When Donald Trump was running for office, he pledged that he would not cut any money from Social Security. In fact, Trump’s campaign centered on a big plan for Social Security — to eliminate dreaded taxes on benefits.
Taxes on Social Security sting for seniors because they feel like the IRS is coming after them twice. Those benefits are earned by paying taxes on wages. So to have to pay the IRS again in retirement hurts.
Trump wasn’t able to eliminate taxes on Social Security benefits. But a policy of his has allowed most recipients to become exempt from those taxes temporarily. And while that’s a good thing in theory, it’s costing Social Security an enormous amount of money that could push the program even close to benefit cuts.
The backlash of the $6,000 senior tax deduction
The One Big Beautiful Bill Act made a lot of changes to the U.S. tax code. And one major change was the $6,000 senior tax deduction that became available to Americans ages 65 and over.
Because the new deduction allows seniors to exempt a large chunk of their income from taxes, many Social Security recipients’ income now falls below the thresholds at which taxes on benefits apply.
In other words, Trump didn’t eliminate taxes on Social Security. But he got the majority of beneficiaries off the hook through 2028, which is when his $6,000 deduction expires unless lawmakers vote to extend it.
The problem in all of this is that Social Security relies on taxed benefits for revenue. Granted, the program’s main funding source is payroll taxes, and taxes on benefits only represent a small chunk of Social Security’s revenue overall.
But losing that revenue stream is pushing Social Security further into a financial crisis. It’s estimated that Trump’s OBBBA will cost the program a whopping $169 billion.
Meanwhile, the Social Security Trustees recently released their long-awaited update on the state of the program’s finances. And let’s just say that it maybe wasn’t a bad thing that the report was two months late, since the news it contained wasn’t good.
The Trustees confirmed that Social Security’s Old-Age and Survivors Insurance Trust Fund is expected to run out of money by 2032. At that point, only 78% of scheduled benefits will be payable.
Preventing Social Security cuts will, at this point, require legislative changes, since the program is not expected to take in enough revenue to keep up with scheduled payments. Those changes could run the gamut from increasing Social Security’s full retirement age to imposing higher taxes on workers.
It’s a good thing Trump didn’t get his way
Eliminating taxes on Social Security benefits may have been a good thing for seniors who hated paying them. But it can be argued that it’s actually a positive thing that Trump was unable to get rid of those taxes entirely, since the temporary tax break is causing its fair share of damage.
Seniors who are getting a temporary reprieve may have to deal with a big adjustment once the $6,000 senior tax deduction sunsets. But if that revenue source were to go away completely, Social Security could face an even more substantial shortfall.
So while seniors may not love the idea of having to pay those taxes once again, the silver lining is that they’re providing the program with crucial revenue it needs to make benefits possible.
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