This chapter presents the quantitative results of the analysis of eight Social Security benefit taxation reform options. All estimates represent changes in federal tax revenue, with projections extending through 2100.
We present conventional scoring estimates as our primary results, which incorporate labor supply behavioral responses based on Congressional Budget Office elasticities (doubled for workers aged 65+). Static estimates without behavioral responses are provided for comparison. Positive values indicate revenue increases (deficit reducing), while negative values indicate revenue losses (deficit increasing). All values are in billions of dollars.
Scoring Methodology¶
We present two types of conventional scoring estimates:
Conventional scoring (primary results) incorporates labor supply elasticities based on CBO estimates, with elasticities doubled for workers aged 65 and older based on meta-analysis findings. This captures behavioral responses to changes in effective tax rates.
Static scoring assumes no behavioral responses to policy changes, isolating the pure mechanical effect.
For most options, conventional and static estimates differ by less than 5%. The main exceptions are the Roth-style swap options (Options 5 and 6), which show larger differences (7-27%) due to the behavioral effects of taxing employer payroll contributions on labor supply decisions.
10-Year Impacts (2026-2035)¶
The following table presents the 10-year budgetary impact for each option. Conventional scoring (incorporating labor supply responses) represents our primary estimates, with static scoring (no behavioral responses) shown for comparison:
The following chart visualizes the 10-year impacts, comparing static and conventional scoring:
75-Year Fiscal Impacts (2026-2100)¶
The following table presents the complete 75-year cumulative fiscal impact for each reform option. These long-term projections reveal how policies that appear revenue-positive in standard 10-year budget windows may evolve over longer time horizons as demographic trends intensify.
Key Observations from Long-Term Projections¶
The 75-year projections reveal several important patterns. Options that raise revenue in the 10-year window continue to do so over longer horizons, with the magnitude of revenue gains increasing substantially. Option 2 (85% taxation), for example, grows from 30 trillion over 75 years, reflecting both nominal growth and the expanding share of Social Security benefits in the economy as the population ages.
Most notably, the Roth-style swap options (5 and 6) show markedly different long-term trajectories than their 10-year estimates suggest. Option 5 transitions from raising 64 trillion over 75 years. Option 6 shows an even more dramatic pattern, raising 1.2 trillion over 25 years before deteriorating to cumulative losses of $63 trillion by year 75. These patterns reflect the fundamental asymmetry between eliminating a revenue source tied to a growing retiree population while adding one tied to a relatively shrinking workforce.
The scale of these long-term impacts underscores the importance of demographic considerations in evaluating Social Security taxation policies. Options that appear fiscally neutral or modestly revenue-positive in standard budget windows may create substantial long-term fiscal challenges as the worker-to-retiree ratio declines and benefit obligations grow.
75-Year Cumulative Impact Comparison¶
The following chart presents the total cumulative revenue impact over the complete 75-year projection window for all reform options, using conventional scoring:
Annual Impacts Over Time¶
The following chart shows how annual revenue impacts evolve across the complete 75-year projection period:
Key Findings¶
Labor Supply Responses vs Static Scoring: For most options, labor supply responses produces results within 5% of conventional scoring, confirming that behavioral responses have limited impact on these estimates.
Option 1 (Full Repeal): Loses approximately $1.4 trillion over 10 years, representing the revenue currently generated from Social Security benefit taxation.
Option 8 (100% Taxation): Raises the most revenue at $889-892 billion over 10 years, as expected since it taxes a larger portion of benefits than the current 85% maximum.
Option 7 (Eliminate Senior Deduction): Shows impact only in 2026-2028 ($72-73 billion), then zero impact as the deduction expires in 2029.
Option 5 (Roth-Style Swap): Raises net revenue of $636-768 billion despite eliminating benefit taxation, because taxing employer payroll contributions generates more revenue than is lost. This reflects the larger tax base of current workers versus retirees above income thresholds.
Option 6 (Phased Roth-Style): Shows a complex pattern, initially raising substantial revenue ($1,215-1,314 billion over 10 years) but eventually becoming revenue-negative after 2045 as the phase-in completes and benefit taxation is fully eliminated.
Long-Term Fiscal Trajectory of Roth-Style Swap Policies¶
While Options 5 and 6 show positive revenue impacts in standard 10-year budget windows, their long-term fiscal trajectories diverge significantly from their near-term performance. This section examines the complete 75-year projection to understand the structural drivers of these policies’ evolving fiscal impacts.
