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Three Presidential Policies Potentially Accelerating Social Security Benefit Reductions

Business & Finance
Three Presidential Policies Potentially Accelerating Social Security Benefit Reductions

Key Points

  • The Social Security Old-Age and Survivors Insurance (OASI) trust fund is projected to deplete its asset reserves by the fourth quarter of 2032.

  • Certain economic policies are driving higher annual cost-of-living adjustments (COLAs), which increases immediate payouts but threatens long-term program solvency.

  • The administration’s primary tax and spending legislation is reducing the primary revenue stream that funds the program.

For nearly ninety years, Social Security has served as a cornerstone of retirement stability in the United States. Gallup surveys indicate that up to 90% of retirees rely on these monthly payments to cover essential living expenses.

However, the financial health of the program has been declining since the mid-1980s. The Social Security Board of Trustees’ annual report projects an unfunded obligation totaling $29.3 trillion through the year 2100.

The Old-Age and Survivors Insurance (OASI) trust fund, which provides monthly benefits to retired workers and survivors, is currently on track to exhaust its reserves by late 2032. If these surplus funds are depleted, beneficiaries could face automatic benefit reductions of up to 22%.

President Trump’s policies have shifted Social Security’s solvency needle in the wrong direction. Image source: Official White House Photo by Daniel Torok.

While Social Security is not at risk of immediate bankruptcy or total cessation of benefits, a 22% reduction would be a significant financial blow to millions. Although demographic shifts are a primary driver of these fiscal challenges, three specific policies under President Donald Trump are accelerating the timeline for these potential cuts.

Tariffs and Global Conflict Driving Higher COLA Adjustments

When evaluating the financial outlook of the Social Security program, the Board of Trustees considers several variables, including the annual cost-of-living adjustment (COLA).

The COLA is a mechanism designed to protect retirees from inflation by increasing benefit amounts as the cost of goods and services rises. For example, if essential goods experience a 3% price increase, benefits are adjusted accordingly to preserve purchasing power.

While the Trustees base their long-term projections on modest COLA estimates, recent policy shifts are driving these adjustments higher.

In April 2025, the administration introduced broad global tariffs. Although the Supreme Court invalidated these tariffs in February 2026, they previously contributed to rising prices in the goods sector, creating a “Trump bump” in benefits. This resulted in a 2.8% COLA for 2026 that was higher than baseline projections.

Last month, the administration announced additional tariffs ranging from 10% to 12.5% across more than 80 countries. Increased duties on imported goods often lead to higher consumer prices.

Additionally, military operations in Iran are expected to trigger a significant COLA increase in 2027. Following the start of these operations, the closure of the Strait of Hormuz to commercial vessels caused a historic energy supply disruption, causing fuel prices to surge.

According to The Senior Citizens League, the 2027 COLA is currently projected at 3.8%. Independent analyst Mary Johnson projects 3.7%. Both estimates significantly exceed the modest figures used by the Trustees for their long-term modeling.

While higher COLAs provide immediate relief to 71 million beneficiaries, they also drain OASI reserves at a faster rate. Larger annual increases accelerate the timeline toward mandatory benefit cuts.

Image source: Getty Images.

Tax Reductions in the “Big, Beautiful Bill” Impact Solvency

Beyond tariffs and geopolitical conflict, the “Big, Beautiful Bill” (BBB) is also impacting Social Security’s financial stability.

While the BBB provides significant tax relief for certain individuals, these cuts affect the program’s revenue. Key provisions include:

  • Senior Tax Deduction: Qualifying individuals aged 65 and older receive an additional standard deduction of $6,000 (or $12,000 for married couples filing jointly) through 2028.
  • No Tax on Tips: Between 2025 and 2028, eligible workers can deduct up to $25,000 of tip income.
  • No Tax on Overtime: Eligible single filers can deduct up to $12,500 of overtime pay (or $25,000 for joint filers) through 2028.

These tax breaks come at a cost to the Social Security system.

The big, beautiful bill is accelerating the timeline to the depletion of the OASI’s asset reserves. US Old-Age and Survivors Insurance Trust Fund Assets at End of Year data by YCharts.

Social Security relies on three primary revenue streams:

  1. The 12.4% payroll tax on earned income (capped at $184,500 in 2026).
  2. Interest earned on the OASI and Disability Insurance trust fund reserves.
  3. Taxation of Social Security benefits.

Payroll taxes accounted for over 91% of Social Security revenue in 2025. However, the BBB reduces the total amount of earned income subject to these payroll taxes through 2028.

In August 2025, the Social Security Administration’s Office of the Actuary (OACT) analyzed the impact of the BBB. The OACT estimated that the law would increase program costs by $168.6 billion between 2025 and 2034, shortening the depletion timeline for OASI reserves by three months.

Driven by both higher COLA requirements and reduced tax revenue, the financial outlook for Social Security continues to deteriorate.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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