One option for lawmakers, as discussed in a brief released, would be to link federal benefit programs and tax provisions to another measure of inflation that is designed to account fully for changes in spending patterns. (CBO previously discussed the possibility of using the chained CPI in its August 2009 Budget Options volume.)
The chained CPI grows more slowly than the traditional CPI does: by an average of 0.3 percentage points per year over the past decade. As a result, using that measure to index benefit programs and tax provisions would reduce federal spending (especially on Social Security and federal pensions) and increase revenues. A separate appendix to the brief explains the methods and calculations that could be used to index the federal tax system, Social Security benefits, and federal pension benefits for the growth in the chained CPI.
Although many analysts consider the chained CPI a more accurate measure of the cost of living, using it for indexing could have disadvantages. Because the values of the chained CPI for a given month are revised over a period of one to two years, the tax code and affected programs would have to be indexed to a preliminary estimate of the chained CPI that is subject to estimation error. Also, the chained CPI may understate growth in the cost of living for some groups, such as older people.
(This 2010 brief was prepared by Noah Meyerson of CBOs Health and Human Resources Division.)
Cost-of-Living Adjustment (COLA) Information for 2013 and FAQs from the Social Security Administration
Monthly Social Security and Supplemental Security Income (SSI) benefits for nearly 62 million Americans will increase 1.7 percent in 2013.
The 1.7 percent cost-of-living adjustment (COLA) will begin with benefits that more than 56 million Social Security beneficiaries receive in January 2013. Increased payments to more than 8 million SSI beneficiaries will begin on December 31, 2012.
Frequently Asked Questions
How long has Social Security had COLAs?
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