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Fixing Social Security: Obama’s New Index Calculation

June 21, 2014 By kristine Leave a Comment

Due to low cost of living allowance (COLA) increases for Social Security beneficiaries the past few years, President Obama has recommended that the cost of living adjustment for Social Security be adjusted.  This is just one of many proposals included in the president’s 2014 budget.

To give you a little background, Social Security benefits are adjusted each year for inflation.  This is a huge benefit as it allows your income from Social Security to rise as the cost of food, utilities and other basic living expenses go up.

Currently the cost of living adjustment (COLA) is based on the consumer price index for urban wage earners and clerical workers (CPI-W).  The proposal is that the COLA be tied to the chained CPI instead.  The problem with this is that the chained CPI has increased at a slower rate than the CPI-W, so Social Security benefits would increase at a slower rate if this change is allowed.

As expected, those who want to reduce the deficit are in favor of this adjustment, while seniors who rely on Social Security are against it.

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Here are just a few of the arguments for and against that I have seen recently:

According to this article on wallstcheatsheet.com, some argue that

We can afford to slow the growth of Social Security benefits because seniors are no longer as economically disadvantaged as they once were.

But many don’t agree with that statement.  In “Social Security Advocate: Obama’s Budget is Bad Policy, Bad Politics” Max Richtman argues that

Seniors are more limited and restricted in their mobility and their choices.

According to Richtman, the current CPI calculation is already flawed, and that reducing it even more would hurt seniors who are already just getting by.

Others argue that there are better ways to reduce the costs of Social Security.  For example, Susan Rhea of the Huffington Post suggests that a fixed dollar amount instead of a percentage would be more appropriate:

For the COLA, instead of an annual percent increase, which rewards some hugely and others not so much, we should determine a fixed amount of increase, and assign everyone that same increase.

Here are a couple of good resources to learn more about the chained CPI and the proposed changes:

 

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Filed Under: COLA Tagged With: social security cola, Social Security increase

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