raise the deficit.
- A USA Today/Suffolk University poll showed that 53% of voters prefer cutting the federal deficit over tax cuts.
How Social Security benefits are taxed
Not all Social Security recipients pay taxes on their benefits.
- Seniors earning less than $25,000 a year ($32,000 for married couples) do not pay taxes on their Social Security.
- Those earning between $25,000 and $34,000 ($32,000 to $44,000 for married couples) may pay taxes on up to 50% of their benefits.
- Those earning above these limits may pay taxes on up to 85% of their benefits.
The financial impact
Tax revenue from Social Security benefits is a key funding source for the program.
- In 2023, 95.1% of Social Security’s funding came from dedicated tax revenues.
- 3.8% came from federal income taxes on Social Security benefits.
- Eliminating these taxes would cut revenues by about $1.8 trillion between 2026 and 2035, according to the Committee for a Responsible Federal Budget.
The revenue loss would include:
- $1.05 trillion less for Social Security.
- $750 billion less for Medicare.
The Congressional Budget Office (CBO) estimates a total revenue reduction of $1.6 trillion:
- $950 billion less for Social Security.
- $650 billion less for Medicare.
The legislative process
House Republicans are working on Trump’s budget, including tax cuts.
- The White House meeting discussing the budget lasted nearly five hours.
- House Majority Leader Steve Scalise said the discussion was detailed and involved breaking down numbers.
- House Speaker Mike Johnson expects the budget committee to begin work on a resolution soon.
Concerns about Social Security’s future
Social Security is already facing financial difficulties.
- The program’s trust funds are projected to be depleted by 2035.
- If this happens, benefits could be cut by 17%.
- Eliminating Social Security taxes could move this insolvency date up by more than a year.
What happens next
This would be a highly popular proposal among retirees who will keep more of their benefits, but the change raises serious questions about the program’s sustainability.
Congress will now debate the proposed tax cuts, and the result may reshape Social Security and the U.S. economy for years to come.
