WASHINGTON, July 29 (DC Times Online) — Washington’s Social Security debate has a new idea with a simple payoff: change how annual cost-of-living increases are calculated.
Instead of giving every beneficiary the same percentage increase, the Committee for a Responsible Federal Budget says Social Security could give everyone the same dollar increase. In a July 21 blog post, the budget group said a flat-rate COLA set at the 20th percentile of the benefit range could close about 50% of the program’s 75-year funding shortfall. A version set at the 30th percentile would close about 40%, according to the group’s analysis and Urban Institute modeling by Karen Smith.
What is a flat-rate COLA?
A COLA is the yearly adjustment that helps Social Security benefits keep up with inflation. Today, that increase is based on a percentage of each person’s benefit, so larger checks grow by a larger dollar amount. Under CRFB’s proposal, all beneficiaries would get the same dollar increase each year.
CRFB says the 20th-percentile version would effectively set that increase at the amount received by a beneficiary near the lower end of the benefit range. That would work like a cap and a floor at the same level: people with smaller benefits would be protected, while people with larger benefits would see slower growth over time.
Who would feel the change most?
CRFB describes the policy as relatively progressive. In its analysis, the biggest slowdown would hit people with the highest lifetime earnings and retirement income.
Under the 20th-percentile design, the bottom fifth of lifetime earners would see benefits fall by 3% in 2065, while the top fifth would see benefits fall by 19%, according to the group’s modeling. Under the 30th-percentile version, 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 its payable-benefits scenario.
Why does this matter for Social Security’s finances?
The program’s long-term shortfall is one of the biggest pressures in federal budgeting. Social Security’s trust funds are on a path that lawmakers have tried for years to shore up with benefit changes, revenue increases, or both.
CRFB says a flat-rate COLA set at the 20th percentile would delay insolvency of Social Security’s main trust funds by two years. The group also says that if the idea were paired with other measures, such as an employer compensation tax proposal, the combined trust funds could stay solvent for 75 years or nearly that long.
The group even looked backward. In a retrospective estimate, CRFB said that if Congress had adopted a flat-rate COLA in 1987 when Representative Tim Penny proposed the idea, the policy would have kept Social Security solvent through 2071.
Is this law now?
No. It is a policy proposal, not an enacted change. CRFB’s analysis is meant to show how much one benefit formula change could do to improve the program’s finances while shifting more of the slowdown onto higher earners.
The basic trade-off is easy to see: a flat-rate COLA would slow the growth of larger benefits and ease Social Security’s long-run funding gap, but it would also mean smaller annual increases for many higher-income retirees.
For workers, retirees, employers, and taxpayers, that makes the proposal part of a broader question in Washington: how to protect lower-income beneficiaries without letting the program’s finances keep worsening.
