WASHINGTON, July 29 (DC Times Online) — In Washington, a budget group says one change to Social Security’s annual cost-of-living adjustment could make a big difference in the program’s long-term finances.
The Committee for a Responsible Federal Budget, or CRFB, proposes replacing Social Security’s percentage-based COLA with a flat-dollar increase for all beneficiaries. Under that approach, everyone would get the same annual increase in dollars, not the same percentage raise.
CRFB says that design would be more progressive than the current formula. It would slow benefit growth most for retirees with the largest checks and the highest lifetime earnings, while protecting lower-income beneficiaries from the biggest cuts in future growth.
What is a flat-rate COLA?
A COLA, or cost-of-living adjustment, is the annual increase Social Security uses to help benefits keep pace with inflation. Today, that increase is based on a percentage formula, so people with larger benefits get larger dollar increases.
CRFB’s proposal would change that. Instead of a percentage raise, every beneficiary would receive the same dollar amount. CRFB says that amount would be set at the COLA received by a beneficiary at the 20th percentile of the benefit range. In effect, that creates both a cap and a floor at that level.
What does CRFB say it would do to Social Security’s finances?
CRFB’s analysis, which uses Urban Institute modeling by Karen Smith, says a flat-rate COLA set at the 20th percentile and enacted in 2027 would close 50% of Social Security’s 75-year shortfall compared with CRFB’s baseline.
CRFB says a 30th-percentile version would close about 40% of the gap.
The group also says the 20th-percentile version would delay insolvency of Social Security’s main trust funds by two years. CRFB says pairing that change with other measures, including an employer compensation tax proposal, could keep the combined trust funds solvent for 75 years or nearly that long.
Who would be affected?
CRFB says the policy would hit higher earners hardest because it would slow the growth of larger retirement checks more than smaller ones.
Under the 20th-percentile design, CRFB says projected benefits in 2065 would be 3% lower for the bottom fifth of lifetime earners and 19% lower for the top fifth, compared with its baseline.
Under the 30th-percentile design, CRFB says the bottom quintile would see a 1% increase, while the top fifth would see a 17% decrease.
CRFB also says both the 20th- and 30th-percentile options would raise benefits for the lowest quintile by 13% to 14% compared with a payable-benefits scenario.
That is why CRFB describes the change as relatively progressive: it would preserve more of the benefit growth for lower-income retirees and slow it more for people with higher lifetime earnings and higher retirement income.
Is this a real policy change today?
No. The flat-rate COLA is a proposal from CRFB, not a law. The analysis is meant to show how changing the COLA formula could improve Social Security’s finances while shifting more of the adjustment burden to higher-benefit retirees.
CRFB also points to a historical example. The group says that if Congress had enacted a flat-rate COLA in 1987, when Representative Tim Penny proposed the idea, the policy would have kept the system solvent through 2071.
Why does this matter now?
Social Security’s long-term funding gap is one of the biggest federal budget issues facing retirees, workers, and future taxpayers. A flat-rate COLA would not solve that problem by itself, but CRFB says it could meaningfully reduce the shortfall.
For households that depend on Social Security, the debate comes down to tradeoffs: slower growth in future benefits for people with larger checks, in exchange for stronger financing and more protection for lower-income retirees.
