SS COLA Indexing Change
Under current law, Social Security's annual cost-of-living adjustment, or COLA, is calculated based on the average Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Many have advocated for changing this system so that the annual COLA is determine based on the CPI-E, which is the Experimental Consumer Price Index for the Elderly in order to more accurately approximate expenses incurred by Social Security beneficiaries.
We asked two professors and authors of Tax Facts with opposing political viewpoints to share their opinions about changing to the CPI-E in determining how Social Security COLA increases are calculated.
Below is a summary of the debate that ensued between the two professors.
Their Votes:
Their Reasons:
Bloink: We should absolutely base the Social Security cost-of-living increases upon a scale that best approximates the expenditures of the actual Social Security beneficiaries. The fact is that as Americans age, their spending priorities and needs change significantly. There is no reason why their benefit levels should depend on the ways younger Americans are experiencing inflation.
Byrnes: We have to recognize that the Social Security system is strained enough as it is. Tying the COLA to the CPI-E would only serve to further strain the system and exhaust the Social Security trust funds at a much more rapid rate. Higher benefit levels would mean that the Social Security deficit would increase at a much more rapid pace--something that we all know is not sustainable.
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Bloink: This consumer price index for older Americans already exists. It's designed to measure price changes experienced by Americans who are aged 62 and older—precisely the group of Americans who are eligible to claim Social Security benefits. The administrative burdens associated with making the change would not be as significant as many have argued—and certainly not significant enough to continue calculating Social Security based on an index that simply does not provide an accurate picture of the price changes experienced by beneficiaries.
Byrnes: Changing the system to tie COLA increases to the CPI-E is something that is entirely experimental and may actually harm older Americans in the process. We have a system that works and there is no reason to change it at this point in time, when the change would add greater uncertainty and risk that this group of older Americans can ill afford to encounter.
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Bloink: Using the CPI-E scale would lead to a system where the higher healthcare costs faced by older Americans is weighted more heavily in the calculation of COLA increases. Far too many older Americans are living in poverty. They deserve a Social Security system that reflects reality. The fact is, the CPI-E would have led to higher benefit increases for seven out of the last ten years. These increases could significantly help the lowest-income Social Security beneficiaries' financial pictures.
Byrnes: We also can't forget that higher benefit levels would mean higher taxes for many Social Security beneficiaries. Higher benefit levels would push many into higher income tax brackets and impact other benefits as well—including potentially with respect to the Medicare income-based surcharges, or IRMAA. Any extra income that would go to beneficiaries by changing to the CPI-E system would be eaten up by higher taxes and Medicare premiums, rendering the change useless.