June 17, 2025 • 17 mins
The House-passed reconciliation bill leaves out Trump’s promise to eliminate taxes on Social Security benefits, opting instead to expand the standard deduction for seniors.
In this episode, Kyle Hulehan and Erica York are joined by Alex Durante to unpack how the deduction works, who benefits most, and how it compares to repealing Social Security taxes.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Kyle Hulehan (00:00):
Hello and welcome to the Deduction of Tax
Foundation podcast.
I'm your host, Kyle Houlahan,and we are back today with
another episode.
We have Erica York here, myco-host, and we are joined by
Alex Duranti, senior Economistat the Tax Foundation.
And we are once again talkingabout some stuff that has to do
with the one big, beautifulbill.
First off, uh, we're gonna startoff with Erica here.
(00:22):
What is the latest in the newswith, with the one big,
beautiful bill?
Erica York (00:26):
So the bill has passed the house.
It's now sitting with the SenateToday, we're recording on
Friday, June 13th, and we'reexpecting the Senate Finance
Committee to release part of itschanges to to the House Pass.
Bill today.
And then the reporting indicatesthey'll, they'll release the
rest on Monday, June 16th.
(00:46):
Um, as long as all of thelegislative text is released in
the Senate on June 16th, um,they'll take the next week or so
to work through that.
Make sure it follows the rulesof reconciliation with the
Senate parliamentarian.
Um, then it can pass the Senatethe following week.
Then the house will have toagree, or the Senate and the
(01:07):
House will have to furthercompromise on a final version of
the legislation.
And then it would go to thepresident's desk.
So as long as they meet thisMonday, June 16th deadline for
all the texts, they could stillhit this July 4th deadline for
getting the bill enacted.
But there are a lot of stickingpoints, uh, between the House
and the Senate.
So we'll have to see if they canactually work on that fast
(01:29):
timeline or if this pushes outlater into the summer or
potentially early fall.
Kyle Hulehan (01:34):
So one thing we wanna kind of discuss here
today, uh, switching gears backto.
we wanna talk about, um, is wewanna talk, there's social
security versus no tax on socialsecurity versus this senior
deduction or exemption.
And Alex Durante here wrote agreat article about this and so
(01:54):
let, let's start off with alittle bit big picture.
Why is on social securitybenefits such like a recurring
flashpoint right now in taxpolicy debates and what made it
a focus during the 2024election?
Alex Durante (02:08):
the president during his campaign had, uh,
promised to eliminate, um, thetaxation social security
benefits.
There really wasn't, I wouldsay, necessarily a great, um,
policy justification or policyrationale offered for doing
this.
I mean, if you, if you read.
Um, some, some of what waswritten at the time, I mean, a
lot of it was just focused onjust providing additional
(02:29):
relief, uh, to seniors.
Um, because they hadexperienced, um, some cost of
living increases, uh, due due toinflation.
Um, of course, they, they werenot the only ones that, that
experienced those cost of livingincreases.
But, um, not, not nonetheless,the president, um, Cho chose.
To target them specifically forrelief.
(02:50):
And, you know, as seniors are,um, you know, a, a, a key voting
constituency as well.
I think there were also somepolitical reasons, uh, uh, for
doing so.
Erica York (02:59):
So the house has now passed the one big beautiful
Bill Act, but they didn'tinclude Trump's promise to
eliminate taxes on socialsecurity benefits.
Instead, they did expandsomething that's known as the
senior deduction.
Can you walk us through how theyexpanded that?
How it works and who it's aimedat helping.
Alex Durante (03:19):
I think one of the reasons that we didn't see, the
no tax on social securitybenefits in the bills because it
would've been, um, very, veryexpensive, to, to implement
that.
Um, our, our estimate put thecost at about$1.6 trillion, uh,
over 10 years.
Um, the.
Additional senior deduction, uh,would cost substantially less
(03:41):
than that.
Um, in part because it is onlyscheduled to be in effect from
2025 through 2028.
