CBO Forecasts Lower Social Security COLAs, Higher Medicare Costs

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CBO Forecasts Lower Social Security COLAs, Higher Medicare Costs

The government will spend less on Social Security Cost-of-Living Adjustments (COLAs) in 2003 and 2004. According to the mid-year economic report from the Congressional Budget Office (CBO), lower projections for inflation reduce CBO estimates of COLAs by $1.4 billion in 2003, and $2.2 billion in 2004. Other programs such as Supplemental Security Income (SSI), military, and civil service retirement are also affected (see “Ask the Advisor: CPI Corrections Also Hurt the Disabled,” at http://www.tscl.org/NewContent/101685.asp). A series of changes to the way the government calculates the Consumer Price Index (CPI) has resulted in making the CPI appear to be growing more slowly and has effectively cut the COLAs of millions of beneficiaries.

On the other hand, the CBO increased estimates of Medicare outlays for 2002 by $4.5 billion because of higher than anticipated spending since February. This means higher monthly Medicare premium costs for beneficiaries in 2003.

Since the end of February, the federal budget has deteriorated dramatically. The total surplus projected for the 2003–2012 period is nearly $1.4 trillion smaller than the CBO estimated earlier this year. A significant portion of increased government spending is interest payments on debt, which the CBO estimated to be $456 billion higher than earlier this year.

Even more troubling, CBO predicts that there will be no non-Social Security surplus until 2011, when the tax cuts enacted in 2001 are scheduled to expire. However, many analysts feel even these estimates are overly optimistic, because virtually no one believes the tax provisions will end completely. The CBO refers to their prospective extension as “a matter of course,” but is required to provide budget estimates based on assumptions that current tax and spending policies will not change.

Sources: “The Budget and Economic Outlook,” The Congressional Budget Office, August 2002.

For a related story, see “Social Security Trustees Predict Lower COLAs, More Taxation of Benefits” at http://www.tscl.org/NewContent/101517.asp.

December 2002