Trump’s plan to eliminate income taxes on Social Security benefits "would reduce U.S. government revenues by $1.5 trillion over 10 years

Trump Administration Reaffirms Plan to End Social Security Taxes

On the campaign trail, President Donald Trump pledged to eliminate income taxes on Social Security benefits—and now, as president, his administration is standing by that commitment.

Last week, White House officials told CNBC.com that Trump is "doubling down" on his promise, as lawmakers in the House of Representatives recently reintroduced the Senior Citizens Tax Elimination Act, a bill aimed at eliminating these taxes.

However, a new analysis from the Penn Wharton Budget Model warns that removing Social Security taxes could cut U.S. government revenues by $1.5 trillion over 10 years and increase the federal debt by 7% by 2054.

For some high-income households, this policy shift could mean lifetime gains of up to $100,000, according to the report. But for younger Americans—particularly those under 30 and future generations—the growing federal debt and weakened work and retirement incentives could create significant financial burdens.

Why Are Social Security Benefits Taxed?

When Congress reformed Social Security in 1983, it introduced taxation on benefits for the first time. A decade later, in 1993, lawmakers added a second tier of taxation.

Under current rules, taxation on Social Security benefits is determined by a beneficiary’s "combined income," which includes:
✔ Adjusted gross income
✔ Nontaxable interest
✔ Half of Social Security benefits

📌 Taxation thresholds (not adjusted for inflation):

• Individuals earning below $25,000 and married couples earning below $32,000: No taxes
• Individuals earning $25,000–$34,000 and married couples earning $32,000–$44,000: Up to 50% of benefits taxed
• Individuals earning more than $34,000 and married couples earning more than $44,000: Up to 85% of benefits taxed

Since these income thresholds do not adjust for inflation, more retirees are subject to Social Security taxes over time.

Challenges of Eliminating Social Security Taxes

Any changes to Social Security require bipartisan approval from both the House and Senate.

Recently, lawmakers overwhelmingly passed the Social Security Fairness Act, which ended benefit reductions for retirees who also receive non-Social Security-covered pensions. However, that change alone is projected to cost nearly $200 billion over 10 years and push the Social Security Trust Fund closer to insolvency by six months.

By contrast, eliminating all taxes on Social Security would cost $1.5 trillion over a decade, according to Penn Wharton’s analysis—moving the trust fund’s depletion date two years earlier if enacted in 2025.

What Are the Political and Economic Limits?

With an already strained budget, significant tax cuts—including those for Social Security—face strict fiscal constraints, according to William McBride, chief economist at the Tax Foundation.

Additionally, if Republicans succeed in extending the 2017 Tax Cuts and Jobs Act, that could add $4 trillion to the national debt, further reducing the likelihood of Social Security tax repeal.

Unlike other tax policy changes, Social Security reforms cannot be passed through budget reconciliation, meaning they require full congressional approval—a difficult hurdle given divided political interests.

Who Benefits and Who Pays?

If Social Security taxes are eliminated, those in higher income brackets would see the largest tax breaks:

• Annual tax savings of $1,625–$2,450 in 2026
• Increasing to $4,075–$5,080 by 2054

Meanwhile, lower-income retirees would see smaller benefits:

• Between $15 and $340 in 2026
• Rising to $275–$1,730 by 2054

Future generations would bear the financial burden as government debt increases. Younger Americans—especially those yet to be born—could face higher taxes to offset these benefits, leading to what economists call "implicit debt": an intergenerational imbalance where older Americans benefit while younger workers pay the price.

A Middle-Ground Solution?

An alternative proposal in Congress seeks to eliminate Social Security taxes while also requiring high earners to pay more into the system.

However, the challenge with this approach is that while current retirees would enjoy bigger benefits, it would shift financial strain onto younger generations, says Kent Smetters, a Wharton professor of business economics and public policy.

🗣 "Who pays for that benefit? Younger people," Smetters explained. "They now pay higher taxes to cover it."