President Trump and the White House Claim the "Big, Beautiful Bill" Will Eliminate Social Security Taxes for 88% of Seniors Who Receive Benefits. Would You Qualify?

Key Points

• Many more seniors, but not all of them, will see federal taxation of Social Security benefits go away.

• But there's a long-term cost to this proposal, as it's likely to weaken Social Security.

• Currently, retirees are looking at a reduction in their benefits within a decade if no changes are made.

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Many people, such as President Donald Trump and many members of Congress, are excited about what they refer to as the "big, beautiful bill." Others are not happy at all. Part of the problem is that while some parts of it can seem beautiful, they have meaningful drawbacks.

Consider Social Security. The White House issued a statement on July 1 saying that "Under the One Big Beautiful Bill, the vast majority of senior citizens -- 88% of all seniors who receive Social Security -- will pay NO TAX on their Social Security benefits, according to a brand new analysis from the Council of Economic Advisers."

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Image source: The White House.

Here's a look at whether you might be among the 88% -- and whether you should be delighted about it. (Spoiler: You may want to put away the confetti and noisemakers.)

Taking a closer look at the "one, big beautiful bill" on Social Security

So, having 88% of Social Security recipients exempt from taxation on their benefits sure sounds great. But here are some things to know:

• Per the same White House statement, 64% of seniors aged 65 and older who are collecting Social Security are already exempt from having their benefits taxed, due to various exemptions and deductions. So it's not that this is a new exemption taking those who qualify from 0% to 88%. Instead, it's just increasing the number of those who won't face taxes on their Social Security benefits.
• That 88% figure is also short of the 100% implied by Trump in earlier promises, when he said things like "There's also no tax on tips, no tax on Social Security, no tax on overtime ... "
• To be clear, the bill does not eliminate taxes on Social Security. Instead, it creates a new deduction that will shrink the portion of benefits subject to federal taxation, in many cases shrinking it to zero.
• The deduction, for those who qualify, is $6,000 per person.
• It's set to expire in 2028, at which point the percentage of seniors escaping this tax would presumably go back to around 64%.

It's also worth noting that this is all related to federal taxation of Social Security benefits. Nine states tax Social Security to some degree. It's often done with a light hand, though, and many folks in those states will pay no tax at all.

Who qualifies for the new tax-shrinking deduction?

According to the version of the bill that was approved by the Senate on July 1, the $6,000 tax deduction would apply to those aged 65 and older who have individual modified adjusted gross income (MAGI) of up to $75,000 -- or married couples filing jointly with combined MAGI up to $150,000.

The deduction will shrink for those with incomes above those thresholds, and will be $0 once incomes reach $175,000 for individuals or $250,000 for married couples filing jointly.

What's good and bad about the new lower taxation?

On the surface, this seems like good news, even if it doesn't apply to everyone. For the many who will get the deduction, it's hard to argue with paying less in taxes.

Here's the rub, though: Social Security's surplus is turning into a deficit, and it's been estimated that come 2034, there will only be enough money coming into the program (largely via taxes on workers) to pay beneficiaries 81% of what they're owed. This unwelcome scenario doesn't have to happen, though because there are multiple ways to fix the problem.

At the moment, though, there's been relatively little talk about bolstering Social Security. And instead, it's likely to get weaker -- because if fewer seniors are paying taxes on their benefits, that will mean less money flowing into Social Security's coffers. That could move the deficit's appearance up to sooner than 2034, and it could result in seniors receiving even less than 81% of their benefits.

Thus, while offering a tax break sounds nice, the big picture is very worrisome. As my colleague Adam Levy has asserted, what really seems to be happening is that Trump and Congress are failing to protect Social Security.

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