How Using The Chained CPI To Calculate COLAs Would Affect Your Benefits

How Using The Chained CPI To Calculate COLAs Would Affect Your Benefits

The newly enacted tax legislation calls for adjusting tax brackets and the standard deduction using the more slowly growing Chained consumer price index (CPI).  What would switching to the new index for calculating Social Security benefits mean for retired and disabled beneficiaries?

A new study released by The Senior Citizens League finds that the Chained CPI promises the worst of all worlds for tens of millions retirees and disabled Americans, lower benefits and higher taxes.  The study found that had the government adopted the chained CPI to calculate COLAS since it first was launched in 2001, Social Security benefits would be about 5 percent lower today for people who have been retired since that date.  Average benefits would be about $57 per month lower and total benefit income would be about $6,148 lower over the 17 - year period.  Even worse, if Congress were to adopt the chained CPI to calculate the COLA starting in 2017 (which it has NOT yet done), average benefits would be about $174 a month lower at the end of a typical 30-year retirement period, the report says.

The CPI is used not only to adjust Social Security benefits for inflation, but also the benefits of many other federal programs, including military and federal worker retirement programs.  It’s also used to set the income thresholds that determine eligibility for safety net programs that include food stamps, Medicare Savings Programs and Medicaid.  If income thresholds grow more slowly, fewer low-income people would qualify for benefits in future years.

The new tax legislation mandates using the chained CPI to adjust the tax code, including tax brackets and the standard deduction.  That means the standard deduction will become less generous in coming years, and this would subject a greater portion of taxpayers’ income to taxation.

With deficits rising rapidly since the enactment of tax legislation, switching to the chained CPI to index Social Security is once again a key option that lawmakers are eyeing to reduce the federal deficit.  The Congressional Budget Office has estimated that using the chained CPI to index Social Security and other federal programs would reduce federal spending by $182 billion through 2026.  It would also increase the amount people pay in taxes as tax brackets and the standard deduction grow more slowly in coming years.

The Senior Citizens League is opposed to the adoption of the chained CPI and supports using the Consumer Price Index for the Elderly (CPI-E) to index Social Security benefits for inflation, as well as the enactment of a minimum COLA guarantee.  What do you think of the proposal to “Chain the COLA?”  To take a survey about Social Security and Medicare proposals, visit www.SeniorsLeague.org.

 

Close