President Trump’s key tax and spending legislation has complicated the already fragile financial status of Social Security.
Last year marked a significant milestone for Social Security. Along with celebrating the 90th anniversary of the Social Security Act from August 1935, the average monthly benefit for retired workers exceeded $2,000 for the first time since the program’s launch.
As of December 2025, the average monthly payment stood at $2,071.30. While this amount might seem modest, it’s crucial for assisting retirees with their living costs. Gallup’s national surveys over the past 24 years show that roughly 80% to 90% of retirees depend on their Social Security income for at least part of their expenses.
It’s vital for elected officials to prioritize the financial sustainability and future of Social Security. However, a new analysis suggests that the financial foundations of America’s primary retirement programs are deteriorating, with President Trump playing a considerable role in this issue.
The looming possibility of cuts to Social Security benefits
Since the first benefit checks were mailed to retired workers back in January 1940, the Social Security Board of Governors has annually released a report outlining the program’s financial status. This report keeps the public informed about how Social Security generates funds and where those funds go.
More importantly, it offers predictions regarding the long-term viability of the country’s retirement systems.
However, it’s important to note that Social Security is not in immediate danger of insolvency. The program collects over 91% of its annual revenue from a 12.4% payroll tax on earned income (excluding wages, salaries, or investment income). As long as workers continue to contribute, there will always be funds available for eligible beneficiaries.
That said, maintaining current payment levels, including the annual cost of living adjustments (COLA), is not guaranteed.
Currently, the program is facing a staggering $25.1 trillion in unfunded long-term obligations, according to the 2025 Board of Governors report released last June. This “long-term” designation spans a 75-year period post-report publication.
Adding to the concern is the forecast for the Old Age and Survivors Insurance Trust Fund (OASI), which provides monthly benefits to 53.6 million retirees and 5.8 million survivor recipients. The Trustees’ latest report suggests that OASI’s reserves—accumulated surplus invested in government bonds—could run out by 2033.
While OASI can still make payments without these reserves, their absence suggests the current payment schedule and COLA won’t be sustainable. The Trustees believe that by 2033, significant benefit reductions of up to 23% might be necessary to maintain OASI payments through 2099.
How President Trump’s legislation is exacerbating the Social Security situation
Since the Trustee’s report came out in June, predictions for Social Security have worsened, in part due to the financial implications of Trump’s flagship tax and spending legislation, dubbed the “Big Beautiful Bill.”
Before Donald Trump attempted to secure a non-consecutive second term and signed this major legislation on July 4, he vowed to eliminate taxes on Social Security benefits, which are highly unpopular.
Starting in 1984, individuals and couples filing taxes with income above certain thresholds (adjusted gross income plus nontaxable interest plus half of Social Security benefits) have faced federal taxes of up to 50% on their benefits. A decade later, a second tier allowed for as much as 85% of benefits to be taxed at certain income levels.
The criticism around this tax arises because those qualifying income thresholds were never adjusted for inflation. Initially affecting about 10% of elderly households in the 1980s, this tax now impacts roughly half of all older Americans.
Unfortunately, Trump could not garner the bipartisan backing needed to reform the Social Security Act. Instead, the “Big Beautiful Bill” ended up giving seniors some consolation awards and various tax incentives for selected workers.
This new law increases the standard federal deduction for eligible seniors by $6,000 ($12,000 for married couples filing jointly) for tax years from 2025 to 2028, along with allowing certain workers to deduct a portion of their overtime pay and tips during the same period.
While many appreciate keeping more of their income and benefits, these tax cuts are likely to adversely affect the income that Social Security collects by 2028.
In reply to an inquiry from Senator Ron Wyden (D-Ore.) regarding the “big beautiful bill’s” impact on Social Security, the SSA’s Office of Accounting projected an increase of $168.6 billion in costs to the combined OASI and Disability Insurance Trust Fund from 2025 to 2034.
More concerning is the anticipated depletion of OASI’s reserves, which has now been moved up from early 2033 to late 2032, implying significant benefit cuts are just six years away.
Demographic changes compound the difficulties faced by Social Security
While Trump’s tax and spending legislation is expected to negatively influence the U.S. retirement systems, the ongoing demographic shifts pose a far more substantial threat to the financial strength of Social Security.
You might know about notable changes, like the continued retirement of baby boomers and increased life expectancy since Social Security began distributing benefits in January 1940. The system was never designed to support retirements lasting decades.
What might be more troubling, however, is a demographic shift that hasn’t been well noted.
For instance, the U.S. birth rate fell to a record low in 2024, according to the Centers for Disease Control and Prevention. To maintain population levels, each woman should ideally have an average of 2.1 children, but in 2024, the average was below 1.6. This significant decrease in births will further strain the worker-to-beneficiary ratio in the future.
Moreover, legal immigration into the United States has been on the decline since the late 1990s. America’s major retirement systems depend heavily on a steady influx of legal immigrants, who tend to be young and often contribute payroll taxes for decades. Fewer immigrants entering the country translates to a decrease in payroll tax revenue for Social Security.
Income inequality also poses challenges for the program. Back in 1983, it was the case that approximately 90% of all income was taxable under the payroll tax system. Yet as of 2024, only about 83% of income is projected to fall under these taxes, according to SSA’s preliminary 2025 report. This suggests that as income grows faster than the taxable cap (set to apply to all earned income up to $184,500 in 2026), a lot more income escapes taxable limits.
Addressing these demographic challenges isn’t simple, and the genuine task at hand is ensuring that Social Security remains robust for generations to come.
