Social Security checks exist as a financial lifeline for the vast majority of retirees. In 2023, 22 million people — over 16.3 million of which were aged 65 and above — were pulled above the poverty line by Social Security, as per the Center on Budget and Policy Priorities.
Parallel to this, according to 23 years of annual surveys by Gallup, “80% to 90% of retirees rely on their Social Security income, in some capacity, to cover their expenses.” As such, to the aging American workforce, the importance of maintaining the financial health of Social Security cannot be understated enough — and this is something that begins at the top, with President Trump.
Trump has focused on efficiency-based cost-cutting initiatives whilst maintaining a more hands-off approach to Social Security, however, the president does have one massive change in mind that would give a raise to half of all retired beneficiaries. However, it seems that this proposal is likely to backfire.
Is Social Security in need of reform?
The first ever Social Security retired-worker benefit check was mailed in January 1940 and the Social Security Board of Trustees has published a report intricately detailing the inner workings of the program every year since.
These annual reports are forward-looking projections which take into account “ongoing demographic shifts, along with changes to fiscal and monetary policy, to determine how financially sound Social Security will be 75 years following the release of a report (i.e., the Trustees’ definition of the “long term”).”
Over the past 40 years, Trustees have consistently pointed to a long-term funding obligation shortfall. This means that projected income collected in the 75 years following a report is expected to be insufficient to cover outlays. The 75-year shortfall stands at $23.2 trillion as of the 2024 Trustees Report, and this figure continues to grow consistently over time.
The asset reserves of the Old-Age and Survivors Insurance Trust Fund (OASI) is a pressing concern as it is projected to be depleted by 2033. The OASI asset reserve represents “excess cash built up since inception that hasn’t been paid out as benefits or used to cover administrative expenses,” according to The Motley Fool. As required by law, the excess income is invested in special-issue, interest-bearing government bonds currently.
If no action is taken and OASI reserves run out, retired workers and survivors of deceased workers could see a deduction of up to 21% in their monthly benefits 8 years from now.
Trump wants to give half of all retirees a raise
Whilst the Social Security changes overseen by Donald Trump in his first 100 days in office are not going to meaningfully impact the $23.2 trillion long-term funding shortfall, or address the expected depletion OASI’s asset reserves in 2033, the President has a plan to give retirees more money.
In a July 21, 2024 post on Truth Social, Trump wrote that “Seniors should not pay tax on Social Security.” He has since reiterated this sentiment in recent weeks and at town hall event, he said, “In the coming weeks and months, we will pass the largest tax cuts in American history — and that will include no tax on tips, no tax on Social Security, and no tax on overtime. It’s called “The One, Big, Beautiful Bill.””
When the Social Security’s assets were all but depleted in 1983, the then president, Ronald Reagan signed into law the Social Security Amendments of 1983. This amendment allowed for the gradual increase of the full retirement age, along with payroll taxation on working Americans. It also introduced the greatly hated tax on benefits.
If Trump successfully eliminates tax on benefits, half of all retirees will effectively be given a raise since they will no longer have to pay taxes on a portion of their benefits. However, this well-intentioned plan would only provide short-term relief to retirees whilst causing an even bigger long-term issue.
According to The Motley Fool, Social Security income is generated in the following ways:
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More than 91% of the $1.35 trillion collected in 2023 came from the 12.4% payroll tax on earned income, which includes wages and salary but not investment income. In 2025, all earned income up to $176,100 is subject to the payroll tax.
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Approximately 5% derives from the interest income earned on the OASI’s and Disability Insurance Trust Fund’s (DI’s) asset reserves, which as previously noted are invested in interest-bearing government bonds.
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The remainder of Social Security’s income comes from taxing Social Security benefits.
Fortunately, as long as Americans continue to work and pay their taxes, there will always remain a source of funding for Social Security. The program’s interest income, however, will decline as the OASI’s reserve is steadily depleted. As such, if tax on benefits is eliminated whilst the program’s interest income is estimated to be exhausted over time, Social Security would become financially crippled. According to estimates from the 2024 Trustees Report, “the income generated from taxing benefits is expected to jump from $50.7 billion in 2023 to $132.8 billion in 2033.”
In short, if enacted, Trump’s plan will likely speed up the benefit-cut timeline and possibly increase the percentage benefits would need to be reduced by to enable the program to be sustained for 75 years.