This Really Happened — a 77% Social Security COLA!

This Really Happened — a 77% Social Security COLA!

By Mary Johnson, editor

Social Security beneficiaries are receiving a cost-of-living adjustment of just 1.6% this year.  For many, that won’t be enough to keep up with healthcare costs, let alone items like homeowners and auto insurance or rising real estate taxes.  That leaves retirees digging deeper into savings — if they have any, or — going deeper into debt.

The more you learn about the COLA, however, the more the anemic annual boosts of our past decade raise questions.  The very first COLA ever paid was 77%.  No, you read that right, this is not a typo.  It became payable in 1950, one year before I was born, and a full ten years after Ida May Fuller received the nation’s very first Social Security benefit check for $22.54 — the equivalent of $420.90 today.

From 1950 through 1974, Social Security benefits were increased 11 times through separate pieces of ad hoc legislation at irregular intervals.  The increases varied just as they do today but averaged 8% per year over the 24-year period although there were long lapses between COLAs during some periods.

COLAs became automatic with the one that became payable on July 1, 1975 and continued to average 8.7% annually from 1975 through 1982.  Then the bottom seemed to fall out.  From 1983 through 2009 COLAs averaged 3.1%.  From 2010 to 2020 COLAs have averaged just 1.4%.

Do you see a pattern here?  I do.  We may never know the full details, but what we do know is that our government economists at the Bureau of Labor Statistics changed the way they measured price changes.  The Consumer Price Index Handbook of the Bureau of Labor Statistics contains an extensive list of ongoing changes to their methodology in measuring price change.  Since the 1980s the BLS has implemented 30 changes, and many of those changes reduce the measured rate of inflation.  That in turn means slower growth in Social Security benefits over time.

Not only has our government changed the way inflation is measured, and thus reduced Social Security benefits, they accomplished this without a single vote by our elected lawmakers.  Congress has ducked their responsibility by leaving the job of tinkering with the math to unelected economists, leaving voters with no opportunity to hold anyone accountable.

Government economists not only changed the math, they changed the underlying concept of the consumer price index (CPI) itself.  While the CPI formerly measured price changes of a fixed market basket of items from one period to the next (a concept that has been in use since the early 1700s), today the Bureau of Labor Statistics uses formulas more consistent with a theoretical cost-of-living (COLI) concept.  And because it is theoretical, it uses estimates and produces data (in at least one of the indexes) that is subject to two revisions.

The Social Security COLA was intended to protect the buying power of older Americans who for the most part, are no longer in the workforce.  The majority of retirees depend on Social Security for at least half of their income, meaning that Social Security benefits tend to be spent immediately on essentials like housing, food and healthcare returning billions of dollars to the U.S. economy every year.

Social Security can be changed in two ways — but benefit cuts don’t have to be inevitable.  Increasing payroll taxes is the other avenue.

How can we strengthen Social Security’s financing structure?  Take TSCL’s 2020 Senior Survey and let us know what you think about some of the leading proposals and thank you for your participation.

 

To learn more —

The Social Security Administration publishes a list of all automatic COLAs since 1975 at:

https://www.ssa.gov/oact/cola/colaseries.html

See the same information available to Members of Congress on Social Security COLAs, from this report by the Congressional Research Service:

https://fas.org/sgp/crs/misc/94-803.pdf

 

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