Social Security requires some major changes, but it is not included in the new tax bill.
House of Representatives passes President Donald Trump’s “big and beautiful bill”
The House has passed President Donald Trump’s “big, beautiful bill.” He is now moving to the Senate.
Social security is one of the biggest issues that Washington state politicians will have to deal with in the coming years.
Many retirees are putting pressure on their budgets due to increased inflation, despite automated cost-of-living adjustments for monthly profits. Meanwhile, the Social Security Trust Fund is at risk of depletion by the next decade before if Congress fails to reform its program. It will not only affect how much future retirees will receive, but will also cut benefits for tens of millions of people who are currently dependent on retirement benefits.
President Donald Trump made several promises to voters about Social Security during his 2024 campaign. He said the government would not cut profits and would not raise the retirement age for new beneficiaries (this is just another form of reduction). However, his greatest promise was to help the retirees expand their respective social security further.
Trump proposed to abolish taxes on Social Security benefits. Not only is taxing social security income complicated, it can significantly reduce the value of each retiree’s monthly check. However, the new version of the tax bill has just passed the House last month and there are no tax cuts on Social Security benefits at all.
Many retirees may disappoint it, but the truth is that they may be better without it.
How the government taxes social security
As mentioned before, taxes on social security income can be extremely complicated. The government uses an indicator called total income to determine the percentage of Social Security benefits (if any) as taxable income. The combined income equals half of Social Security income plus adjusted gross income plus tax-free income.
If your total income exceeds a certain threshold, you will need to pay taxes on up to 85% of your Social Security benefits. How is this broken down?
Data Source: Internal Revenue Agency.
As you can see, the threshold is very low. That’s because they haven’t been updated due to inflation since they came into effect more than 30 years ago. Nevertheless, Social Security benefits are adjusted annually from the average retiree to collect about $2,000 a month from Social Security. As a result, more and more retirees face tax bills on social security income each year.
Eliminating taxes seems like a great relief for many older people, but this policy actually hurts low-income retirees the most in the long run, while still leaving fewer Americans behind.
The Unfortunate Truth About the Future of Social Security
As mentioned earlier, if Congress fails to reform its programme, Social Security is facing a major shortage. Changes in demographics and increased life expectancy resulted in higher cumulative benefits payments without the income needed to support these payments.
The latest Trustees report estimates that the Social Security Trust Fund for Retirement Benefits will fall to $0 by 2033. At that point, the following funds will only support approximately 79% of the benefits.
There are three factors in how the Social Security Trust Fund generates revenue to support the payment of benefits.
The first is a tax on wages that are normally divided between employers and employees. The US dollar wage (up to $176,100 per person in 2025) is liable to a 12.4% tax sent directly to Social Security. It brought in $1.1 trillion last year.
The second source of income comes from investing funds held in government bond trusts. Net interest income totaled $64 billion last year.
The third source of income is taxation on benefits itself. In other words, Trump’s plan to remove taxes on Social Security benefits will accelerate the depletion of the Social Security Trust Fund. And these taxes generated just $54 billion last year, but they are the source of revenue, and the impact is very noticeable. According to an analysis by the Responsible Federal Budget Commission, trust fund depletion should be accelerated for more than a year, reducing 25% benefits (rather than 21%).
Eliminating social security taxes will harm everyone in the long run, but policy will benefit only a small percentage of Americans in the short term. Low-income households pay little tax on social security income. The bottom 40% of households with income receiving benefits pay an average of less than 1% tax on benefits. Even high-income households face no significant tax burden. The highest quintiles for retirees with household incomes above $205,800 pay just 20% in Social Security benefits taxes, on average.
Instead, “One Big Beautiful Bill” offers:
In lieu of reducing Social Security benefits, Americans over the age of 65 will receive an additional $4,000 tax credit, as long as their income is below a certain threshold. It could provide some relief to older people without having a negative impact on social security in the long run. As a result, most seniors will be better under current plans than if Trump had gotten his way and completely eliminated taxes on Social Security.
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