Um, but if it were to extendthrough the whole decade, it
would be between about 200billion and$300 billion, um,
over 10 years.
So it comes in, it'ssubstantially less Now.
The way that that provision isgoing to work is right now in
(04:03):
the, the current tax code.
Um, there actually is already.
an additional standard deductionfor seniors.
married filers, uh, may claim,um, may deduct, uh,$1,600 from
their taxable income.
And then for unmarried filers,um, the bonus is, uh, the
additional standard deduction isa little bit more generous and
they can deduct, um,$2,000.
(04:25):
The proposal on the house billis to add a, an additional$4,000
bonus, um, per individual.
And then also make thatavailable to taxpayers, uh,
that, that itemize, uh, theirdeductions.
it's a bit different, um,because it would not, um, the,
the, the, the specificprovision, um, would apply to
(04:47):
all, um, income that's earned,um, by these recipients, not
necessarily just social securityincome.
Kyle Hulehan (04:54):
So with Tax Foundation's modeling it, it
shows that the senior deductiongives a, a larger relative
benefit to lower and middleincome households while Social
Security tax repeal, uh, favorshigh income seniors.
Why is that
Alex Durante (05:10):
So in some sense by design, um, the additional
senior deduction, um.
Would not give a lot of benefitsto high income taxpayers because
it is scheduled, uh, to phaseout at around$150,000, um, for
joint filers.
But, um, if you compare it toum, uh, the Social Security
benefit taxation, um, up to 85%,um, of those benefits are
(05:36):
taxable.
And, um, and there are a lot of,um.
Upper middle come earners, um,that have a lot of social
security income.
Um, and for that reason, theywould be the ones that would be
betting, benefiting, um,substantially from that
relative, um, to this, uh,particular additional senior
(05:56):
deduction, which is limited.
I.
Um, sort of by design to those,uh, lower and middle income
taxpayers.
But, um, even if you just look,um, near the bottom to quintile,
so this is near the bottom ofthe income distribution.
Um, under current law, uh, ifyour, if you have, uh, what's
called combined income, uh,under.
(06:18):
Uh,$32,000.
So that includes your, um, grossadjusted income plus any, uh,
tax exempt interest income, andthen plus half of your social
security benefits.
If that income is below$32,000,you don't face any taxation, um,
on your social securitybenefits.
Uh, so when you compare that,um, to the, the additional
(06:40):
standard, um, deduction, if theyhave, um.
Other sources of income, they'regoing to be getting, um, relief
from, from that, from thatprovision.
Whereas, whereas they, if, if,um, taxation, social security
benefits was completelyeliminated, they would not, um,
be seeing really many additionalbenefits from that because they
might already be below the, thatincome threshold.
Erica York (07:02):
so just to sum, sum that up to make sure I'm, I'm
getting at like, taxation ofSocial security benefits is
primarily something that affectslike middle to upper, middle to
high income seniors.
Um, if you're really low income,your social security benefits
are not being taxed undercurrent law
Alex Durante (07:18):
yes,
Erica York (07:18):
versus this bonus deduction that everybody who's
low middle income gets, and thenit phases out for, for higher
income.
So it kind of just is like a, areverse of the pattern of who
who's gonna benefit.
Alex Durante (07:30):
Yes, that's right.
Erica York (07:31):
Got it.
Um, another big differencebetween the no tax on Social
Security versus this bonus, um,standard deduction amount is how
it will affect the SocialSecurity Trust funds.
Can you walk us through like howthe taxation of Social Security
benefits fits into financing forSocial Security and if they had
(07:54):
gone with this plan to eliminatetaxes on those benefits, what
would happen to to that revenue?
Alex Durante (07:59):
Right.
So we're gonna have to go, I'mgonna have to give a bit of a, a
history lesson here of how, ofhow we got to this point.
so back in 1983, um, the, the,the Social Security Trust Fund
was imperiled and there wereseveral reforms, um, that, that
were.
