Legislation Introduced to Apply the Chained CPI to Social Security COLA

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By on December 11, 2016 in Retirement with 0 Comments
Congressman Sam Johnson (R-TX)

Congressman Sam Johnson (R-TX)

It is an early Christmas gift from Rep. Sam Johnson (R-TX) to Donald Trump: a headache.

Before Trump even reaches the White House, the Social Security Subcommittee Chairman introduced legislation (H.R. 6489) to significantly cut the Social Security benefits that candidate Trump promised to protect consistently over the course of his run for president.

As a candidate, Trump said last year: “Every Republican wants to do a big number on Social Security, they want to do it on Medicare. They want to do it on Medicaid. And we can’t do that.” Now, Rep. Johnson not only calls for cuts – but massive cuts.

The cuts are large for two reasons.

First, the congressman chooses to approach the problem entirely through benefit cuts. Separately, those benefit cuts are concentrated on a selection of future retirees, meaning that there are fewer retirees to absorb the pain. As a result, the Social Security Administration believes that some people would experience reductions of more than 70 percent in benefit levels.

The numbers are pretty simple. According to the Trustees, solvency could be reached with an immediate reduction of 16% on all retiree. That reduction rises to 19% if it is only applied to those retirees newly eligible in 2016. Congressman Johnson’s plan mostly insulates another 7 years of retirees.

So future retirees are going to absorb collectively at least a 19 percent reduction in benefits. This pain is not even spread across future retirees because the bill introduced by Johnson has 13 parts.

The legislation would, however:

  • Apply the Chained CPI as the COLA for most Americans and withhold it entirely from individuals earning more than $85,000, including some of their Social Security benefits.
  • Raise the retirement age from 67 to 69 on a pace rarely seen in the discussion of Social Security reform.
  • Would lower the benefit formula such that people making 35,000 this year would experience a reduction of benefits of 17%.

As a result of these changes, the Social Security Administration believes that about half of the lowest wage workers retiring after 2030 would see a drop in benefits – some of which we get a cut of nearly 50 percent from scheduled benefits. The payback time frame on the last $1,000 of earnings of the high-wage worker rises from 24 years to 180.

The adjustments to the COLA amplify these cuts for those least able to deal with them. Not surprisingly, as people age they tend to get poorer. The percentage of people collecting 90 percent of their income from Social Security nearly doubles between the age of 65 and 80. So this legislation tends to reduce benefits on the people who depend the most on the program.

The legislation embraces means-testing which converts a program designed to lower the statistical likelihood of poverty ridden old-age into one that fosters it.

The people hurt most by this legislation are those turning 50 over the next year. These workers absorbed the highest tax increases and largest benefit cuts in the 1983 reform of Social Security. The adjustments to retirement age from 1983 already lowered the life expectancy of a retiree in this group below that of existing retirees. Now, Rep. Johnson wants to ask these people to work two more years to collect substantially lower benefits.

And that is what passes for fixed these days.

Any opinions presented in the article represent those of the author alone.

© 2017 Brenton Smith. All rights reserved. This article may not be reproduced without express written consent from Brenton Smith.

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About the Author

Brenton Smith (A.K.A. Joe The Economist) is the founder of “Fix Social Security Now” which provides information on all alternatives in the public debate on Social Security through its site www.FixSSNow.Org.

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