October 05, 2015
Fix Social Security’s Bad Math
CPI for elderly is most accurate measure for calculating Social Security COLAs
By Rep. Mike Honda (D-Calif.) and Richard Fiesta
For only the third time in 40 years, the Social Security Administration (SSA) announced this month that there will be no cost-of-living-adjustments (COLAs) for seniors in 2016. How can it be, when we hear heartbreaking stories of seniors who must choose between paying for lifesaving medications and their rent due to skyrocketing costs, that no adjustment will be made to ensure that they can enjoy the retirement they earned?
The answer is simple: We are using the wrong formula to determine whether or not seniors receive accurate COLAs that reflect their financial realities. Currently, Social Security uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPIW), which takes into greater account factors such as transportation and fuel prices, apparel, and education that disproportionately affect younger Americans. There was a nearly 30 percent drop in gas prices in the past year which directly impacts the CPIW but primarily affects younger citizens.
The truth is that the consumption patterns of seniors are very different from those of younger people. The CPI does not adequately take into account the expenditures of retirees, most glaringly healthcare and housing costs. That is why we need to be using the CPIE, or CPI for the Elderly (CPIE). The CPIE is the most accurate and sensible measure of the real costs that retired Americans face.
From December 1982 through December 2011, the CPIE rose at an annual average rate of 3.1 percent, compared with increases of 2.9 percent for both the CPIU and the CPIW. This indicates that the elderly have been losing purchasing power at the rate of roughly 0.2 percentage points per year by federal retirement programs not using the CPIE.
To leave the nearly 65 million American retirees who rely on Social Security benefits, including eight million who collect Supplemental Security Income, hanging out to dry is inexcusable.
Social Security prevents approximately 26 million seniors from falling below the poverty line each year. When one is on a fixed income – that right now is a mere $14,000 per year on average – dealing with the ever-increasing costs of healthcare, prescriptions, and housing creates a situation that breaks the promises made 80 years ago when Social Security began.
In contrast to the recent no-COLA announcement, if we use the CPIE, internal information from the Bureau of Labor Statistics shows that seniors would receive a 0.6 percent increase in the coming year. Furthermore, it would affect the years to come. Since next year’s COLA calculations will still be affected by the decline of CPIW in the third quarter of 2015, we expect a small or zero COLA again in 2017. Furthermore, proposals to use a chained CPI could mean that we will see actual decreases.
Let us say that again: Using the CPIE would give seniors a COLA in 2016, and could prevent further, unfair, and inaccurate adjustment in the future.
When there is a commonsense solution that will work RIGHT NOW, we must take action. We have a viable standard at our fingertips to ensure that seniors’ benefits do not diminish over time. We only need the collective will to act.
This year marks the 80 anniversary of Social Security, a true success story for millions of Americans. But now, we need people to stand up and call on government to honor the promise of Social Security by using the correct and fair formula for determining their benefits. Decisions like this will have a lasting impact on the lives of seniors now and in the future.
We have promised our older Americans a safe and stable retirement, and it is up to us to honor that promise. Eighty years ago, we came together, and we must come together now, as President Franklin Delano Roosevelt said, “to place the security of the men, women and children of the Nation first.” We have an opportunity and the moral responsibility to do the same now, and the very first, proven step we must take is to implement the CPIE to accurately and fairly calculate benefits for American retirees.
Honda represents California’s 17 Congressional District and has served in the House since 2001. He sits on the Appropriations Committee. Fiesta is executive director of the Alliance for Retired Americans.