Passed, um, to ensure that therewouldn't be benefit cuts.
(08:19):
Um, one of these was introducingthe taxation of social security
benefits and what they decide atthe time was that, um.
um, above, if you had combinedincome above$32,000, um, half of
your Social Security benefits,um, would be taxed under our
ordinary income rates.
Then in 1990, and then I shouldsay that, that that money would
(08:43):
specifically be allocated to theSocial Security Trust Fund.
Um, then in 1993, um, there wasanother update, um, to this
provision.
Where they decided to for, forincomes.
Um, so for incomes that werebetween$32,000 dollars and
$44,000, you would still befaced, uh, half of your benefits
(09:05):
would, would still be subject totaxation.
But then above those thresholds,above$44,000, um, an additional
35% of your social securitybenefits, um, would be subject
to income taxation.
So bringing that total.
To 85% and that additional 35%would be allocated to the
Medicare trust fund.
(09:27):
so, so the issue is, you couldsee, so, so really the, the, the
big difference you could seebetween the, the two proposals
here is that, um, if thepresident had, um, fulfilled
exactly what he had promisedduring his campaign and exempted
all social security benefitsfrom taxation, um.
Both of the revenues, uh, therevenues going to both the
(09:48):
social security, um, trust fundand the Medicare hospital, uh,
trust fund, um, would, would be,would, would decline.
And the implications of this arefor social security, um, that
would accelerate the insolvencyof the trust fund by about two
years.
And then for Medicare, thatwould.
So it would actually go, so itwould be scheduled to expire in
(10:09):
2033 versus 2035.
And then for Medicare, it wouldactually accelerate the
depletion of that trust fund bysix years, from 2036 to 2030.
Um, so, so the fiscalimplications of doing that
would've been quite calamitous.
And that's possibly also, um,ano another reason why the
(10:30):
president.
Chose to do, to give more, um,limited, limited relief to
seniors, although I won'tpretend that, uh, you know,
really anyone in Congress, eventhe current administration cares
about, about replenishing, uh,you know, the, the, the trust
funds.
Uh, but, but nonetheless, Ithink it just would've been, uh,
perhaps politically, uh,untenable at that point.
Kyle Hulehan (10:52):
So, wait, I, I need to hop in right here.
I, I know that I work at the taxfoundation.
I'm not an expert like you guys,but am I right to be confused
about what you just said?
'cause that sounded veryconfusing.
Like, we're gonna tax 35% ofthis part in this area and it,
and how they're, they're doing.
The trust fund seems very wonkyor confusing, at least to me.
Alex Durante (11:11):
So the way that they arrived at this number is
not as, as arbitrary as it maysound.
So in 1993, uh, the actuaries,um.
Tried to calculate the presentvalue of tax contributions to
Social Security, being that theywere trying to calculate how
much is that future stream ofSocial Security benefits, uh,
(11:32):
worth to you today.
And what they found was that thepresent value of those tax
contributions to socialsecurity.
equal to less than 15% of thoselifetime benefits.
Um, which means that up to 85%of those benefits could be
taxed, um, without risking somekind of double taxation.
(11:53):
And, and this is actuallyimportant because you, you kind
of want to maintain, um, somekind of horizontal equity across
all of the types of saving, um,programs that we have in the us.
So obviously, um, you know, wehave either, um.
You know, four 401k styletreatment where you can put, um,
your income into.
(12:14):
Tax preferred accounts.
And then when you collect yourdistributions, you pay tax on
that.
Or you can have Roth styletreatment where you pay the
taxes upfront and then deposit,um, the those, um, that income
into, into an account.
And then when you withdraw fromthat account, um, you don't pay
any taxes on that additionalincome.
So the idea with, uh, taxing.
(12:36):
The social security benefits isto just sort of bring it in
line, um, with these, with theseother forms of savings.
Otherwise, if we didn't tax, um,the, the benefits, um, then
social security income, um,would be, would be favored, uh,
relative to other types ofincome, uh, in our tax code.
