Option 37:
Tax All Social Security Benefits for Higher-Income Earners
Topline Estimates
Source: Tax Foundation General Equilibrium Model.
Social Security benefits have been partially taxable since 1983. Tax liability depends on combined income, defined as adjusted gross income, tax-exempt interest, and half of Social Security benefits. Single filers earning below $25,000 (joint below $32,000) owe no tax on benefits. For single filers earning between $25,000 and $34,000 ($32,000 and $44,000 joint), up to 50 percent of benefits are taxable.
Above those thresholds, up to 85 percent of benefits are taxable. This treatment is similar to the treatment of other retirement income: post-tax retirement contributions are not taxed upon withdrawal, while pre-tax contributions are taxed upon withdrawal. Employer contributions to Social Security are like pre-tax contributions, and the resulting benefits should be subject to tax, while employee contributions are like post-tax contributions, and the resulting benefits should not be subject to tax.
This option taxes all Social Security benefits for high-income taxpayers, phasing in between $125,000 and $150,000 for single filers or $250,000 to $275,000 for joint filers. Raising the portion of benefits included in taxable income would increase marginal tax rates on income and discourage work amongst retirees. As a result, hours worked and economic output would fall.
On a conventional basis, this option would decrease the primary deficit by $102.7 billion over the budget window. Long-run GDP and GNP would fall slightly. Incorporating changes in interest costs, the publicly held debt-to-GDP ratio would be lower than baseline, reaching 175.1 percent by 2056.
On average, in 2036, taxpayers would see decreases in their after-tax incomes of 0.1 percent, with the changes concentrated among upper-income taxpayers. On a long-run dynamic basis, taxpayers would see a 0.1 percent decrease on average.
Modeled Results
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About the Authors
Erica York is Vice President of Federal Tax Policy with Tax Foundation’s Center for Federal Tax Policy. Her analysis has been featured in The Wall Street Journal, The Washington Post, Politico, and other national and international media outlets.
Garrett Watson is Director of Policy Analysis at the Tax Foundation, where he conducts research on federal and state tax policy. His work has been featured in The Washington Post, The Atlantic, Politico, the Associated Press and other major outlets.
Dr. Huaqun Li is Senior Economist, Director of Modeling Projects at the Tax Foundation. She focuses on developing and maintaining the Foundation’s Taxes and Growth Model, which models the budgetary and economic effects of changes to federal tax policy.
Dr. William McBride is the Chief Economist & Stephen J. Entin Fellow in Economics at the Tax Foundation, where he oversees major research projects primarily related to reforming the federal tax code, advancing sound tax policy, and improving the federal government’s fiscal outlook.
Alex Durante is a Senior Economist at the Tax Foundation, working on federal tax policy and model development. Alex worked as a research assistant at the Federal Reserve Board and served as a staff economist on the Council of Economic Advisers.
Alex Muresianu is a Senior Policy Analyst at the Tax Foundation, focused on federal tax policy. Previously working on the federal team as an intern in the summer of 2018 and as a research assistant in summer 2020. He attended Tufts University, graduating with a degree in economics and minors in finance and political science.
Peter Van Ness
Peter Van Ness is a Research Software Developer at the Tax Foundation working on federal tax policy and model development. Peter previously worked as a research assistant at another think tank and as a data analyst at a consulting firm.
Aleksei Shilov
Aleksei Shilov is a Research Software developer at the Tax Foundation working on economic model development and federal tax policy. Aleksei joined the Tax Foundation as an intern in January 2025. He holds a B.S. in computer science and a minor in economics from Northeastern University and is currently based in Boston, MA.
Daniel Bunn is President and CEO of the Tax Foundation. Daniel has been with the organization since 2018 and, prior to becoming President, successfully built its Center for Global Tax Policy, expanding the Tax Foundation’s reach and impact around the world. Prior to joining the Tax Foundation, Daniel worked in the United States Senate at the Joint Economic Committee.