Don't be surprised if somebody tries to tell you that the Consumer Price Index used to calculate your Cost-Of-Living Adjustment (COLA) rises too quickly and that the federal government is paying you too much.  That's the argument that economists, including retired Federal Reserve Chairman Alan Greenspan, made in 1997.  And they're still at it today.

Some economists say that the Consumer Price Index (CPI) goes up more quickly than it should, and thus the government pays more Social Security benefits than it ought to.  They say the government should modify how it calculates the CPI used to determine the annual increase in your Social Security.

TSCL firmly disagrees.  Not all economists believe the CPI is rising too quickly.   In addition, seniors know that COLAs fail to keep up with health care costs, let alone all other rising costs, because they are based on a CPI that doesn't reflect the portion of income that beneficiaries spend on health care costs.

In 1996, a commission that studied the CPI recommended that the Bureau of Labor Statistics make numerous changes.  Congress seized on the findings as a politically safe way to cut Social Security spending without having to risk a single vote.  The Bureau of Labor Statistics, the agency responsible for collecting and maintaining the CPI, was directed to make a number of "technical improvements."  Virtually all the so-called "improvements" tend to reflect inflation as growing more slowly. Thus COLAs and your benefits grow more slowly than they did before. 

In addition to the changes the government has already made, the Bureau of Labor Statistics now has a new "chained" CPI.  The chained CPI tracks when consumers substitute one product for another, rather than tracking the price of a specific product from one period to the next.  Thus it grows much more slowly than the other price indexes.

How could "chaining" the CPI affect your benefits?  Government economists point to a seemingly tiny difference between the indexes, but don't be deceived.  The following chart illustrates the difference between the current COLA and what would have been paid, had Congress adopted the new "chained" CPI when it was first released in 2001. 

The difference although minor at first, compounds substantially over time, growing greatest as retirees become older and more likely to have costly chronic health conditions.  In 2002, for example, the annual difference between the two CPIs was just $60, or $5 per month.  By 2007, however, the annual difference has grown to $229.30, or more than $19 per month. 

See How "Chaining" the COLA "Chains" Down Your Social Security

Have you signed TSCL's Nationwide Social Security COLA Protest Petition? Almost 10,000 people have!

March 2007