Erica York (12:54):
Yeah, I think that's like the, the perfect key.
Um, it, it sounds supercomplicated and there are
different income levels at whichthe different percentages kick
in, so that part's confusing.
But the whole idea is let'streat social security benefits
the same way that we treat theother types of retirement income
you get, whether that's througha Roth or a traditional style
account.
It's just kind of trying to makeeverything the same.
Alex Durante (13:17):
Right.
Kyle Hulehan (13:18):
Okay.
That, that makes sense.
I, I understand that.
I appreciate that.
Uh, so.
Getting back to, you know, thesetwo policies, kind of like
juxtaposing these, neitherpolicy seems to generate much
economic growth and both add tothe deficit, you know?
So what should lawmakers beweighing when they're deciding
these types of targeted taxcuts, and is there a smarter way
(13:40):
to provide relief to seniorswithout undermining the long
term fiscal?
Alex Durante (13:44):
I think one thing that would be very sensible, um,
so, so what, what might surpriseyou here is that those
thresholds I've been mentioning,you might, if you might recall,
I said, um.
If you have combined income, um,below, uh,$32,000, you pay no
tax, um, on your social securitybenefits.
That threshold has been in placesince 1993, so that, that
(14:06):
particular threshold is notadjusted for inflation, um,
which means that, um, more.
Um, seniors are, are beingexposed, um, to the taxation of
benefits then would be the caseif, if that threshold was
inflation adjusted.
And I think that would be asensible thing to do because
since, um, 1981, um, we, youknow, we, we, we inflation
(14:29):
adjust many facets, um, of, ofour, of our tax code, um, to
protect.
Um, taxpayers from falling intothose higher brackets and then
facing a higher tax burden, uh,as a result.
So I think a sensible thing todo that would be consistent, um,
with the rest of our tax codeand would, and would provide
relief to seniors, um, would beto index, um, those, those
(14:51):
threats, those, uh, particularthresholds, uh, for inflation.
Kyle Hulehan (14:55):
So is there way that we can see more economic
growth here.
Do you feel like there's a morepro-growth option in all of
this?
Alex Durante (15:02):
The reform I just suggested.
I, I, I mean, I think from thatperspective, um, it's more, it's
more important, um, to have thatinflation adjustment, um, to
make it consistent.
Um, with, with the rest of thetax code, um, would it
necessarily be the most growthenhancing policy that we could
enact?
(15:22):
Um, probably not.
And, and I, and I think, youknow, part of the reason for
this is that, I mean, if youwere trying to design, um, a
particular kind of tax cut toreally increase growth, you
know, you maybe target, um, yourtax cut, um, towards younger
workers or workers that in, intheir, their peak early years,
and that would be veryresponsive.
Um.
(15:42):
To, to a change in theirmarginal tax rates.
Um, you know, obviously, um,seniors, you know, they, they,
they're, they're, they'reworking less, they're close, um,
to exiting the labor force.
So a lot of this, um, is justproviding, um, just sort of, uh,
just, it's just more of likejust a straight tax relief,
which is not necessarily, um, abad thing to do.
(16:02):
And I, and I gave a reason why Ithink it would be good to, to do
it here.
Um, but, but really if, if thisis, if we were trying to do, um,
you know, growth enhancing.
Um, tax policies, I, I, I thinkwe would have to look elsewhere
in, in our tax code.
Kyle Hulehan (16:16):
Yeah.
And, and I think that makessense.
And I feel like when it comes toeconomic growth, you know,
there's a balance to all ofthis.
You know, not every policyyou're gonna do is going to,
like, it might help people andthat'll be a good thing.
And it might not boom, theeconomy, but, but that can be
okay too.
Uh.
It just, just depends on thegoal you're trying to
accomplish, you know?
Um, but before we sign off, Ijust wanna let everyone know if
(16:38):
you have any burning questions,you can send them our way.
