Or at least alter the method by which the cost-of-living adjustment is determined.
Social Security is hurtling toward financial trouble because the program dispenses more in retiree benefits than it gathers in payroll taxes from working Americans.
Distributing even larger benefits will aggravate that imbalance. Yet that is precisely what the administrators of Social Security intend to do: next year, retirees will receive a 3.6 percent cost-of-living adjustment (COLA). This uptick is 0.8 percentage points above last year’s figure, and it is 0.9 percentage points higher than the prior estimate of what the program could pay.
The Social Security trustees are acting in line with what the law requires during a period of elevated inflation. That is precisely why Congress should step in.
The COLA ought to be repealed.
No, this is not a plea to punish America’s retirees. It is a call for prudent fiscal judgment. There are three solid reasons to scrap this year’s COLA.
First: Increasing benefits for wealthier retirees makes little sense when Social Security is heading toward insolvency.
As the Committee for a Responsible Federal Budget notes, the proposed COLA would raise the typical retired household’s benefits by about $900, with some retirees possibly seeing increases as high as $3,600.
Providing generous benefits to affluent households is a major driver of Social Security’s insolvency. A program that was meant to keep seniors out of poverty has evolved into a broad wealth-transfer scheme that mostly advantages those who do not need the help. The COLA amplifies this flaw.
Second: What about the workers who pay for those lavish benefits? In the past year, wages have risen by roughly 3 percent on average. Those wage gains have already lagged behind inflation, which rose about 3.7 percent over the last 12 months.
People often claim that retirees live on a “fixed income,” yet the math doesn’t support that notion. Social Security beneficiaries will receive a COLA that exceeds the typical increase in pay for the workers funding the COLA. Retirees gain protection from inflation while younger Americans must bear the cost of inflation and fund that shield for the elderly. That arrangement is indefensible.
Third: Cutting the COLA could spark a broader discussion about how to address Social Security’s looming insolvency. The Social Security trustees project that an across-the-board reduction of roughly 22 percent will be necessary by 2032. Eliminating COLAs wouldn’t materially alter that arithmetic, but it would shift the conversation—which has for too long been dominated by politicians assuring seniors that nothing needs to change. That mindset is incorrect—and the sooner it becomes clear, the better for the political system.
If removing the COLA proves too drastic, Congress should instead reform how the annual increase is calculated.
Today, the COLA relies on a single inflation measure: the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as CPI-W. This is a relatively narrow index that mirrors the spending patterns of only about a third of Americans, as Romina Boccia notes in her newsletter, The Debt Dispatch.
Instead, Boccia proposes using the Chained Consumer Price Index for All Urban Consumers, or CPI-U, which covers roughly 93 percent of Americans and is broadly regarded as a superior gauge of rising living costs. Other parts of the federal government already employ CPI-U for updates such as tax brackets.
If Congress simply altered the way Social Security’s COLA is calculated, it could close about 12 percent of the program’s long-term shortfall. And while some retirees would notice smaller COLAs as a result, the adjustment would align more closely with inflation.
Social Security’s COLA highlights several fundamental flaws of the nation’s old-age entitlement program. Like Social Security itself, it overbenefits the wealthy, imposes a heavy burden on taxpayers, and unfairly disadvantages younger, poorer workers.
