What are the details and fiscal tradeoffs of the You Earned It, You Keep It Act proposed in 2025–2026?
Executive summary
The You Earned It, You Keep It Act would permanently repeal federal income taxation of Social Security benefits and offset that revenue loss by raising the Social Security payroll tax contribution and benefit bases—most notably by including earnings above a new $250,000 threshold in both contributions and benefit calculations—while explicitly directing Treasury appropriations to hold trust funds harmless for transition effects [1] [2] [3]. Sponsors and allied analysts say the bill both gives immediate tax relief to retirees and extends Social Security solvency decades, while critics warn the offsets rely on politically sensitive tax increases on high earners and will complicate tax administration [4] [5] [6].
1. What the bill actually does on taxes and benefits
The core statutory change is repeal of the “inclusion in gross income” for Social Security benefits—effectively ending federal income tax on those benefits beginning in 2025—parallel versions appear in House and Senate text and companion bill summaries (H.R. 2909 / H.R. 7084 / S.2716) [1] [7] [3]. To pay for that repeal, the bill raises the payroll tax wage base so that the 6.2 percent Social Security payroll tax applies to a much larger slice of earnings—text and sponsor materials point to a new effective cap at about $250,000 of wages, up from the 2024/2025 statutory contribution and benefit base [5] [3] [8]. The legislation also explicitly amends benefit formulas to include earnings over that $250,000 threshold in calculations of primary insurance amounts, tying the new contribution rules to future benefit determinations [3] [2].
2. Claimed fiscal effects and solvency impacts
Supporters cite an actuarial estimate—attributed to the Social Security Administration’s Chief Actuary in sponsor materials and allied advocacy groups—that the package would extend Social Security trust fund solvency by roughly 20 years (moving projected exhaustion from 2034 to about 2054) and reduce long‑term federal debt on the order of $8.9–$9 trillion over 75 years, because higher payroll‑tax collections would more than offset the federal revenue loss from repealing benefits taxation [5] [9] [10] [4]. The statutory text also contains a provision to appropriate from the Treasury each year amounts needed “to hold harmless” trust funds for reductions in transfers tied to existing Internal Revenue Code provisions, signaling legislative attention to transition accounting [3] [8].
3. Who’s backing it and their stated rationale
Prominent sponsors include Representative Angie Craig (original House sponsor) and Senator Ruben Gallego (Senate version), with co‑sponsors and endorsements from groups such as Social Security Works and public statements calling the bill a tax cut for seniors funded by asking higher earners to “pay their fair share” [4] [9] [10] [11]. Sponsors frame the legislation as both immediate relief for retirees—whose benefits can currently be taxed up to 85 percent under income thresholds—and a fiscal strengthening of the program by broadening the payroll tax base [12] [5].
4. Objections, political friction, and practical tradeoffs
Critics caution that raising the payroll tax base and taxing very high earners at the payroll rate will be politically fraught and could face resistance from upper‑income taxpayers, employers, and conservative lawmakers; analysts also note administrative complexity in changing benefit formulas and communicating rules to beneficiaries [6] [10]. While sponsor materials emphasize deficit reduction, independent, long‑term scoring and legislative negotiation could alter net fiscal outcomes; the reporting available cites Chief Actuary estimates and advocacy figures but does not provide a full Congressional Budget Office score in the public materials reviewed here [5] [10].
5. Bottom line and open questions
The bill is straightforward in purpose—eliminate federal taxation of Social Security benefits—and equally straightforward in its chosen financing mechanism—raise the payroll tax base and fold high earnings into benefit formulas, with Treasury appropriations to smooth trust fund effects [1] [3] [2]. Key unresolved practicalities that will shape the real fiscal tradeoffs are the precise schedule of wage‑base increases, CBO scoring versus sponsor actuarial claims, the political viability of payroll‑tax increases on top earners, and administrative transition costs; the sources reviewed document sponsors’ figures and the statutory approach but do not contain a full, independent long‑term budget score from CBO in the materials provided [5] [3] [8].