You can drop a comment onYouTube as many of you have
done.
You can always email us atpodcast@taxfoundation.org, or
you can slide into the dms onTwitter at the deduction pod.
Thank you for listening.
Hello and welcome to the Deduction of Tax
Foundation podcast.
I'm your host, Kyle Houlahan,and we are back today with
another episode.
We have Erica York here, myco-host, and we are joined by
Alex Duranti, senior Economistat the Tax Foundation.
And we are once again talkingabout some stuff that has to do
with the one big, beautifulbill.
First off, uh, we're gonna startoff with Erica here.
(00:22):
What is the latest in the newswith, with the one big,
beautiful bill?
Erica York (00:26):
So the bill has passed the house.
It's now sitting with the SenateToday, we're recording on
Friday, June 13th, and we'reexpecting the Senate Finance
Committee to release part of itschanges to to the House Pass.
Bill today.
And then the reporting indicatesthey'll, they'll release the
rest on Monday, June 16th.
(00:46):
Um, as long as all of thelegislative text is released in
the Senate on June 16th, um,they'll take the next week or so
to work through that.
Make sure it follows the rulesof reconciliation with the
Senate parliamentarian.
Um, then it can pass the Senatethe following week.
Then the house will have toagree, or the Senate and the
(01:07):
House will have to furthercompromise on a final version of
the legislation.
And then it would go to thepresident's desk.
So as long as they meet thisMonday, June 16th deadline for
all the texts, they could stillhit this July 4th deadline for
getting the bill enacted.
But there are a lot of stickingpoints, uh, between the House
and the Senate.
So we'll have to see if they canactually work on that fast
(01:29):
timeline or if this pushes outlater into the summer or
potentially early fall.
Kyle Hulehan (01:34):
So one thing we wanna kind of discuss here
today, uh, switching gears backto.
we wanna talk about, um, is wewanna talk, there's social
security versus no tax on socialsecurity versus this senior
deduction or exemption.
And Alex Durante here wrote agreat article about this and so
(01:54):
let, let's start off with alittle bit big picture.
Why is on social securitybenefits such like a recurring
flashpoint right now in taxpolicy debates and what made it
a focus during the 2024election?
Alex Durante (02:08):
the president during his campaign had, uh,
promised to eliminate, um, thetaxation social security
benefits.
There really wasn't, I wouldsay, necessarily a great, um,
policy justification or policyrationale offered for doing
this.
I mean, if you, if you read.
Um, some, some of what waswritten at the time, I mean, a
lot of it was just focused onjust providing additional
(02:29):
relief, uh, to seniors.
Um, because they hadexperienced, um, some cost of
living increases, uh, due due toinflation.
Um, of course, they, they werenot the only ones that, that
experienced those cost of livingincreases.
But, um, not, not nonetheless,the president, um, Cho chose.
To target them specifically forrelief.
(02:50):
And, you know, as seniors are,um, you know, a, a, a key voting
constituency as well.
I think there were also somepolitical reasons, uh, uh, for
doing so.
Erica York (02:59):
So the house has now passed the one big beautiful
Bill Act, but they didn'tinclude Trump's promise to
eliminate taxes on socialsecurity benefits.
Instead, they did expandsomething that's known as the
senior deduction.
Can you walk us through how theyexpanded that?
How it works and who it's aimedat helping.
Alex Durante (03:19):
I think one of the reasons that we didn't see, the
no tax on social securitybenefits in the bills because it
would've been, um, very, veryexpensive, to, to implement
that.
Um, our, our estimate put thecost at about$1.6 trillion, uh,
over 10 years.
Um, the.
Additional senior deduction, uh,would cost substantially less
(03:41):
than that.
Um, in part because it is onlyscheduled to be in effect from
2025 through 2028.
Um, but if it were to extendthrough the whole decade, it
would be between about 200billion and$300 billion, um,
over 10 years.
So it comes in, it'ssubstantially less Now.
