Social Security Benefit Reform: Preempting the Deficit Hawks to Assure Long-Term Financing

Social Security provides 50% or more of income for most beneficiaries (72% of singles and 52% of couples).  Sufficient income is necessary for the health of seniors. Consequently, the long-term deficit that threatens Social Security with insolvency in the fourth decade of the century constitutes a health and public health issue. Although not an immediate crisis, advocates for public health and elders need to attend to the underlying problem to forestall its use by demagogues and Social Security opponents.

A flashpoint in discussions of reducing benefits is proposals to change the index used annually to calculate the cost-of-living allowance (COLA).  This paper analyzes the proposal to adopt a chained index.  After reviewing the alternative consumer price indexes (CPI) that have become available since Social Security benefits were indexed to inflation and explaining CPI chaining, it assesses the impact of the proposed chained CPI on benefits of recipients.

This analysis results in a proposed modification that will reduce the negative impact of chaining on the oldest seniors, while still achieving substantial reductions in the overall annual cost of COLAs.

The discussion section highlights the political importance of defending Social Security and argues that the overall solution of long-term insolvency, like the historic compromise of 1983, must involve shared sacrifice by all stakeholders, not just beneficiaries.  However, proposals to means-test the benefit need to be strongly resisted, because that redistribution is already accomplished indirectly, equitably and efficiently by taxing the benefit.  (Those taxes, however, could be increased by two modifications.)