CORRE Blog

What could you do with an extra $778 this year? Pay your Part D plan premiums or your rent for a month? Buy groceries? I can think of a hundred ways to use it! That’s why I was shocked when I estimated that someone who retired with an average benefit of $816 per month in 2000 would have received an extra $778 in higher Social Security benefits this year if government economists hadn’t quietly changed the way they calculate the Consumer Price Index (CPI) in 1998.

Your annual Cost-Of-Living Adjustment (COLA) is calculated by the rate of increase in the CPI. Changing the math to make the CPI seem to be growing more slowly also cut the growth of your Social Security benefit, especially over time.

In 1996, a report by a commission of economists recommended a 1% downward adjustment to the CPI. Some economists, including Federal Reserve Chairman Alan Greenspan, said the index “overstated” inflation and that seniors were being overpaid.

The proposal was rightfully considered to be political dynamite. Instead of legislating any changes to COLAs, a wary Congress seized on the strategy of letting the government economists at the Bureau of Labor Statistics (BLS) do their dirty work for them. The BLS, the agency responsible for collecting the data and calculating the CPI, adopted a series of seemingly tiny changes that makes the index grow more slowly.

In 1998 The Senior Citizens League created national controversy when it warned seniors that changes the government was making to the CPI would result in cutting the COLA. Senior outrage prompted the commissioner of Social Security to hold an emergency press conference seeking to assure seniors that they would continue to receive a COLA, although the increases would be smaller in the future.

By 2000 government economists estimated that the BLS changes had resulted in slowing the growth of the CPI by an estimated 0.8 percentage point annually. The following table illustrates the impact on an average benefit of $816 of such a reduction.

Impact of 0.8 Percentage Point Change In CPI On Your Social Security Benefit

* COLAs payable starting January 1 in the following year.

In the past 13 years, since I’ve been writing this newsletter, changing the CPI, cutting COLAs, or both, have been proposed as major options for Congress to cut spending on Social Security virtually every year. The Senior Citizens League fights such cuts and instead supports legislation that would pay a more fair and adequate COLA using a seniors CPI, The Consumer Price Index For Elderly Consumers (CPI-E). TSCL supports two similar bills “The Consumer Price Index for Elderly Consumers,” H.R. 1953 introduced by Representative Charles Gonzalez (TX)), and H.R. 2032 introduced by Representative Peter DeFazio (OR).