Retirees across the U.S. are feeling the pinch of inflation, even with annual cost-of-living adjustments (COLAs) to their Social Security benefits. Meanwhile, the program’s trust fund is barreling toward insolvency by 2033—a crisis that could slash benefits for millions unless Congress acts.
During his 2024 campaign, former President Donald Trump made bold pledges to protect Social Security: no benefit cuts, no raised retirement age, and—most notably—an end to taxes on Social Security income. Yet his recently proposed tax bill, dubbed the “Big, Beautiful Bill,” conspicuously omits that last promise. While the omission may disappoint some seniors, experts argue it could actually spare them from deeper financial pain down the road.
Why Taxing Social Security Is So Controversial
The current system taxes benefits based on “combined income,” a formula that hasn’t been adjusted for inflation since the 1990s. As a result, even modest earners increasingly face taxes on up to 85% of their benefits:
- Single filers pay taxes if combined income exceeds $25,000 (50% of benefits taxable) or $34,000 (85% taxable).
- Married couples hit thresholds at $32,000 and $44,000, respectively.
With average monthly benefits now near $2,000, more retirees are crossing these outdated thresholds—fueling frustration. Trump’s proposal to eliminate the tax entirely resonated with voters, but the math reveals unintended consequences.
The Hidden Risk of Cutting Social Security Taxes
Social Security’s trust fund relies on three revenue streams:
- Payroll taxes (12.4% on wages up to $176,100 in 2025).
- Interest from Treasury bond investments.
- Taxes on benefits—which generated $54 billion in 2023.
While $54 billion might seem small compared to the $1.1 trillion from payroll taxes, losing it would accelerate the trust fund’s depletion by over a year, according to the Committee for a Responsible Federal Budget. Insolvency could then trigger an immediate 21% benefit cut—or worse, 25% if the tax revenue vanishes.
Who Really Benefits from Trump’s Plan?
Paradoxically, axing the tax would offer little relief to those who need it most:
- The bottom 40% of earners pay less than 1% of their benefits in taxes.
- Even the top 20% (households earning $205,800+) pay just 20% on average.
“Eliminating this tax is a short-term win for a small group, but it risks catastrophic long-term losses for everyone,” says economist Mark Johnson.
What the New Bill Does Instead
The House-passed legislation sidesteps Trump’s tax cut but offers seniors an alternative:
- An extra $4,000 standard deduction for taxpayers 65+ with moderate incomes.
This approach avoids draining Social Security’s coffers while still providing relief. For most retirees, experts say, it’s the safer path—even if it’s not the splashy reform Trump promised.
The Bottom Line
While Trump’s vision of tax-free Social Security checks may sound appealing, its exclusion from the current bill might be a blessing in disguise. With insolvency looming, preserving every revenue stream—even unpopular taxes—could be the key to avoiding benefit cuts that would hurt far more retirees, far sooner.
