WASHINGTON, July 29 (DC Times Online) — A proposal from the Committee for a Responsible Federal Budget would change how Social Security benefits rise with inflation, and the group says the shift could cut the program’s 75-year shortfall in half.
The idea is simple: instead of giving every beneficiary the same percentage increase each year, Social Security would give everyone the same dollar increase. CRFB says that dollar amount would be set at the cost-of-living adjustment received by a beneficiary at the 20th percentile of the benefit range.
What is a COLA?
COLA stands for cost-of-living adjustment. Social Security uses it to help benefits keep pace with inflation. Under the current formula, the increase is percentage-based. That means someone with a larger monthly check gets a larger dollar bump, even though the percentage is the same.
Under a flat-rate COLA, the dollar increase would be the same for all beneficiaries. Because the increase would be the same in dollars, it would make up a bigger share of a smaller benefit and a smaller share of a larger one.
What does CRFB say the policy would do?
In a blog post and analysis citing Urban Institute modeling by Karen Smith, CRFB said a flat-rate COLA set at the 20th percentile and enacted in 2027 would close 50% of Social Security’s 75-year shortfall relative to CRFB’s baseline. A version set at the 30th percentile would close about 40%.
CRFB says the policy would be relatively progressive. In its modeling, the change would slow benefit growth the most for people with the highest lifetime earnings and retirement income.
The group says that under the 20th-percentile version, the bottom fifth of lifetime earners would see benefits fall by 3% in 2065, while the top fifth would see benefits fall by 19%. Under the 30th-percentile version, the bottom quintile would see a 1% increase, while the top fifth would see a 17% decrease.
CRFB also says both options would raise benefits for the lowest quintile by 13% to 14% compared with its payable-benefits scenario.
How much difference could it make for Social Security’s finances?
CRFB says a flat-rate COLA set at the 20th percentile would delay insolvency of Social Security’s main trust funds by two years. The group says that if the idea were paired with other measures, including an employer compensation tax proposal, it could keep the combined trust funds solvent for 75 years or nearly that long.
In a retrospective estimate, CRFB said that if Congress had adopted a flat-rate COLA in 1987, when Representative Tim Penny proposed the idea, the policy would have achieved solvency through 2071.
Is this a law now?
No. The flat-rate COLA is a proposal, not an enacted change. CRFB’s analysis is a modeling exercise meant to show how a different benefit formula could affect both retirees and Social Security’s finances.
Why the proposal matters
The policy debate is about more than math. A flat-rate COLA would shift more of the burden of slower benefit growth onto people who received larger benefits over their working lives, while protecting lower-income retirees more than the current formula does.
That is why CRFB frames the idea as a way to improve solvency without cutting benefits evenly across all retirees.
CRFB has also studied a related COLA cap proposal. In that separate white paper, it said capping COLAs at the 75th percentile would close one-tenth of Social Security’s solvency gap and save $115 billion over a decade.
The bottom line: a flat-rate COLA would not solve Social Security’s financing problem by itself, but CRFB says it could make a large dent in the gap while changing the way inflation protections are shared across workers and retirees.
