WASHINGTON, DC – A new bipartisan bill introduced in Congress, the ‘Retirement Security Act of 2025,’ proposes a significant overhaul of how Social Security benefits are taxed for the first time in over 40 years.

• A New Tax Structure – The bill proposes raising the income thresholds at which Social Security benefits become taxable and, for the first time, indexing those thresholds to inflation annually.
• Targeted Beneficiaries – The changes would primarily benefit low- and middle-income retirees by raising the income level at which taxes kick in, potentially eliminating federal income tax on benefits for millions.
• The Budgetary Question – While proponents argue the changes provide needed relief from inflation, policy analysts are examining the long-term impact on federal revenue and the Social Security trust fund’s solvency.

Dubbed the “big beautiful bill” by some of its sponsors for its intended scope, the legislation’s core is a data-driven policy shift with complex implications for both retirees and the federal government. To understand its potential impact, one must first look at the tax rules that have been in place for a generation.

How Are Social Security Benefits Taxed Now?

The current system for taxing Social Security benefits was established by legislation in 1983 and expanded in 1993. It is based on a figure called “combined income,” which includes your adjusted gross income (AGI), non-taxable interest, and one-half of your Social Security benefits.

The income thresholds set decades ago were never adjusted for inflation. This has led to what economists call “bracket creep,” where an increasing number of retirees are subject to the tax simply due to cost-of-living adjustments in their benefits and other income.

Under current law:

• Individuals with a combined income between $25,000 and $34,000 may have to pay income tax on up to 50% of their benefits. For incomes above $34,000, up to 85% of benefits may be taxable.
• Married couples filing jointly may pay tax on up to 50% of their benefits if their combined income is between $32,000 and $44,000. For incomes above $44,000, up to 85% of benefits may be taxable.

The central question this new legislation addresses is whether these decades-old thresholds are still appropriate.

What Would the ‘Retirement Security Act’ Actually Change?

The ‘Retirement Security Act of 2025’ focuses directly on these income thresholds. Instead of the complex two-tiered system, the proposal would simplify and raise the income floor at which benefits become taxable.

The proposed changes would establish new, higher thresholds:

• For Individuals: No federal income tax would be levied on Social Security benefits if combined income is below $50,000.
• For Married Couples: The combined income threshold would be raised to $100,000.

For those with incomes above these new thresholds, up to 85% of their benefits would be subject to taxation, similar to the highest tier today. The most significant policy shift, however, is a provision to index these new thresholds to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) annually. This would ensure the thresholds keep pace with inflation, preventing the bracket creep seen over the last 40 years.

What is the Political and Economic Rationale?

The introduction of the bill reflects a growing consensus that the current tax structure places an undue burden on middle-income seniors. Politically, the bill offers a popular tax cut for a powerful voting demographic, making it attractive to members of both parties seeking to address voter concerns about inflation and retirement security.

Economically, the debate is more nuanced. Proponents argue that the bill provides necessary financial relief, allowing retirees to keep more of their earned benefits and boosting their purchasing power. They frame it as a long-overdue correction.

However, policy analysts are scrutinizing the fiscal consequences. The revenue generated from taxing Social Security benefits is directed back into the Social Security and Medicare trust funds. Reducing this revenue stream without an offset could accelerate the projected insolvency of these funds. The Congressional Budget Office (CBO) is expected to release a detailed analysis, or “score,” of the bill, which will be crucial in determining its path forward. This score will quantify the projected revenue loss and its effect on the federal budget deficit and the long-term health of the Social Security program.