Key Points

• Nearly a quarter century of annual surveys show that 80% to 90% of retirees rely on their Social Security income, in some capacity, to make ends meet.

• President Trump’s Big, Beautiful Bill proposes a laundry list of tax cuts but is missing a key provision that he touted both prior to and after his November election.

• Retirees will receive a consolation prize, which will come in the form of a beefed-up deduction for select seniors aged 65 and above.

In May, Social Security’s retired-worker benefit made history by surpassing an average payout of $2,000 for the first time in the program’s storied history. Though this is a relatively modest monthly payout, it has proven vital to helping aging workers make ends meet.

For instance, national pollster Gallup has been surveying retirees annually for 24 years to gauge how important Social Security income is to their financial well-being. Including data from the latest survey, which was just announced, between 80% and 90% of retirees rely on their Social Security check as a “major” or “minor” income source. In other words, Social Security income isn’t a luxury for most aging workers — it’s a veritable necessity.

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While on the campaign trail in late July 2024, then-candidate Donald Trump posted an eight-word message to Truth Social that excited the nearly 53 million retired workers who receive a monthly Social Security payout. Said Trump, “Seniors should not pay tax on Social Security.”

This intimation of eliminating the tax on Social Security benefits was reiterated once again at a town hall event earlier this year, following President Donald Trump’s inauguration.

President Trump addressing reporters. Image source: Official White House Photo by Molly Riley.

But if there’s one key puzzle piece missing from the president’s flagship tax and spending bill, known as the “big, beautiful bill,” it’s his vow to end the tax on Social Security benefits.

Why are Social Security benefits taxed?

Every year since the first Social Security check was mailed in 1940, the Social Security Board of Trustees has published a report intricately detailing the financial health of the program. Think of it as akin to a company’s income statement or balance sheet, which allows anyone to track how Social Security collects income and follow where every dollar ends up.

Based on projections from the Trustees, the combined asset reserves of Social Security’s Old-Age and Survivors Insurance (OASI) trust fund and Disability Insurance trust fund were to be exhausted in 1983. If these asset reserves were depleted, it would have led to sweeping benefit cuts to sustain payouts.

The Social Security Amendments of 1983 represent the last major bipartisan overhaul of Social Security. This 11th-hour legislation provided for a gradual increase to the full retirement age and payroll tax rate on workers and introduced the now-hated tax on benefits. These changes were designed to raise revenue (e.g., the payroll tax rate change and the introduction of a tax on benefits) and reduce long-term outlays (e.g., gradual increase to the full retirement age).

Beginning in 1984, up to 50% of Social Security benefits could be taxed at the federal rate if provisional income — defined as adjusted gross income + tax-free interest + one-half of benefits — exceeded $25,000 for individual filers and $32,000 for couples filing jointly. A decade later, the Clinton administration added a second tax tier, exposing up to 85% of Social Security income to federal taxation if provisional income topped $34,000 and $44,000, respectively, for single filers and jointly filing couples.

The primary reason this tax is so disliked is that these thresholds, which were introduced more than three and four decades ago, haven’t once been adjusted for inflation. A tax that was projected to impact around one in 10 senior households in the mid-1980s is now applicable to around half of all senior households today.

There’s also the (mostly incorrect) belief that it’s a form of double taxation. While paying tax on the same dollar of benefits at both the federal and state levels is a form of double taxation — nine states currently tax Social Security benefits in some capacity — the vast majority of federal tax on benefits isn’t.

Donald Trump’s one, big, broken promise is unpopular but necessary

Based on an informal poll on the homepage of nonpartisan senior advocacy group The Senior Citizens League, there’s overwhelming support for the removal of the tax on Social Security benefits. Well over 90% of those polled were in favor of ending this hated tax.

But while Trump’s big, beautiful bill contains an assortment of tax breaks, including the temporary (2025 to 2028) elimination of the federal income tax on tips and overtime pay for select workers, there’s no provision to do away with the tax on Social Security benefits. Though President Donald Trump’s one, big, broken promise for retirees is bound to be unpopular, it’s necessary for two key reasons.

The OASI’s asset reserves are forecast to be gone by 2033. US Old-Age and Survivors Insurance Trust Fund Assets at End of Year data by YCharts.

To begin with, Social Security’s OASI is on shaky financial footing. The newly released 2025 Trustees Report shows that more money has been outlaid than collected by the OASI since 2021. Worse yet, the magnitude of this outflow is growing at a rapid pace.

The roughly $2.54 trillion in asset reserves the OASI closed out 2024 with is projected to be completely exhausted by 2033. If no reforms are implemented and this excess capital is depleted, sweeping benefit cuts of up to 23% may be necessary for retired workers and survivor beneficiaries to sustain payouts through 2099 without any further cuts.

Ending the tax on benefits would remove one of Social Security’s three sources of income. Doing so would be a poor decision, with interest income on the OASI’s asset reserves also set to meaningfully decline in the coming years.

The other logical reason for Trump to break his Social Security promise to retirees has to do with politics. Whereas most aspects of the big, beautiful bill were passed through a process known as reconciliation, which requires a simple majority vote, amending the Social Security Act can’t be done through reconciliation. A total of 60 votes in favor are needed in the Senate to amend Social Security — and there’s virtually no chance of President Trump garnering this sort of bipartisan support in the upper house.

Rather than risk a potentially embarrassing defeat or stalling his flagship tax and spending bill, this once highly touted pledge to eliminate the tax on Social Security benefits was left out.

Image source: Getty Images.

Retirees will receive a consolation prize instead

While retirees are likely to be highly disappointed with President Trump for shelving his no tax on Social Security promise, the big, beautiful bill does offer a consolation prize. Best of all, it goes to the beneficiaries who need it most.

Hypothetically speaking, if the tax on Social Security benefits were removed, approximately half of all recipients would see their income climb in the sense that they’d no longer be paying any federal income tax on what they receive from America’s leading retirement program. However, the individuals and couples paying this tax are upper- and middle-income earners. The lower half of income earners wouldn’t have benefited from this tax being removed.

Contained within Trump’s big, beautiful bill is a provision to temporarily increase the standard deduction for individuals and couples aged 65 and over. This provision, which was passed by the Senate on July 1 and confirmed via House vote on July 3, boosts the standard deduction by $6,000 for single filers and $12,000 for couples filing jointly from tax years 2025 through 2028.

This additional deduction does have a 6% phase-out rate that kicks in for single filers earning more than $75,000 and married taxpayers bringing home over $150,000. It would be completely phased out for individual taxpayers earning over $175,000 and married couples with earnings over $250,000.

The way this provision is designed will ensure that low- to middle-earning retirees receive this deduction, rather than having added income wind up in the hands of retirees who may not need it, as would have been the case with eliminating the tax on Social Security benefits.

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