A recent push by former President Donald Trump to remove federal taxes on Social Security, tips, and overtime has sparked debate among lawmakers and retirees. If approved, these changes could lead to earlier benefit reductions for millions who rely on the program.
In January, Rep. Angie Craig (D-Minn.) introduced the You Earned It, You Keep It Act, while Rep. Jeff Van Drew (R-N.J.) proposed the No Tax on Social Security Act. The following month, Rep. Thomas Massie (R-Ky) announced the Senior Citizens Tax Elimination Act. All three pieces of legislation focus on relieving beneficiaries from taxes on their monthly checks, a move that some experts say could jeopardize future benefit stability.
Why eliminating taxes on Social Security might lead to earlier benefit reductions
Social Security primarily depends on payroll taxes (91% of its revenue), with an additional 4% coming from taxes on benefits and 5% from trust fund interest. Current estimates from the Congressional Budget Office suggest the trust fund may run dry by 2034, leaving only incoming tax revenue to cover benefits. That could mean a 23% cut for retirees by 2035 unless new funding is secured.
Eliminating taxes on benefits, however, would remove a significant revenue stream, over $1 trillion in the next decade. If that happens, the fund could be depleted even faster, according to the Committee for a Responsible Federal Budget. Have you wondered if this apparent short-term gain might bring bigger challenges for retirees down the road? Below is a table of key legislative proposals focusing on Social Security taxes:
| Bill Name | Sponsor | Date Introduced |
|---|---|---|
| You Earned It, You Keep It Act | Rep. Angie Craig (D-Minn.) | January |
| No Tax on Social Security Act | Rep. Jeff Van Drew (R-N.J.) | January |
| Senior Citizens Tax Elimination Act | Rep. Thomas Massie (R-Ky) | February |
What new legislation could mean for retirees relying on Social Security benefits
Trump’s broader goal includes “the largest tax cuts in American history,” exempting not just Social Security but also tips and overtime from federal income tax. Supporters believe that working Americans and retirees would keep more of their earnings. However, critics warn that rushing these changes might accelerate the date when the trust fund can no longer cover full benefits.
Some experts predict that if these proposals pass, benefit cuts could be even larger than 23%, possibly reaching 33% by 2035. That’s a big difference for retirees who depend heavily on monthly checks to cover basic living expenses. Is it worth the risk of deeper cuts to gain tax relief now?
The idea of eliminating taxes on Social Security may sound appealing, especially for those currently paying taxes on their benefits. Yet the risk of faster trust fund depletion, and larger future cuts, has legislators and advocacy groups on edge. As discussions continue, retirees should keep an eye on potential outcomes and consider how changes in tax policy could affect their long-term financial security.