The way that that provision isgoing to work is right now in
(04:03):
the, the current tax code.
Um, there actually is already.
an additional standard deductionfor seniors.
married filers, uh, may claim,um, may deduct, uh,$1,600 from
their taxable income.
And then for unmarried filers,um, the bonus is, uh, the
additional standard deduction isa little bit more generous and
they can deduct, um,$2,000.
(04:25):
The proposal on the house billis to add a, an additional$4,000
bonus, um, per individual.
And then also make thatavailable to taxpayers, uh,
that, that itemize, uh, theirdeductions.
it's a bit different, um,because it would not, um, the,
the, the, the specificprovision, um, would apply to
(04:47):
all, um, income that's earned,um, by these recipients, not
necessarily just social securityincome.
Kyle Hulehan (04:54):
So with Tax Foundation's modeling it, it
shows that the senior deductiongives a, a larger relative
benefit to lower and middleincome households while Social
Security tax repeal, uh, favorshigh income seniors.
Why is that
Alex Durante (05:10):
So in some sense by design, um, the additional
senior deduction, um.
Would not give a lot of benefitsto high income taxpayers because
it is scheduled, uh, to phaseout at around$150,000, um, for
joint filers.
But, um, if you compare it toum, uh, the Social Security
benefit taxation, um, up to 85%,um, of those benefits are
(05:36):
taxable.
And, um, and there are a lot of,um.
Upper middle come earners, um,that have a lot of social
security income.
Um, and for that reason, theywould be the ones that would be
betting, benefiting, um,substantially from that
relative, um, to this, uh,particular additional senior
(05:56):
deduction, which is limited.
I.
Um, sort of by design to those,uh, lower and middle income
taxpayers.
But, um, even if you just look,um, near the bottom to quintile,
so this is near the bottom ofthe income distribution.
Um, under current law, uh, ifyour, if you have, uh, what's
called combined income, uh,under.
(06:18):
Uh,$32,000.
So that includes your, um, grossadjusted income plus any, uh,
tax exempt interest income, andthen plus half of your social
security benefits.
If that income is below$32,000,you don't face any taxation, um,
on your social securitybenefits.
Uh, so when you compare that,um, to the, the additional
(06:40):
standard, um, deduction, if theyhave, um.
Other sources of income, they'regoing to be getting, um, relief
from, from that, from thatprovision.
Whereas, whereas they, if, if,um, taxation, social security
benefits was completelyeliminated, they would not, um,
be seeing really many additionalbenefits from that because they
might already be below the, thatincome threshold.
Erica York (07:02):
so just to sum, sum that up to make sure I'm, I'm
getting at like, taxation ofSocial security benefits is
primarily something that affectslike middle to upper, middle to
high income seniors.
Um, if you're really low income,your social security benefits
are not being taxed undercurrent law
Alex Durante (07:18):
yes,
Erica York (07:18):
versus this bonus deduction that everybody who's
low middle income gets, and thenit phases out for, for higher
income.
So it kind of just is like a, areverse of the pattern of who
who's gonna benefit.
Alex Durante (07:30):
Yes, that's right.
Erica York (07:31):
Got it.
Um, another big differencebetween the no tax on Social
Security versus this bonus, um,standard deduction amount is how
it will affect the SocialSecurity Trust funds.
Can you walk us through like howthe taxation of Social Security
benefits fits into financing forSocial Security and if they had
(07:54):
gone with this plan to eliminatetaxes on those benefits, what
would happen to to that revenue?
Alex Durante (07:59):
Right.
So we're gonna have to go, I'mgonna have to give a bit of a, a
history lesson here of how, ofhow we got to this point.
so back in 1983, um, the, the,the Social Security Trust Fund
was imperiled and there wereseveral reforms, um, that, that
were.
Passed, um, to ensure that therewouldn't be benefit cuts.
