S.358 - Reducing Excessive Taxation and Inefficiencies by Reforming Elder Exemptions to Support Fairness, Inflation Relief, and Simpler Taxes Act; RETIREES FIRST Act (119th Congress)
Summary
S.358, the "RETIREES FIRST Act," aims to amend the Internal Revenue Code of 1986 by increasing the threshold amounts for including Social Security benefits in taxable income. The bill proposes adjustments to the 'base amount' used in calculating the taxable portion of Social Security benefits, increasing it to $34,000 for individuals and $68,000 for joint returns, with inflation adjustments starting in 2025. It also includes a provision to ensure Social Security trust funds are held harmless by appropriating funds to offset any reduction in transfers due to these changes.
Furthermore, the bill mandates a rescission of non-security discretionary appropriations to cover the cost of the tax relief provided to retirees. This rescission would be implemented pro rata across regular appropriation acts, excluding security-related appropriations, beginning in fiscal year 2027. The Office of Management and Budget (OMB) would be required to report annually on these rescissions.
The bill is sponsored by Mrs. Blackburn and Mr. Marshall and was introduced in the Senate on February 3, 2025, where it was referred to the Committee on Finance.
Expected Effects
The primary effect of this bill would be to reduce the tax burden on Social Security benefits for many retirees, potentially increasing their disposable income. This is achieved by raising the income thresholds that trigger taxation of these benefits.
However, to offset the revenue loss from this tax reduction, the bill mandates cuts to other non-security discretionary spending. This could lead to reduced funding for various government programs and services.
The changes are set to take effect for taxable years beginning after December 31, 2025, and the rescission of appropriations would begin in fiscal year 2027.
Potential Benefits
- Increased disposable income for some retirees: Raising the threshold for taxing Social Security benefits means some retirees will pay less in taxes.
- Inflation adjustment: The bill includes a mechanism to adjust the threshold amounts for inflation, helping to maintain the real value of the tax relief over time.
- Simpler taxes: As stated in the bill's short title, the bill aims to create simpler taxes for retirees.
- Addresses fairness: The bill aims to address fairness in taxation for seniors.
- Social Security Trust Funds Held Harmless: The bill ensures that the Social Security Trust Funds are not negatively impacted by the changes.
Most Benefited Areas:
Potential Disadvantages
- Cuts to other government programs: The bill offsets the tax reduction by rescinding non-security discretionary appropriations, potentially leading to reduced funding for other important programs.
- Potential for unintended consequences: Pro rata cuts to discretionary spending could disproportionately affect certain programs or agencies.
- Complexity in implementation: Determining the pro rata rescissions and ensuring Social Security trust funds are held harmless could be complex and require careful management.
- Delayed implementation: The rescission of appropriations does not begin until fiscal year 2027, delaying any potential benefits from the spending cuts.
- Limited scope: The tax relief primarily benefits retirees with income above the current threshold, potentially excluding lower-income retirees.
Constitutional Alignment
The bill's provisions related to taxation fall under the powers granted to Congress in Article I, Section 8 of the Constitution, which allows Congress to lay and collect taxes, duties, imposts, and excises. The appropriation of funds to offset reductions in Social Security transfers is also within Congress's purview.
The requirement for pro rata rescissions of discretionary spending could raise concerns about the separation of powers if it unduly restricts the executive branch's ability to manage appropriated funds. However, as long as Congress specifies the rescissions with sufficient clarity, it likely remains within its constitutional authority.
There are no apparent violations of individual rights or liberties protected by the Bill of Rights.
Impact Assessment: Things You Care About ⓘ
This action has been evaluated across 19 key areas that matter to you. Scores range from 1 (highly disadvantageous) to 5 (highly beneficial).