Nearly 64 million Americans who receive Social Security and Supplemental Security Income (SSI) benefits will get 1.7 percent cost-of-living increases for next year.
By law, these increases are based on the government’s Consumer Price Index (CPI), an inflation measure that other parts of the government use as well.
Unfortunately, some beneficiaries and journalists describe the annual Social Security increases for retirees as if they should be based on some yardstick other than inflation. Last week at least two prominent news organizations, for example, described the 2015 increases as “tiny.” The AARP calls them “modest.”
But “tiny” or “modest” compared to what? Neither word really seems appropriate for a cost-of-living increase based on current inflation. Many economists, in fact, say the CPI measurement that the government uses actually overstates inflation.
A reasonable step would be for the government to switch to a more accurate measure of inflation for all of its programs, including Social Security, as well as tax brackets. This index, known as “chained CPI,” accounts for changes in consumer behavior in response to changing prices on similar goods.
It is important to remember that as the population ages, both Social Security and Medicare are on unsustainable paths and require growing support from general tax revenues. So broad entitlement reform remains essential.
Announcement of 1.7 Percent Benefit Increase (Social Security Administration)
Chained CPI Resource Page (Committee for a Responsible Federal Budget)
Federal Budget Growth Is Concentrated in Entitlements and Interest Costs (Concord)