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A temporary Social Security tax cut meant to provide relief to retirees is likely to cause long-term harm, according to a recent analysis by Yahoo Finance.
Amid growing concern over Social Security payments falling by as much as 22 percent when a key funding source runs dry in 2032, the tax cut, which is included in Donald Trump’s One Big Beautiful Bill Act, is on track to contribute to the system’s shortage.
The tax deduction it provides on Social Security income from 2025 to 2028 would cost an estimated $91 billion in tax revenue for the system, according to financial think tank Peter G. Peterson Foundation.
“Policymakers adopted a broader approach in the form of a new senior deduction that is projected to cost $90.8 billion over four years, contributing to OBBBA’s total deficit increase of $4.1 trillion over ten years, including interest costs,” financial think tank Peter G Peterson Foundation wrote in a January analysis.
The deduction – which reduces a retiree’s taxable income – is $6,000 for single filers age 65 and older, and $12,000 for married couples aged 65 and older, according to the IRS.
Tax cuts meant to save Social Security recipients money from 2025 to 2028 could end up adding to a revenue shortfall that’s on pace to lower Social Security payments by up to 22 percent in 2032 (Getty)
While the tax cut benefits retirees for the four years in which they can claim it, reduced tax payments add nearly $100 billion to a payment system struggling to maintain funding.
The Social Security system relies on income from three places to pay out benefits to retirees and their spouses: payroll taxes, two trust funds and taxes on Social Security payments
Taxes on payroll and Social Security payments flow into two trust funds – Old-Age and Survivors Insurance (OASI) and Disability Insurance (DI).
The government uses some of the money to pay out benefits and administrative fees, then invests the rest to earn interest and boost the funds’ balances.
As the workforce has become older and the gap between the number of workers and retirees has shrunk from 5-to-1 when the Social Security program started to 2.9-to-1 in 2026, according to think tank Bipartisan Policy Center (BPC).
The strain is burning through the OASI’s cash faster than it can be replenished.
A shrinking gap between the number of workers and retirees in the United States has led to a funding crisis that will result in lower payments in six years if lawmakers don’t take action (AFP/Getty)
Because of that, the Social Security Board of Trustees predicts that the OASI trust fund will run out in 2032, leading to benefit payments that could be as much as 22 percent lower than they should be.
Solutions for the shortfall range from adjusting benefit amounts and tax limits, as the BPC suggests, to capping the maximum yearly benefit a retiree can receive at $100,000, a flat employer tax rate that would apply to all incomes instead of stopping at the current limit of $184,500, or limiting Social Security’s yearly cost-of-living increases for those who receive the most benefits, according to nonpartisan think tank Committee for a Responsible Federal Budget.