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Along with changes to the application of the COLA there is discussion about changing the way and amount of income taxes applied to SS benefits.
It’s quite complex, but here is a link to some alternatives from the Committee for a Responsible Federal Budget. https://www.crfb.org/papers/new-approaches-social-security-benefit-taxation
I am going on a reading strike about Social Security. If the title says Social Security I do not read.
The article lost my attention when it said these concepts would only reduce the 75 year deficit/ loss by 10% to 20%. It’s past time to get real, and these proposals don’t cut it.
Amazing article with some sane approaches, thank you for sharing
Some observers think Congress will punt on the whole thing and borrow money to put into the trust fund.
They would have to change the law because general revenue can’t be used and that is something we need to avoid. It was designed to be self funding and should stay that way.
That’s kind of ironic since Congress has been borrowing from the trust fund for years.
Nope, the Trust has been funded the same way since 1939. By law the trust invested excess revenue in special interest paying US Treasury bonds. Nothing to do with Congress borrowing.
The trust has regularly been redeeming bonds since 2021 to keep paying full benefits. It’s after all the bonds have been redeemed by 2032 that incoming revenue will be insufficient to pay accrued benefits. No more interest revenue then and it will essentially be payroll taxes and incomes taxes paid on SS benefits that will be trust revenue.
Here are all the latest Social Security facts from my blog if you are interested
https://quinnscommentary.net/2026/08/07/the-facts-about-social-security-stop-believing-the-internet-garbage/
I wouldn’t mind having all Soc Sec income taxable. That would eliminate the tax torpedo (85% increase in some marginal rates) and maybe encourage more IRA withdrawals.
Why? You have already paid income tax on the FICA taxes over the years. That would be double taxation.
I don’t understand. You could day you paid income tax on all taxes paid. I don’t get your point.
When i retired i had to write a check for $16,000 to pay Medicare taxes on the present value of the portion of my pension considered deferred compensation. I may never see that value. i paid taxes on a set of assumptions.
Sorry, I said income taxes, thought I’d changed it to FICA.
Your deferred comp was not taxed when you made the deferral, but was subject to the FICA rules. That’s just a timing issue.
The thing is I didn’t make a deferral. It was the portion of my earned pension that was based on income above the IRC qualified limits. I had no choice.
Ahh, the joy of definitions in the IRC. They got you either way.
FICA tax is payroll tax, not income tax. And what you collect from Soc Sec can exceed what you paid in FICA taxes. I’m for simplifying the tax system.
Our SS benefits exceeded what i and my employer paid in taxes almost ten years ago. Most people get to benefits exceeding their payroll tax in about 6 years of starting to collect.
Sorry, you lost me on this comment.
From Copilot AI:
Short takeaway:
The Social Security tax torpedo is a nasty jump in your marginal tax rate that happens when additional income causes more of your Social Security benefits to become taxable. It’s not an official tax bracket — it’s a hidden one — and it can push your real marginal rate into the 30–50%+ range, even for retirees who think they’re in a much lower bracket.
Below is the clean, structured explanation you’ve been looking for.
What the “tax torpedo” actually is
When you add income in retirement — usually from IRA withdrawals, pensions, capital gains, or work income — the IRS may require that a larger portion of your Social Security benefits become taxable.
Because up to 85% of your benefits can become taxable, each extra dollar of income can cause:
This creates a double‑tax effect, which is why the marginal rate spikes.
Per AI: “Just under 50% of all Social Security recipients pay federal income taxes on their benefits, and the vast majority of those individuals fall into the highest bracket where up to 85% of their benefits are taxable.
Since the thresholds for paying tax on 85% of your Social Security income is 34K for singles, and 44K for couples I’m thrilled that we are going to be taxed on 85%.
Just realized this may be another reason to delay claiming before 70.
I fear that analyses like the CRFB’s will lead to a complicated solution to solve SS’s approaching insolvency. Data such as in the report, however, are good starting points. If only the tax preparation and financial services lobbyists could keep away from the legislators, we might stand a chance of a streamlined solution. So highly unlikely…
One proposal in the CRFB (a Washington think tank) working paper notes “The the 1983 Greenspan Commission considered an option to make (social security) benefits tax free until cumulative benefits reach cumulative post-tax contributions and count all subsequent benefits as income” .
I was practicing in a CPA firm in 1983 when the previous rule for social security benefits was that all such benefits were not taxable and the debates about how to fairly tax social security began to occur more frequently. If you look at the 1983 1040 form there was not even a line for social security benefits.
Prior to 1986 the IRS had a three-year rule, optional by the taxpayer, for recovering basis on contributory pensions and employee annuities and that option was repealed by the Tax Reform Act of 1986. The old annuity rule seems similar to me to what is now a option the CRFB is proposing for determining the taxable amount of social security benefits . The 1986 amendment also capped total tax-free exclusions over the life of the annuity/pension to the exact amount of the taxpayer’s investment and also included a deduction provision for unrecovered basis if payments ceased prematurely due to your death.
I thought the previous three year rule for annuities and pension benefits was a fair and simple method and have thought the elimination of the three-year was simply typical government think to accelerate tax collections. In regards to social security benefits I think the Social Security Administration is already tracking what social security taxes each of us has paid in should future benefit taxation consider something like the old three-year rule.
I think our tax code could use a good dose of simplicity, like the old three-year basis recovery rule, especially where many current tax provisions basically benefit how you structure an event instead of its substance in determining your tax. I am not taking bets on a simpler and more equitable tax code occurring during my lifetime and plan to make my decisions to legally minimize my personal taxes under existing and future tax laws.
Plan accordingly.
An aside – Note the 1983 form, page 2, required the preparer to include their full SSN on every return you signed for a client. Not everything old was good.
I appreciate that CRFB lays out a number of actions to deal with the pending benefit reduction. The CRFB website has what they call “the reformer”, which allows users to experiment with the various elements of the SS benefit formula and figure out a method to keep SS funded.
Surely, our politicians can find a strategy or multiple strategies which all of us, whether future or current earners and current or future recipients, can share in funding!
And just think politicians have been told for decades that the earlier the solved the funding problem the less dramatic the reforms need to be. But in typical political form they will wait until the last minute to find a solution hoping that they are out of office so someone else has to do their job, and they can righteously claim they never increased taxes.
PS As an aside- the same claim, or the crowing that they cut taxes is also why the Federal government is in so much debt.
They sure could if they want to. I use that tool all the time. And note that eliminating the wage cap does not make SS sustainable.
I read this with great interest, though the tables were making my eyes glaze over a little bit. It is interesting seeing the alternatives and having them explained in some detail. I feel that changing the way we pay tax on SS will be one of several elements of a solution. Of course, the final answer to fixing SS will require all parties involved to make sacrifices, not just current recipients; it won’t be a good plan until everyone is peed off.
So come on politicians, grow some backbones and get it done!
You make a critical point. Current and future workers as well as current and future retirees must share the pain of the changes necessary to make SS solvent and sustainable.
The shame is on this and past administrations for not acting decades ago with the result being creating pain greater than should be necessary. Even now there are politicians proposing to increase benefits before we do anything 🥵