75-Year Cumulative Revenue Impact Analysis
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Option 5: Immediate Roth Swap
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10-year : $ 767.6B
25-year : $ 1,504.8B
50-year : $ -5,597.0B
75-year : $ -52,954.1B
First year with negative annual revenue: 2051
Peak cumulative revenue: 2050 ($1,504.8B)
Cumulative turns negative: 2064 (after 38 years)
Option 6: Phased Roth Swap
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10-year : $ 1,314.3B
25-year : $ 2,664.0B
50-year : $ -4,437.8B
75-year : $ -51,794.9B
First year with negative annual revenue: 2051
Peak cumulative revenue: 2050 ($2,664.0B)
Cumulative turns negative: 2068 (after 42 years)
The following visualizations illustrate how cumulative and annual revenue impacts evolve across the projection period, revealing the transition points at which these policies shift from revenue-positive to revenue-negative positions.
Decomposing the Roth Swap: Why Employer Payroll Revenue Falls Short¶
To understand why Option 5 transitions from revenue-positive to revenue-negative, we can decompose it into its two components by comparing it to Option 1 (which only eliminates Social Security benefit taxation). The difference between Option 5 and Option 1 isolates the revenue raised from taxing employer payroll contributions.
The following visualization shows how these two revenue streams evolve over time, revealing the critical crossover point where employer payroll tax revenue falls behind the Social Security benefit taxation being eliminated:
Understanding the Growth Rate Differential¶
The fundamental driver of the long-term divergence becomes clear when examining the annual growth rates of the two revenue streams. While both grow with the economy, they do so at persistently different rates that compound over decades:
The growth rate differential reveals the structural challenge. Social Security benefit taxation grows at an average annual rate of 5.64%, while employer payroll tax revenue grows at 3.33%, creating a persistent 2.31 percentage point gap. This differential remains remarkably stable across the projection period: 2.25 percentage points in the early years (2027-2050) and 2.34 percentage points in later years (2051-2100).
This seemingly modest differential compounds dramatically over time. In the 10-year budget window, the cumulative effect still favors the employer payroll tax, which offsets 120% of the Social Security benefit taxation losses. However, by year 75, this ratio deteriorates to just 41%, as the 2.3 percentage point annual growth differential compounds to produce a factor-of-three divergence in the revenue bases.
The growth rate patterns reflect underlying demographic and economic forces. Employer payroll tax revenue grows with the total wage bill in the economy, determined by workforce size and wage levels. Social Security benefit taxation grows with retiree income and benefit levels, which are amplified by increasing longevity, an aging population structure, and a declining worker-to-retiree ratio. The result is a policy structure that exchanges a revenue source growing with demographic headwinds for one constrained by demographic tailwinds, creating an unsustainable long-term fiscal trajectory despite appearing revenue-positive in standard budget scoring windows.
Understanding the Long-Term Trajectory of Roth-Style Swaps¶
The accelerating revenue losses observed in Options 5 and 6 reflect fundamental demographic and economic trends rather than modeling artifacts. Both options implement the same basic policy exchange: eliminating Social Security benefit taxation while adding taxation of employer payroll contributions. In 2026, these two revenue sources are roughly equal at approximately $2.1 trillion each, which explains why the policies appear revenue-neutral or slightly positive in early years.
However, the two tax bases evolve differently over the 75-year projection window. Social Security benefit taxation grows from 68.8 trillion in 2100, representing an annual compound growth rate of 4.73%. This growth rate reflects several factors: an aging population structure, increasing life expectancy leading to longer benefit collection periods, wage indexing of benefits, and a declining worker-to-retiree ratio projected to fall from 2.8:1 in 2020 to 2.3:1 by 2095.
The employer payroll tax base follows a similar but slightly slower trajectory, growing from 65.1 trillion in 2100 at an annual rate of 4.64%. This base grows with the working-age population and wage levels but lacks the demographic tailwind that accelerates Social Security benefit growth. The differential growth rates create a widening gap between the revenue source being eliminated and the revenue source being added.
While the difference between 4.73% and 4.64% growth may appear modest, it compounds significantly over 75 years. In 2045, the annual revenue gap reaches 248 billion (2.0% of baseline), and by 2100 it reaches $3,767 billion (5.5% of baseline). The percentage gap remains relatively stable at approximately 5%, but the absolute dollar magnitude grows exponentially as both the baseline and the differential compound over time.
Option 6’s phased implementation creates an additional dynamic. The phase-in schedule ramps up employer payroll taxation quickly (reaching 100% by 2033) while phasing out Social Security benefit taxation slowly (completing by 2045). This timing mismatch produces an 18-year window during which both revenue sources are collected simultaneously, generating the $1.7 trillion cumulative peak observed in 2044. However, this represents a timing effect rather than a sustainable revenue gain, as the policy ultimately converges to the same long-term trajectory as Option 5.
The fundamental challenge is that these policies exchange a revenue source growing with an aging population for one tied to a workforce that is shrinking relative to the retiree population. The 75-year cumulative losses exceeding $60 trillion reflect the compounding effect of this demographic mismatch. From a public finance perspective, these options represent intertemporal transfers that improve near-term budget scores at the cost of creating permanent structural deficits as demographic trends intensify over the projection period.