SSDI Tax Thresholds Set in 1983 are Hurting Disabled Americans

Until President Donald Trump’s tax cuts and pro-business strategies re-energized American entrepreneurship in 2017 and again in 2025, history had to look back to the era of President Ronald Reagan for its most recent historical precedent. However, one of the sore spots that both Presidents Reagan and Trump have been unable to cut was the profligacy of Congress and its tax-hungry thirst for US citizens’ hard-earned money.  

From 1937-1983, income taxes on Social Security disability and retirement benefits swelled from 1.0% on the first $3,000 of earnings to 6.7% on $32,400 in 1982, and $35,700 in 1983. This threshold has remained on the books, although the tax rate has nearly doubled to 12.4% on the first $35,700 as of 2025.

While the buying power of $35,700 in 1983, when adjusted for inflation, equates to about $114,776 in 2025, that same $35,700 number in 2025 now only has buying power equivalent to $12,000 today, which probably covers about 2-3 months’ rent for a single bedroom apartment in New York (not including utilities). The impact on fixed income retirees, and especially on people who are disabled, is especially harmful and blatantly unfair, in light of automatic cost of living adjustments (COLA) that have failed to keep up with inflation and have continued to fall further behind over the past several decades. 

Why COLA Fails

The calculation process for Social Security Cost of Living Adjustments is woefully too antiquated and lagging to offset the impact of inflation on benefits recipients.

Social Security benefits are theoretically supposed to adjust for inflation under COLA, but the results have been woefully inadequate. Between 2020 and 2022, the gap between Social Security benefits and inflation, during which Bidenomics-fueled inflation forced many people to resort to credit cards for basic needs, is estimated to have widened by over $1,000 per person, on average. The buying power of Social Security has eroded by approximately 20% over the past 15 years. There are several reasons for this:

• COLA always falls behind further and further because it utilizes the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) based on the previous year. The 12-month lag means that when inflation rises and eggs go from $3 to $15, as we recently witnessed under Bidenomics, COLA will not kick in, leaving disabled citizens forced to choose between food and medicine, or other necessities. 
• Medicare Part B premiums have escalated, and since they are automatically deducted from most Social Security payments, they take a big bite out of any COLA increases. 
• Since the $35,700 Social Security tax threshold has not been indexed for inflation, any COLA increase in benefits counts as “combined income” and pushes all beneficiaries’ income up with many of them then bumped into a higher tax bracket, resulting in a covert additional tax. 

The One Big Beautiful Bill – A Positive, But Only Partial Step

Although Congress passed the One Big Beautiful Bill (OBBB) Act in 2025, its tax relief measures for Social Security recipients only takes the form of temporary tax deductions, so much more reform work still needs to be done.

Despite the controversies, President Trump’s proposals worked their way through Congress to finally pass the One Big Beautiful Bill (OBBB) Act in 2025, which made permanent his tax cuts from his previous term in office, as well as a litany of other measures.

While it did not eliminate or directly cut taxes on Social Security benefits, it created a temporary extra tax deduction, but is set to expire in 2028. However the net effect, at least for the time being, is that many retirees and disabled beneficiaries will pay reduced to zero taxes on their Social Security payments. The measures include:

• Beneficiaries over aged 65 get a $6,000 extra deduction for singles and $12,000 for couples filing jointly.
• This senior deduction phases out for singles with income over $75,000 and couples over $150,000.
• Since the standard deduction gets increased for these seniors, it offsets the majority of most social security benefits that would be taxable, so mechanically, it provides the equivalent of eliminating or reducing income tax on Social Security for the majority of recipients.
• For healthcare, OBBB provides Health Savings Account (HSA) and telehealth coverage to lower out-of-pocket costs for those with high deductible medical insurance plans.

On the negative side, disabled beneficiaries may be affected by more strictly enforced work requirements for Medicare eligibility and SSDI. OBBB is clearly recognized as a compromise to get some relief passed, but is acknowledged by President Trump that it does not go nearly as far as what he campaigned for and still advocates. 

Advocacy For Change

As an advocate for cutting Social Security benefits taxes entirely, President Trump will readily sign any bill passed by Congress that implements such measures – so lobbying state representatives in both the House and Senate are key to this end.

Now that President Trump’s popularity is at a current all-time high and he has the support of both the Senate and the House of Representatives, alert citizens recognize there is a window of opportunity to advocate for change. This is especially pertinent, since President Trump has already campaigned and managed to pass some tax reform with OBBB. 

At the moment, Congress has more members who are pro-tax reduction than at any time in the last half-century or even longer. Petition initiatives have circulated on Reddit and other social media. Some of the other tax reform areas that are being identified for lobbying them are as follows:

• Uncap the $255 Social Security death benefit, which has been fixed since 1954. The payout number was only reached in 1974, but even still, it does not account for inflation, which has accumulated by approximately 552% in the past half-century. After taking inflation into account, the value of that death benefit is worth about $39.00.
• Reform of disability benefits as a whole, not just from a tax perspective.
• A better review of work requirement parameters for SSDI qualifications needs to provide assistance platforms to those recipients whose jobs have been replaced by machines and who lack the training or resources to find work elsewhere to get them qualified. 

While progress has been made, the time is ripe for pushing reforms through, so bringing attention to these issues within the general population at large can bring its urgency to Congress for meaningful action.