(08:19):
Um, one of these was introducingthe taxation of social security
benefits and what they decide atthe time was that, um.
um, above, if you had combinedincome above$32,000, um, half of
your Social Security benefits,um, would be taxed under our
ordinary income rates.
Then in 1990, and then I shouldsay that, that that money would
(08:43):
specifically be allocated to theSocial Security Trust Fund.
Um, then in 1993, um, there wasanother update, um, to this
provision.
Where they decided to for, forincomes.
Um, so for incomes that werebetween$32,000 dollars and
$44,000, you would still befaced, uh, half of your benefits
(09:05):
would, would still be subject totaxation.
But then above those thresholds,above$44,000, um, an additional
35% of your social securitybenefits, um, would be subject
to income taxation.
So bringing that total.
To 85% and that additional 35%would be allocated to the
Medicare trust fund.
(09:27):
so, so the issue is, you couldsee, so, so really the, the, the
big difference you could seebetween the, the two proposals
here is that, um, if thepresident had, um, fulfilled
exactly what he had promisedduring his campaign and exempted
all social security benefitsfrom taxation, um.
Both of the revenues, uh, therevenues going to both the
(09:48):
social security, um, trust fundand the Medicare hospital, uh,
trust fund, um, would, would be,would, would decline.
And the implications of this arefor social security, um, that
would accelerate the insolvencyof the trust fund by about two
years.
And then for Medicare, thatwould.
So it would actually go, so itwould be scheduled to expire in
(10:09):
2033 versus 2035.
And then for Medicare, it wouldactually accelerate the
depletion of that trust fund bysix years, from 2036 to 2030.
Um, so, so the fiscalimplications of doing that
would've been quite calamitous.
And that's possibly also, um,ano another reason why the
(10:30):
president.
Chose to do, to give more, um,limited, limited relief to
seniors, although I won'tpretend that, uh, you know,
really anyone in Congress, eventhe current administration cares
about, about replenishing, uh,you know, the, the, the trust
funds.
Uh, but, but nonetheless, Ithink it just would've been, uh,
perhaps politically, uh,untenable at that point.
Kyle Hulehan (10:52):
So, wait, I, I need to hop in right here.
I, I know that I work at the taxfoundation.
I'm not an expert like you guys,but am I right to be confused
about what you just said?
'cause that sounded veryconfusing.
Like, we're gonna tax 35% ofthis part in this area and it,
and how they're, they're doing.
The trust fund seems very wonkyor confusing, at least to me.
Alex Durante (11:11):
So the way that they arrived at this number is
not as, as arbitrary as it maysound.
So in 1993, uh, the actuaries,um.
Tried to calculate the presentvalue of tax contributions to
Social Security, being that theywere trying to calculate how
much is that future stream ofSocial Security benefits, uh,
(11:32):
worth to you today.
And what they found was that thepresent value of those tax
contributions to socialsecurity.
equal to less than 15% of thoselifetime benefits.
Um, which means that up to 85%of those benefits could be
taxed, um, without risking somekind of double taxation.
(11:53):
And, and this is actuallyimportant because you, you kind
of want to maintain, um, somekind of horizontal equity across
all of the types of saving, um,programs that we have in the us.
So obviously, um, you know, wehave either, um.
You know, four 401k styletreatment where you can put, um,
your income into.
(12:14):
Tax preferred accounts.
And then when you collect yourdistributions, you pay tax on
that.
Or you can have Roth styletreatment where you pay the
taxes upfront and then deposit,um, the those, um, that income
into, into an account.
And then when you withdraw fromthat account, um, you don't pay
any taxes on that additionalincome.
So the idea with, uh, taxing.
(12:36):
The social security benefits isto just sort of bring it in
line, um, with these, with theseother forms of savings.
Otherwise, if we didn't tax, um,the, the benefits, um, then
social security income, um,would be, would be favored, uh,
relative to other types ofincome, uh, in our tax code.
Erica York (12:54):
Yeah, I think that's like the, the perfect key.
