Social Security's COLA increase Is based on an outdated inflation measure
However, the index used to calculate
As a result, CPI‑W overstates the rise in the cost of living by about a quarter percentage point (0.26 from 2013–2022).
This contributes to the growth in
Back in 1975, when
CPI‑W tracks the prices paid by urban wage and clerical workers, reflecting the purchasing behavior of about 3 in 10 U.S. individuals. There is a broader Consumer Price Index for All Urban Consumers (CPI‑U), that covers 8 out of 10 individuals in the
There's yet another important facet to this issue. As prices change, consumers change what they buy. For example, if the price of apples rises more rapidly than the price of bananas, households will reduce their purchases of apples and buy more bananas instead. That's called the substitution effect. You can probably think of a thing or two you've bought less of (and what you've purchased instead) since inflation took hold in America's grocery stores, gas stations, and elsewhere.
Beginning in 1999, the
Lawmakers should index
The
What about adopting chained CPI for other social welfare programs? Because the chained CPI is a more accurate measure of changes in the cost of living, it should be adopted across all federal benefit programs that are currently using the CPI‑W or the CPI‑U to make benefit adjustments. Opponents of moving to this measure, argue that it would grow welfare beneficiaries' benefits more slowly, leaving them with fewer resources over the long run. If proponents believe that welfare benefits are too low, they should address this issue directly; not perpetuate use of a less accurate inflation measure to achieve their ends.
What about adopting the Consumer Price Index for the Elderly (CPI‑E) instead? Proponents of the experimental Consumer Price Index for the Elderly (CPI‑E) argue that the current COLA adjustment doesn't keep up with the more specific inflation that seniors face because they spend more than other Americans on out‐of‐pocket health care costs and those costs rise faster than average inflation. They have a point. However, there are at least three reasons why
* One‐third of
* The CPI‑E includes persons age 62 and older, many of whom participate in the workforce. The purchasing behavior of working seniors differs from the retired elderly.
* The sample size for the CPI‑E is only one‐quarter that of the CPI‑U sample. Using a smaller sampling size increases the probability of sampling error, reducing the measure's overall accuracy.
What about adopting chained CPI in the
With
Biden pushing lower prescription drug costs in midterm press
High inflation leads to the biggest raise in Social Security in more than 40 years
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