A new proposal to eliminate income taxes on Social Security benefits is gaining attention, potentially affecting millions of retirees and their IRS payments. Republicans, who currently control both chambers of Congress, are working to extend the 2017 tax cuts that are set to expire. During his campaign, President Trump proposed additional tax cuts, including eliminating income taxes on tips, overtime pay, and Social Security benefits. These proposals are expected to be part of an upcoming reconciliation bill.
However, the passage of these tax cut proposals is not guaranteed. Senate Majority Leader John Thune noted that GOP lawmakers face challenges in balancing “a lot of moving parts.” Thune and other Republicans are advocating for a “two-step” approach, where Trump’s tax proposals would be included in a separate bill. However, Trump and House Speaker Mike Johnson prefer a single bill.
Experts warn that eliminating Social Security taxes could accelerate the program’s insolvency. Trump has claimed that about half of retirees would see an increase in their Social Security payments if taxes on benefits were eliminated. Currently, around 40% of beneficiaries pay income taxes on their Social Security benefits, which are then reinvested into the Social Security Trust Fund. Trump’s proposals, including ending taxes on tips and overtime, imposing tariffs, and expanding deportations, could significantly worsen the financial state of Social Security and have negative consequences for beneficiaries.
Without reforms, the Social Security Trust Fund is projected to be depleted by 2034, according to the Congressional Budget Office. However, an analysis by the Committee for a Responsible Federal Budget found that Trump’s policies could push the program’s insolvency to 2031. This would mean that instead of a 23% cut in benefits in 2035, retirees could face a 33% cut (ranging from 29% to 39% depending on the scenario).
White House Press Secretary Karoline Leavitt emphasized on Friday that Trump wants Congress to eliminate income taxes on tips, overtime pay, and Social Security benefits. She said this is a “critical piece” of the reconciliation package. However, removing taxes on Social Security benefits may be the most challenging. Changes to the program’s spending cannot be included in reconciliation bills under the Senate’s Byrd Rule. Additionally, a supermajority of 60 votes in the Senate would be needed to amend the Social Security Act, requiring bipartisan support.
While Republicans control both chambers of Congress and the White House, their narrow margins mean they cannot afford many defectors. The proposed trillions of dollars in tax cuts would need to be funded through new revenue streams or cuts in other areas, which may be difficult for lawmakers to support.
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