Unusual Whales

Trump's plan to eliminate income taxes on Social Security benefits would help high-income households

Unusual Whales -

Trump Administration Pushes to End Taxes on Social Security Benefits

On the campaign trail, President Donald Trump pledged to eliminate income taxes on Social Security benefits. Now, his administration is reaffirming that promise.

White House officials told CNBC.com last week that Trump is "doubling down" on his commitment to end Social Security taxation, a move that could have significant financial implications for retirees and the federal budget.

Legislation in the Works

A bill to eliminate these taxes—the Senior Citizens Tax Elimination Act—was recently reintroduced in the House. However, while the policy aims to ease financial burdens on retirees, it could also cut U.S. government revenues by $1.5 trillion over 10 years and increase the federal debt by 7% by 2054, according to a new analysis from the Penn Wharton Budget Model, a nonpartisan research group at the University of Pennsylvania.

For some high-income households, the tax repeal could bring lifetime gains of up to $100,000, but the report warns that younger generations—especially those not yet born—could face the biggest financial losses as federal debt rises and incentives to work and save for retirement decline.

"For beneficiaries who have paid into Social Security their entire working lives, there’s a sense that their benefits should not be taxed," said Kent Smetters, a business economics professor at Penn’s Wharton School.

How Social Security Benefits Are Taxed

Social Security benefits became taxable in 1983 following a congressional reform. A second taxation tier was added in 1993, further expanding tax obligations for certain recipients.

Currently, Social Security taxes apply as follows:

  • No taxes for individuals earning less than $25,000 in combined income or married couples earning under $32,000.
  • Taxes on up to 50% of benefits for individuals earning $25,000–$34,000 or couples earning $32,000–$44,000.
  • Taxes on up to 85% of benefits for individuals making over $34,000 and couples exceeding $44,000.

(Combined income = adjusted gross income + nontaxable interest + 50% of Social Security benefits.)

These income thresholds are not adjusted for inflation, meaning more retirees have been subject to these taxes over time.

The Road to Repeal

Eliminating Social Security benefit taxes would require bipartisan support in both the House and Senate.

Recently, lawmakers passed the Social Security Fairness Act, which ended benefit reductions for individuals receiving pensions from jobs that did not pay into Social Security payroll taxes. That policy change cost nearly $200 billion and moved Social Security’s projected trust fund insolvency date six months closer, per the Congressional Budget Office (CBO).

If Social Security taxation were repealed, it would cost $1.5 trillion over a decade and move the trust fund depletion date two years closer, according to the Penn Wharton Budget Model.

Before these changes, Social Security trustees estimated that the program’s combined funds would run out by 2035, at which point only 83% of scheduled benefits would be payable.

While Trump’s push to eliminate these taxes is popular among retirees, it raises questions about how to offset the massive revenue loss—potentially accelerating concerns over the program’s long-term solvency.