Fact: The Social Security trust pays out about $42 billion more a year than the total revenue.
Fact: Income taxes paid on Social Security benefits add $50.7 billion to the trust fund each year.
Fact: Making SS benefits fully tax free helps accelerates the trust depletion date.
The Committee for a Responsible Federal Budget estimates President Trump’s proposals to eliminate taxation of Social Security benefits, end taxes on tips and overtime, impose tariffs, and expand deportations would all widen Social Security’s cash deficits. Under their central estimate, they find that President Trump’s agenda would:
Increase Social Security’s ten-year cash shortfall by $2.3 trillion through FY 2035.
Advance insolvency by three years, from FY 2034 to FY 2031 – hastening the next President’s insolvency timeline by one-third.
Lead to a 33 percent across-the-board benefit cut in 2035, up from the 23 percent CBO projects under current law.
Increase Social Security’s annual shortfall by roughly 50 percent in FY 2035, from 3.6 to 4 percent of payroll.
Require the equivalent of reducing current law benefits by about one-third or increasing revenue by about one-half to restore 75-year solvency.
QUINNSCOMMENTARY 
Read this with interest. Unsurprisingly, he confirms that removing the taxation of Social Security benefits will increase the federal debt (so yes, Social Security does add to our federal debt).
BenefitJack note: I generally agree with Mark, that the worker contribution, which was made on an after-tax basis (after paying federal, state and local income taxes) should be returned tax free to the worker – however, I would exempt from taxation all those contributions first, then once exhausted, treat all subsequent benefits as taxable income (but with NO base amount excluded, currently $25,000/$32,000 per year).
Social Security Taxation Needs Reform, Not Abandonment
By Mark J. Warshawsky
Washington Examiner
March 11, 2025
FacebookTwitterLinkedIn
Recent discussions, as well as remarks made by President Donald Trump on the campaign trail, have included the proposal to eliminate the federal income taxation of Social Security benefits. That would be costly to the federal budget and the Social Security and Medicare Trust Funds, accelerating their expected exhaustion dates, and it would favor higher-income retirees and workers.
Instead, lawmakers should discuss taxing Social Security benefits the same as contributory pension plan benefits. That would slightly decrease the percentage of Social Security benefits that are taxable, particularly for those who retire at earlier ages and have higher incomes.
The 1983 legislation that saved Social Security from imminent bankruptcy first introduced the federal taxation of Social Security benefits. Tax proceeds from this first tier go to the Social Security Trust Fund. Budget legislation in 1993 added a second tier of taxation, going to the Medicare Trust Fund. Beneficiaries with combined income, adjusted gross income plus nontaxable interest income and half of Social Security benefits, above $25,000, or $32,000 for joint filers, pay taxes on 50% of their Social Security benefits in the first tier. Those with combined income above $34,000, or $44,000 for joint filers, pay taxes on the next 35% of Social Security benefits in the second tier. These income limits are not indexed — recent high inflation has thrown more retired households unexpectedly into the first and second tiers of taxation. The main purpose of these tax provisions is to increase the flow of money to the trust funds, but with the exception of the income limits, they are broadly consistent with the good policy that all retirement income should be taxed.
According to calculations by the Penn Wharton Budget Model, eliminating income taxes on Social Security benefits would reduce revenues by $1.5 trillion over the next 10 years and increase the federal debt by 7% by 2054. The proposal also would move the projected exhaustion of the Social Security Trust Fund forward by two years, from 2035 to 2033. The largest tax reductions would go to the top income quintile, with annual gains of about $2,000 in 2026, and the largest relative gains would go to the fourth income quintile, at more than 1% of income.
Under current tax law, pension benefits funded by pretax contributions, whether from the employer or the employee, are fully taxable. If some contributions were made from after-tax income, however, then the recipient can exclude the total of those contributions, or “the cost,” from taxable benefits. The tax-free part of each annuity payment is calculated by dividing that accumulated amount by the total number of anticipated monthly payments from the pension, using an IRS table according to the age when benefits begin. This table essentially contains simplified life expectancies. The tax-free portion is fixed at the time of initial payment even if subsequent payments increase, but if the beneficiary does not recover his cost basis before death, any unrecovered amount is allowed as an itemized deduction on the final return of the decedent.
