President Barack Obama and congress have both offered plans that would change the calculation of annual Social Security payment increases.
When Social Security began in 1935 there were no provisions for annual increases in payments for the first 15 years of the program.
Since 1950 the Social Security Administration uses Cost of Living Adjustments (COLA) to determine increases annual increases in pay for Social Security recipients. This formula is based on the Consumer Price Index (CPI) as determined by the Bureau of Labor Statistics. Currently in consideration is a new way to formulate increases, something known as “Chained” CPI. Rather than using the Bureau of Labor Statistics to determine the COLA, “Chained” CPI uses something called the “substitution effect,” which most experts have determined would reduce the COLA for Social Security recipients.
Economists have estimated that the change in formulating COLA for Social Security recipients would reduce the average Social Security recipient’s annual pay by about $42 the first year of implementation, but could result in as much as a $1,000 reduction over a 20-year period.
This proposal is part of the president’s 2014 budget, but it has long been something the Republican-controlled House of Representatives has been pushing for. Although the president and congress may agree that this is good way to help reduce budget deficits, the American people may disagree.
A Pew Research poll released last month showed that 55 percent of Americans believe that preserving Social Security and Medicare benefits is more important than cutting the deficit. Broken down by party affiliation, 73 percent of Democrats and 48 percent of Republicans, would rather keep Social Security and Medicare fully intact.
To learn more about the possible changes to Social Security’s COLA adjustments click here.
