Social Security transformed the nation, providing working families a basic measure of economic security when wages are lost in the event of old age, disability that prevents substantial gainful employment, or death. One of Social Security’s most important features is that its benefits are adjusted every year automatically to offset increases in inflation, so that the modest but vital benefits do not erode over time. As a result, 2020 Social Security benefits should rise.
It is crucial to understand that Social Security cost-of-living adjustments are not increases. They are intended simply to allow people to tread water, to maintain their purchasing power. Unfortunately, the government’s cost-of-living adjustment for Social Security is based on inflation experienced by urban wage earners and clerical workers. That is because in 1972, when the automatic adjustments were enacted into law, the Bureau of Labor Statistics, the agency that keeps track of inflation, only prepared that one index.
Of course, retirees and people with disabilities who are unable to work full-time have very different expenditures from urban workers and even from the general population. On average, they have higher health care and prescription drug costs, which have been going up much more rapidly than general inflation. Overall, they spend less of their fixed incomes on the latest smart phones and flat screen televisions, where cost increases tend to be lower than general inflation.
Consequently, retirees and people with disabilities tend to experience higher increases in their cost of living than younger workers do. Because they generally experience higher increases in their cost of living than workers, their Social Security adjustments are more often than not inappropriately low. As a result, Social Security beneficiaries are not even treading water, but rather losing ground. Nevertheless, even inadequate adjustments are better than none.
The actual adjustment that will take effect this January cannot be calculated precisely until October, because it is based on the inflation rate of the third quarter of this year, which runs from July 1 to September 30, compared to the third quarter of last year. Obviously, inflation during the month of September will not be known until this month ends.
Until the size of the automatic adjustment is announced in the second half of October, we won’t know the precise percentage increase of Social Security benefits. However, it is possible to provide a quite accurate estimate now of what the adjustment is likely to be.
In April, Social Security’s actuaries projected that the cost-of-living adjustment beneficiaries would receive in January, 2020 would be 1.8 percent, or about a $24 monthly increase for an average benefit, which is $1,353.68. However, we have now completed two of the three months of the third quarter and so can make a more accurate estimate of the size of the adjustment.
In recent months, thanks in large measure to President Donald Trump’s trade war with China, the economy is slowing and inflation has been lower. Consequently, 1.8 percent is likely to be the highest the January increase will be. Depending on what happens in September, it is likely to be closer to 1.5 percent, or about $20 more a month for an average benefit.
Moreover, millions of people will not experience that full increase. Indeed, some may see no increase at all. That is because of rising health care costs. Most people with Medicare who receive monthly Social Security benefits have their Medicare Part B premiums deducted directly from those Social Security payments. For these people, Congress has provided that the annual increase in the Medicare Part B premium must be no larger than the Social Security cost-of-living adjustment. But it can be as large. They can’t go below zero and lose some of their Social Security benefits, but they can certainly see their cost-of-living adjustment go completely to rising health care costs.
It is long past time to enact a more accurate cost-of-living adjustment for Social Security. More than three decades ago, in 1987, Congress directed the Bureau of Labor Statistics to develop a cost-of-living increase that measured inflation experienced by older adults. The Bureau complied and now each year publishes the Consumer Price Index for the Elderly, or the CPI-E. Congress should complete what it started and enact legislation that utilizes the CPI-E to adjust Social Security’s benefits.
Fortunately, Democrats are squarely in favor of this change. Bills authored and co-sponsored by Democrats in both the House of Representatives and the Senate have been introduced that do just that. Indeed, one of those bills, the Social Security 2100 Act, authored by Rep. John Larson (D-CT), the chairman of the House Social Security Subcommittee, and cosponsored by 210 of his Democratic colleagues, is likely to be voted out of the House this fall. The bill also expands benefits across the board, while ensuring that all benefits can be paid in full and on time through the year 2100 and beyond.
And they should go one big step more. A solid majority of House Democrats support improving Medicare and extending it to everyone. They should pass that legislation, as well.
After a lifetime of work, Americans should have enough guaranteed Social Security to maintain their standards of living. And they should have expanded Medicare so no one is one illness away from bankruptcy.
The good news is that Social Security beneficiaries will receive a cost-of-living increase this January, small though it will be. The better news is that Democrats are fully behind not only improving the cost-of-living adjustment, but also expanding Social Security and Medicare. When that happens, all of us will be able to keep our heads well above water.
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