According to a recent report, President Trump’s plan to end taxes on Social Security benefits could offer the most significant gains to high-income seniors. Analysis by the Penn Wharton Budget Model suggests that high-income seniors could see up to $100,000 in remaining lifetime welfare from this change. In contrast, younger workers could lose out, with newborn households potentially forgoing about $10,000 in lifetime welfare.
Currently, Social Security receives funding from taxing some seniors on their benefits. The number of seniors paying into the program is increasing due to factors like annual cost-of-living adjustments to benefits but not to the income thresholds for taxation, which have remained unchanged since 1993. A 2024 Congressional Research Service report found that the share of Social Security benefits paid as federal income taxes rose from 2.2% in 1994 to 6.6% in 2022.
About 50% of all Social Security recipients currently pay federal taxes on their benefits, which could rise to over 56% by 2050.
Plan’s impact on high-income seniors
Eliminating taxes on Social Security could reduce government revenue by $1.5 trillion over 10 years and deplete the program’s trust funds by late 2032.
The Social Security Trustees have warned that sweeping benefit cuts may become inevitable once the trust funds run out. In 2023, Social Security trust funds received $50.7 billion from the taxation of benefits, accounting for 3.8% of the trust funds’ total income. Six bills are currently in Congress aimed at eliminating or changing the taxation of Social Security benefits.
However, the Committee for a Responsible Federal Budget cautions that ending taxes on benefits could accelerate the date at which benefit reductions occur and increase the size of these cuts to 33% of benefits, potentially as early as 2031. Given Social Security’s looming financial shortfall, lawmakers might hesitate to approve a bill that eliminates taxes on benefits. Any changes to Social Security law require bipartisan support, and the potential economic crisis among seniors may deter lawmakers from endorsing Trump’s plan.
William McBride, chief economist at the Tax Foundation, suggests that any tax cuts allowed will be subject to strict limits, so lawmakers on both sides may remain cautious about supporting significant cuts to Social Security revenue streams.
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