House Ways and Means Committee Misleads on Formula for Calculating Social Security COLA

November 05, 2013

For Immediate Release

Chained CPI Would be a Cut in Benefits – that is why Conservatives Support it

Washington, DC – The House Ways and Means Committee was misleading when it released a statement on Monday that says, “If the more accurate chained CPI was used to determine the 2014 cost of living increase, seniors would see a 1.7 percent increase as opposed to this year’s increase of 1.5 percent.” (http://tinyurl.com/l2k2s5m).

The nation’s Social Security beneficiaries will get a 1.5% increase in their monthly payments in 2014, the Social Security Administration announced last week. The program’s cost-of-living adjustment, or COLA, will be below 2% for the fourth time in the last 5 years.

“The Ways and Means Committee is intentionally trying to mislead us,” said Edward F. Coyle, Executive Director of the Alliance for Retired Americans. “Any economist will tell you, to use an earlier estimate for a figure – as they did – when an adjusted, more accurate number is available, is not sound analysis.”

“The chained Consumer Price Index (CPI) would be a cut in benefits – that is why conservatives support it,” added Mr. Coyle. “It is a cumulative cut over time.” In fact, an average earner retiring in 2011 at age 65 would lose more than $6,000 over 15 years if the chained CPI were adopted. (http://tinyurl.com/kxywnow).

Experts won't know for sure what a hypothetical chained CPI COLA would have been for 2014 until January 2016, because the chained CPI is based on surveys of consumer substitution that are not completed until up to two years after the fact. This is one of the implementation problems a chained CPI COLA would face. Over the medium and long term, Social Security’s actuaries predict substantial differences across three possible COLAs: CPI for the elderly (CPI-E), CPI for Urban Wage Earners (CPI-W), and the chained CPI. It is long-term trends that matter when it comes to the impact of COLAs on benefits, for the effect of COLAs compounds greatly over time.

The AARP had compared the September 2013 preliminary estimate to the 2012 interim estimate issued by the Bureau of Labor Statistics (BLS). The Ways and Means Republican staff, in responding to an AARP statement, went back and compared to the “preliminary estimate” for 2012 that was released last October, rather than using the corrected “interim” estimate BLS just released.

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Contact: David Blank – 202/637-5275 or dblank@retiredamericans.org

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