Applied to Social Security benefits, these rules would mean that at the time of claiming retirement or disability benefits, the individual would be provided with the total contributions he, not his employers, made over his working lifetime because these contributions came from taxable earnings. He would have to pay taxes on the portion funded by his employers and any excess of benefits greater than his cost share. The tax-free share would be determined by the simplified IRS life expectancy table. See some examples below of the taxation of Social Security benefits of retired employees under pension tax rules for various retirement ages and earnings levels.
Taxable Portion of Social Security Under Pension Tax Rule
Age at Earnings at Commencement
Commencement $30,000 $60,000 $120,000
62 86.9 81.6 77.0
65 88.8 84.4 80.7
70 90.7 87.1 84.4
Note: Earnings history and benefit calculation based on SSA “Quick Calculator.” Assumed 6.2% employee and employer payroll tax rates for Social Security
As shown, the taxable portion of benefits under pension rules is lowered for most early retirees and higher-income individuals, mainly because the relative generosity of Social Security is less for them — meaning that they pay more for similar value of benefits. Another advantage of pension rules is that the taxation adjusts automatically with changes in Social Security. For example, if scheduled benefit levels are lowered in a reformed and sustainable system, the taxable share would be reduced.
Congress should not repeat its recent mistake in passing the Social Security Fairness Act, which unfairly increased benefits to high-income government retirees and workers, worsened the budget deficit, and reduced the trust fund. Rather, it should reform the current taxation of Social Security benefits to make it consistent with the logical tax rules applying to contributory pensions.
The progressivity intended by the current benefit exclusion from taxable income for low-income households is accomplished better by increasing the indexed standard deduction for elderly and disabled people.
Mark Warshawsky is a senior fellow at the American Enterprise Institute. He was a deputy commissioner for retirement and disability policy at the Social Security Administration.
LikeLike
I would agree with Al that there is no good reason for tips and overtime being tax free and I will take a wait and see on some of the tariffs. There are tariffs going on now and I don’t know what the outcome of the new round will be.
The deportations won’t be as big a negative as people think. There are always people applying to come in and frankly we need some folks above the unskilled, uneducated class.
I can’t for the life of me see why there is such a reluctance to add a small piece increment to the current fica tax, 1 per cent to the employee and maybe 2 per cent to the employer. That won’t solve the problem for a longer term but it would end this doom and gloom over 2033. At some future point, do another round of raises. The taxation of current benefits is pretty much accepted except for the lack of adjustment when SS becomes taxable, add a cola to the beginning level of taxation and that should be enough.
LikeLike
Al Lindquist
enjoyed reading your input James–common sense could well work if we had a commission that had to work on a saving the SS system going forward–I still like TSP accounts for my grandchildren, but let’s get our current system in line and maybe, just maybe, we could see some positive change.
LikeLike
well, FACTS sure do help as opposed to opinions posing as facts–but in my opinion it is highly irresponsible to expand any program in an era of debt that totals $36 trillion–so I would vote NO on tips and taxes being free of tax.
tariffs are stupid in my opinion and could well do far more harm than good
deportations are only for folks here illegally although it would be nice to work out a deal to keep folks as long as the border is locked down–maybe pay a fine and apply for citizenship within a time frame.
LikeLike
I agree with almost everything you said… or almost agree with everything.
Right now, we should be raising taxes instead of lowering.
In 1963, Jesse ‘Big Daddy’ Unruh famously, or infamously, locked down California legislature until they agreed on a bill. U.S would be well advised to cease all (almost) deportation until they pass an actual immigration reform bill, then proceed as required.
Face it, Trump successfully demonized all immigrants to get elected.
Tariffs, more harm than good? Probably. Why is it nobody can realize, or acknowledge, that they are a tax on us, not on the exporting country ?
LikeLike
we have had immigration laws for decades. The fact that one party doesn’t like hem doesn’t mean we need new ones.
LikeLike
We need a way to obtain all the immigrant workers we need, while assuring they are not people detrimental to us. We need to help them assimilate, enhance job skills we need them to pay taxes and we need a measure of empathy for asylum seekers. Building walls and deportation are not in our interest. Our demographics are not in our favor as we are not replacing our workforce adequately.
LikeLike