Um, it, it sounds supercomplicated and there are
different income levels at whichthe different percentages kick
in, so that part's confusing.
But the whole idea is let'streat social security benefits
the same way that we treat theother types of retirement income
you get, whether that's througha Roth or a traditional style
account.
It's just kind of trying to makeeverything the same.
Alex Durante (13:17):
Right.
Kyle Hulehan (13:18):
Okay.
That, that makes sense.
I, I understand that.
I appreciate that.
Uh, so.
Getting back to, you know, thesetwo policies, kind of like
juxtaposing these, neitherpolicy seems to generate much
economic growth and both add tothe deficit, you know?
So what should lawmakers beweighing when they're deciding
these types of targeted taxcuts, and is there a smarter way
(13:40):
to provide relief to seniorswithout undermining the long
term fiscal?
Alex Durante (13:44):
I think one thing that would be very sensible, um,
so, so what, what might surpriseyou here is that those
thresholds I've been mentioning,you might, if you might recall,
I said, um.
If you have combined income, um,below, uh,$32,000, you pay no
tax, um, on your social securitybenefits.
That threshold has been in placesince 1993, so that, that
(14:06):
particular threshold is notadjusted for inflation, um,
which means that, um, more.
Um, seniors are, are beingexposed, um, to the taxation of
benefits then would be the caseif, if that threshold was
inflation adjusted.
And I think that would be asensible thing to do because
since, um, 1981, um, we, youknow, we, we, we inflation
(14:29):
adjust many facets, um, of, ofour, of our tax code, um, to
protect.
Um, taxpayers from falling intothose higher brackets and then
facing a higher tax burden, uh,as a result.
So I think a sensible thing todo that would be consistent, um,
with the rest of our tax codeand would, and would provide
relief to seniors, um, would beto index, um, those, those
(14:51):
threats, those, uh, particularthresholds, uh, for inflation.
Kyle Hulehan (14:55):
So is there way that we can see more economic
growth here.
Do you feel like there's a morepro-growth option in all of
this?
Alex Durante (15:02):
The reform I just suggested.
I, I, I mean, I think from thatperspective, um, it's more, it's
more important, um, to have thatinflation adjustment, um, to
make it consistent.
Um, with, with the rest of thetax code, um, would it
necessarily be the most growthenhancing policy that we could
enact?
(15:22):
Um, probably not.
And, and I, and I think, youknow, part of the reason for
this is that, I mean, if youwere trying to design, um, a
particular kind of tax cut toreally increase growth, you
know, you maybe target, um, yourtax cut, um, towards younger
workers or workers that in, intheir, their peak early years,
and that would be veryresponsive.
Um.
(15:42):
To, to a change in theirmarginal tax rates.
Um, you know, obviously, um,seniors, you know, they, they,
they're, they're, they'reworking less, they're close, um,
to exiting the labor force.
So a lot of this, um, is justproviding, um, just sort of, uh,
just, it's just more of likejust a straight tax relief,
which is not necessarily, um, abad thing to do.
(16:02):
And I, and I gave a reason why Ithink it would be good to, to do
it here.
Um, but, but really if, if thisis, if we were trying to do, um,
you know, growth enhancing.
Um, tax policies, I, I, I thinkwe would have to look elsewhere
in, in our tax code.
Kyle Hulehan (16:16):
Yeah.
And, and I think that makessense.
And I feel like when it comes toeconomic growth, you know,
there's a balance to all ofthis.
You know, not every policyyou're gonna do is going to,
like, it might help people andthat'll be a good thing.
And it might not boom, theeconomy, but, but that can be
okay too.
Uh.
It just, just depends on thegoal you're trying to
accomplish, you know?
Um, but before we sign off, Ijust wanna let everyone know if
(16:38):
you have any burning questions,you can send them our way.
You can drop a comment onYouTube as many of you have
done.
You can always email us atpodcast@taxfoundation.org, or
you can slide into the dms onTwitter at the deduction pod.
Thank you for listening.
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