COLAs are prominent in the debate over Social Security reform that is likely to be rekindled in the next Congress (http://reut.rs/1omD5yq). COLA reform could involve more generous adjustments - or a benefit cut. A cut would be achieved by adopting the “chained CPI,” which some say more accurately measures changes in consumer spending by reflecting substitution of purchases that they make when prices rise. The Social Security Administration has estimated the chained CPI would reduce COLAs by three-tenths of a percent annually.

A more generous COLA would come via the CPI-E (for “elderly”), an alternative, experimental index maintained by the BLS that is more sensitive to retirees' spending. That index generally rises two-tenths of a percent faster than the CPI-W.

Congress has been gridlocked on Social Security, but public opinion is clear. The National Academy of Social Insurance (NASI) released a national poll Thursday that shows 72 percent support raising benefits. The survey also asks Americans to say how reform should be paid for. The most popular options (71 percent) included a gradual elimination of the cap on income taxed for Social Security ($117,000 this year, and $118,500 in 2015) and a gradual increase over 20 years on the payroll tax rates workers and employers both pay, from 6.2 percent to 7.2 percent.

Poll respondents also backed adoption of a more generous COLA, such as the CPI-E.

“Seniors are noticing the very small COLAs, and they just have a feeling that prices are going up more than that,” says Virginia Reno, NASI’s vice president for income security policy. “If you measure the market basket separately for seniors, average inflation has been a bit higher because they spend a larger share of their money on healthcare, and for things like housing and heating.”

 

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