Social Security changes: Two big Social Security changes are being considered in Washington — here’s what it means
According to The Motley Fool, on July 4, President Donald Trump signed into law the One, Big, Beautiful Bill Act (OBBBA), which adds a new tax break for certain seniors ages 65 and over in an effort to reduce taxes on Social Security income. OBBBA did not completely eliminate taxes on Social Security, despite a White House press release claiming that “no taxes on Social Security is a reality of the Big Beautiful Bill.”
Limits of the new tax deduction
The new severance discount does not apply to people under 65, nor does it apply to seniors with higher incomes. The deduction phases out for single seniors making over $75,000 and married seniors making over $150,000. The outage is temporary and will end after 2028 for everyone. Because of these limitations, some lawmakers in Washington want to eliminate federal income taxes on Social Security benefits altogether.
In 2025, Senator Ruben Gallego of Arizona and Representative Angie Craig of Minnesota introduced the “You Win, You Keep It Act.” In 2025, Kentucky Representative Thomas Massie and Florida Representative Daniel Webster introduced the “Senior Citizens Tax Elimination Act.” “Trump claimed he was eliminating Social Security taxes. My bill does that permanently,” Senator Gallego said, as quoted by The Motley Fool. he said. “The bill would keep Social Security retirement benefits tax-free and increase retirement income for millions of older Americans,” said Rep. Massie.
Trust fund risk
Experts warn that eliminating Social Security taxes would reduce Social Security Trust Fund funding, which is currently expected to run out by 2034. Ending Social Security taxes could push up the trust fund depletion date by more than a year, according to the Committee for a Responsible Federal Budget. Lawmakers are also considering a second major change: updating how annual cost-of-living adjustments (COLAs) are calculated.
The Senior Citizens League (TSCL) says current COLAs for retirees have failed to keep up with real inflation. As The Motley Fool notes, TSCL says, “The average senior retiring in 1999 lost nearly $5,000 in Social Security payments as a result of the government using an incorrect price index.” Currently, COLAs are based on the CPI-W, which tracks inflation for hourly workers, not retirees. Seniors spend money differently than workers, making CPI-W ineligible for Social Security recipients.
Plan to replace COLA
Some experts want COLAs to be calculated using the CPI-E, which tracks spending by people 62 and older. TSCL estimates that employees retiring in 2024 would receive approximately $12,000 more in lifetime benefits if CPI-E is used. Earlier this year, Sen. Richard Blumenthal of Connecticut and Rep. Nikki Budzinski of Illinois, along with other lawmakers, introduced the “Extending Benefits for Seniors and COLA Act.” The bill would replace CPI-W with CPI-E when calculating Social Security COLAs. The Office of the Chief Actuary for Social Security estimates that this change would increase COLAs by about 0.2 percentage points per year. As The Motley Fool notes, higher COLAs will mean larger annual benefit increases for retirees. However, higher COLAs would also cause the Social Security Trust Fund to deplete faster, giving Congress less time to prevent future benefit cuts. For now, both proposed changes face major funding challenges and final decisions have not yet been made.
FAQ
Q1. Will Social Security taxes be eliminated completely?
No, lawmakers are proposing new bills, but taxes on Social Security haven’t been completely eliminated yet.
Q2. Why do some lawmakers want to change the Social Security COLA?
They say the current formula doesn’t match seniors’ real living costs.
