Democrats Push Bill To End Social Security Taxes As Trump’s Fix Falls Short – Financial Freedom Countdown
When Donald Trump signed his “One Big, Beautiful Bill Act” into law earlier this year, he declared it the largest tax cut for seniors in U.S. history.
The law created a new senior deduction worth up to $6,000, a $25,000 tax break for tip income, increased SALT limits and partial exemptions for overtime pay.
These changes were popular with retirees and workers alike, but they also carved out major holes in the nation’s tax base.
Why Trump’s Fix Fell Short
The Social Security Administration’s Chief Actuary estimated that between 2025 and 2034, the law would drain $168.6 billion in revenue from the Social Security trust funds.
That shortfall moved up the projected depletion date of the Old-Age and Survivors Insurance (OASI) Trust Fund to 2032, six months earlier than previously expected.
Critics argue that Trump’s senior tax breaks gave retirees short-term relief at the expense of long-term solvency.
Why Trump Could Only Deliver Temporary Relief
During his 2024 campaign, Trump pledged to end taxes on Social Security benefits altogether.
But Republican lawmakers were forced to scale back his promise.
Under the Senate’s “Byrd Rule,” entitlement programs like Social Security cannot be permanently altered through budget reconciliation.
Without 60 votes in the Senate to amend the Social Security Act; something neither party has had in over four decades, Trump’s team settled for temporary senior bonus instead of a permanent repeal.
Biden’s Law Boosted Public Worker Benefits; But Drained the Trust Fund Faster
If Trump’s law cut revenue, Biden’s did the opposite: it boosted payouts for government workers.
In January 2025, Biden signed the Social Security Fairness Act, repealing the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO).
These rules had long reduced benefits for certain government retirees with pensions.
The repeal added payouts for nearly 3 million workers, but it also accelerated Social Security’s depletion date by one full year, to 2034.
For decades, Social Security’s Trustees have warned of long-term funding shortfalls; an unfunded liability now pegged at $25.1 trillion over the next 75 years.
Yet major reforms remain elusive unless a bipartisan compromise can be achieved.
That leaves lawmakers trading short-term victories, like Trump’s senior deduction or Biden’s boost for public workers, while the trust fund moves closer to insolvency.
Into this gridlock steps Sen. Ruben Gallego (D-Ariz.), who last week introduced the You Earn It, You Keep It Act.
The bill would permanently eliminate federal taxes on Social Security benefits, something Trump promised but couldn’t deliver due to lack of Senate seats.
Rep. Angie Craig (D-Minn.) introduced a companion bill in the House earlier this year. Gallego argues his proposal would ensure seniors “keep more of what they earned” while closing loopholes for the wealthy.
How the New Plan Differs From Trump’s Approach
Unlike Trump’s “Big Beautiful Bill,” which relied on temporary deductions set to expire in 2028, Gallego’s proposal would eliminate benefit taxation entirely.
To offset the lost revenue, his bill would expand Social Security payroll taxes to cover annual wages above $250,000.
Today, earnings above $176,100 in 2025 are exempt from the payroll tax.
Analysts say this approach could extend the life of the trust funds by 24 years, until 2058.
What the Trustees Have Been Warning For Decades
The stakes are rising.
Without action, Social Security’s trust funds will be exhausted within the next decade, triggering automatic cuts to benefits.
Trump’s tax relief accelerated the shortfall by reducing revenues as per the latest analysis by the Chief Actuary of the Social Security Administration.
Biden’s law made it worse by increasing costs as per the Trustees’ report.
Gallego’s plan promises both permanent tax relief for retirees and a funding fix, but it faces steep political odds in a divided Congress.
White House Defends Trump’s Bill, Democrats Defend Their Own
The Trump administration insists its law delivered “the largest tax break in history for America’s seniors” and will pay for itself through stronger economic growth.
Biden claimed the government workers deserved more Social Security benefits.
Gallego, by contrast, says his bill is the only real way to end benefit taxation while securing Social Security for future generations.
With seniors caught in the middle, the question remains: can Congress agree on a solution before the trust funds run dry?
Senior Advocacy Groups Rally Behind the Bill
The Senior Citizens League, a leading advocacy group, has endorsed the proposal, calling it a “commonsense step” to ensure retirees keep more of what they’ve earned.
Executive Director Shannon Benton noted that eliminating taxes on benefits has been one of the group’s top priorities for years.
A Flashpoint for 2026 Midterms
With tens of millions of retirees watching closely, the debate over how to treat Social Security benefits is shaping up to be a major political issue.
For seniors already stretching their budgets, the debate is more than political theater; it’s about whether they can count on the full benefits they’ve been promised.
With the trust fund now projected to run dry in barely a decade, lawmakers face a shrinking window to act.
Whether it’s Trump’s tax cuts, Biden’s benefit boosts, or Gallego’s permanent repeal plan, one fact is clear: every year of delay makes the eventual fix harder, costlier, and more painful for retirees.
The question now is whether either side can marshal enough support in Congress before the trust fund crisis forces action.
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Trump’s $25,000 ‘No Tax on Tips’ Deduction Covers Bartenders, Babysitters and 66 More Jobs
President Donald Trump’s “big beautiful bill” has made waves with a new tax break: a “no tax on tips” deduction worth up to $25,000 per year. The U.S. Treasury has now released a preliminary list of 68 jobs that may qualify. The deduction runs from 2025 through 2028 and could reshape the financial outlook for millions of service workers. But it also comes with strict limits, phase-outs, and unanswered questions.
Trump’s $25,000 ‘No Tax on Tips’ Deduction Covers Bartenders, Babysitters and 66 More Jobs
Treasury I Bond Rates Increases from 3.11% to 3.98% – But with a 1.1% Fixed Rate Locked for 30 Years, Is It Still a Smart Investment?
Inflation has become a significant concern. During the past three years of surging inflation, I bonds offered a safe and attractive investment option. However, with recent lower CPI numbers, the current composite rate for I bonds bought after May 1, 2025 will be 3.98%. The rate has slightly increased from the prior 3.11% but is a sharp decline from the enticing 9.62% annual rate available in May 2022 or even the 4.28% available for bonds purchased before October 31st, 2024. As rates decrease, investors are now considering whether it’s still worth buying Series I bonds.
While many envision tax-friendly golden years, residents in nine states face a harsh reality as their Social Security benefits are taxed. In contrast, three states ended their practice of taxing these benefits for the 2024 calendar year. This shift highlights the complexities of retirement planning in the U.S. and underscores the importance of staying informed about changing tax laws. Are you living in one of these states? Discover how these tax changes might impact your retirement strategy and whether it’s time to reconsider your locale for those serene post-work years.
Retirees in These 9 States Still Face Social Security Taxes—While 3 Finally Got Relief For 2024
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John Dealbreuin came from a third world country to the US with only $1,000 not knowing anyone; guided by an immigrant dream. In 12 years, he achieved his retirement number.
He started Financial Freedom Countdown to help everyone think differently about their financial challenges and live their best lives. John resides in the San Francisco Bay Area enjoying nature trails and weight training.
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