President Donald Trump’s “One Big Beautiful Bill,” the signature budget legislation which he is expected to sign on July 4 after the House passes it sometime Thursday afternoon or evening after it was announced that House Republican opposition to the bill had ended, will further accelerate Social Security and Medicare insolvency, according to the non-partisan Committee for a Responsible Federal Budget.
“We estimate the One Big Beautiful Bill Act would accelerate Social Security and Medicare insolvency by a year, to 2032”
CRFB blog
“The Social Security and Medicare Trustees estimated in their 2025 annual reports on the programs that the retirement and hospital trust funds will become insolvent in 2033—only 8 years from today. We estimate the One Big Beautiful Bill Act (OBBBA) would accelerate Social Security and Medicare insolvency by a year, to 2032,” CRFB said in a June 27 blog post.
While the bill does not include any significant direct changes to Social Security and Medicare, CRFB points out that OBBBA would impact Social Security and Medicare indirectly, mainly by reducing the revenue collected from the income taxation of Social Security benefits, which is deposited into the Social Security and Medicare trust funds.
This year, the Social Security and Medicare Trustees project taxation of benefits to bring in $100 billion of revenue. They expect that to rise to more than $140 billion by 2027, mainly because the 2017 tax cuts are scheduled to expire, and so seniors would have paid higher tax rates on their income, including their Social Security benefits. But the OBBBA extends those tax cuts.
In fact, OBBBA not only extends most of the 2017 tax cuts but also expands them and adds further tax cuts on top of them. Of particular relevance for Social Security beneficiaries, the Senate version of OBBBA increases the total standard deduction for many senior couples by over $13,000 (including a temporary $12,000 increase in the additional senior deduction) in 2026, to over $47,000. CRFB notes this would reduce the number of seniors paying taxes on their benefits and reduce the marginal rate at which some of their benefits were taxed.
“We estimate that the extension and expansion of the 2017 tax cuts, the expanded senior deduction, and other OBBBA changes would reduce total taxation of benefits by roughly $30 billion per year,” CRFB’s post reads. “This would be enough to accelerate insolvency of the Social Security Old-Age and Survivors (OASI) trust fund from early 2033 to late 2032 and to accelerate insolvency of the HI trust fund from late 2033 to mid-2032.”
Absent Congressional action, that would lead to a 24% benefit cut in late 2032 for the Social Security retirement trust fund and an 11% cut in mid 2032 for the Medicare hospital insurance trust fund, per the CRFB chart below.
It should also be noted that OBBBA does not eliminate taxes on Social Security benefits (a Trump campaign promise), but it does give a temporary tax break to those 65 and older with a modified adjusted gross income of up to $75,000. If Social Security taxes were eliminated via the bill, it would drain the Social Security and Medicare trust funds even faster.
Instead of eliminating taxes on Social Security benefits (the reconciliation process Republicans used to pass the bill doesn’t allow changes to the trust funds that support the programs), the Senate’s version of the Big Beautiful Bill calls for a tax break of up to $6,000 per person (up from $4,000 in the original House version), which would be phased out at higher incomes. That is applicable to all income—not just Social Security—effective from 2025 to 2029 and phasing out above adjusted gross incomes of $75,000 individual or $150,000 joint.
“This amounts to the largest tax break in history for America’s seniors—and makes sure that after years of earning their Social Security, seniors can save more of their money.”
July 1 White House statement
Not all retirees will be eligible. Excluded are seniors who are already exempt from Social Security taxation because of low earnings, those who claim benefits before age 65, and taxpayers who exceed income thresholds. About 40% of Social Security beneficiaries, or 27.4 million people, pay income taxes on their benefits each year.
The White House is claiming—backed by an analysis by the Council of Economic Advisors—that 88% of Social Security beneficiaries will no longer pay taxes on their benefits because of the deduction. According to that study, 33.9 million seniors (including those who do not receive Social Security) will get an average increase in their after-tax income of $670 each.
In a July 1 press release, the White House said, “This amounts to the largest tax break in history for America’s seniors—and makes sure that after years of earning their Social Security, seniors can save more of their money.”
According to the Penn Wharton budget model at the University of Pennsylvania, actually abolishing Social Security taxes would cost $1.5 trillion over 10 years and accelerate the depletion of the Social Security Trust Fund from 2034 to 2032.
‘Trump Accounts’ make the cut
New tax-deferred investment accounts called Trump Accounts—sort of a “401(k) for kids”—will be created by enacting the One Big Beautiful Bill.
In a 3-year pilot program, every American baby born between 2025 and 2028 will get a $1,000 nest egg from the government to be invested in an index fund. Parents, friends and employers could then add $5,000 each year to those accounts and no deductions would be allowed until the child turns 18. Originally called a “MAGA account,” the name was changed to “Trump Accounts” in May.
President Trump said during a June 9 event that the provision is “one of the most exciting parts” of the massive, signature legislation, and that this pilot program “will make it possible for countless American children to have a strong start in life at no cost to the American taxpayer—absolutely no cost. It’s going to have a huge impact.”
Funds will be invested in a diversified fund that tracks a U.S. stock index such as the S&P 500. The program is estimated to cost $4 trillion.
EDITOR’S NOTE: This article has been updated to include the CRFB chart.
SEE ALSO:
• Analysis of New Social Security Trustees Report Exposes Harsh Realities
• 2025 Social Security Trustees Report Shows 23% Benefit Cut on Tap by 2033
• Trump Calls for Elimination of Social Security Tax
• Trump, Business Leaders and Lawmakers Tout ‘Trump Accounts’
Veteran financial services industry journalist Brian Anderson joined 401(k) Specialist as Managing Editor in January 2019. He has led editorial content for a variety of well-known properties including Insurance Forums, Life Insurance Selling, National Underwriter Life & Health, and Senior Market Advisor. He has always maintained a focus on providing readers with timely, useful information intended to help them build their business.