Most people reading this column have probably heard the government announcement that Social Security checks will go up next year because of the automatic inflation-adjustment rules built into the law. But how much will they go up?
Well, here are two headlines I read that answer the question in very different ways. First, there was this one: “Social Security recipients to get largest increase in six years.” And then there was this one: “Senior citizens pegged to get another miserly increase.” Sounds like those headlines were reporting two different stories, doesn’t it? But they weren’t. The article accompanying each headline correctly pointed out that Social Security beneficiaries will get a 2 percent increase next year. But how you view that 2 percent is obviously in the eye (and the politics) of the beholder.
Over the many years I have been writing this column, I have probably explained the history of the politics and policies associated with Social Security’s annual cost-of-living adjustment, or COLA, a hundred times. Well, here comes No. 101!
For the first 37 years of the program, Social Security recipients didn’t get annual increases in their checks. They got very sporadic benefit hikes only when Congress deemed them necessary. But in 1972, Congress decided to make automatic adjustments to Social Security checks the law.
And that law says the annual COLA is based on the increase in the Consumer Price Index as measured by the Department of Labor. Back in the 1970s, inflation was running in double digits, so Social Security recipients were getting annual increases in the 10 percent to 14 percent range. But for the past 10 years or so, the rate of inflation has been at some of its steadily lowest levels in history. That of course is normally good news. I don’t think anyone wants to return to the times when inflation was rampant. But low inflation does mean low annual Social Security increases. So on the one hand, 2 percent is rather “miserly,” as one headline noted. But as the other headline pointed out, it is the highest boost in many years.
And here is an interesting sidelight to the COLA history story. If we were still following the original Social Security COLA law passed in 1972, there would be no increase this year. In fact, there wouldn’t have been an increase in the last 10 years! Why? Well, when automatic annual cost-of-living increases were first introduced, the law said that a COLA would only be granted in any given year if inflation, again as measured by the CPI, was 3 percent or more for the prior year. Back then, inflation was always running at way more than 3 percent per year, so no one gave that provision much thought.
But then in the mid-1980s, the government finally got a handle on inflation, and the numbers started going down. In 1986, the CPI measured inflation at 1.3 percent. Because that was under the 3 percent cut off point, no Social Security increase was scheduled. Well, you can maybe guess what happened. Social Security beneficiaries went into an uproar. They demanded some form of compensation from their government leaders. Politicians panicked. And sure enough, the requirement that the CPI go up by at least 3 percent was immediately rescinded and seniors received their 1.3 percent COLA increase and have been receiving annual increases ever since, no matter how low the inflation rate is.
And here is another interesting historical footnote about COLAs that demonstrates the power of the senior citizen lobby in this country. In other words, when seniors say “more,” Congress says “how much more?”
The 1972 COLA law specified that Social Security recipients would get an increase beginning the following year for inflation measured in the prior year. So for example, when inflation was measured at 8 percent in 1974, beneficiaries started getting an 8 percent increase in their January 1975 checks.
Here is the problem with that. As most of you know, Social Security checks are paid one month in arrears. In other words, the January Social Security check is paid in February. Well, seniors didn’t like waiting that extra month for their Social Security increase, and they demanded the law be changed. And sure enough, Congress changed it. So for many years now, the law has said that you get the increase beginning with the December check (payable in January). So the current batch of 61 million Social Security beneficiaries will get a 2 percent increase beginning with their December 2017 check — paid in January 2018.
Having said and explained all that, I will now wait for my email inbox to be crammed with messages complaining about the stinginess of the 2 percent increase. It happens every year. People will tell me that their rent has gone up, their grocery bills have gone up, their utility charges have gone up — all at more than a 2 percent rate. “So how can the government tell me I am only due a 2 percent increase in my Social Security?”
And yet, many economists agree that the CPI measurement used for the Social Security COLA actually overstates inflation for senior citizens. That is why one of the commonly suggested long-range reform proposals for Social Security is a reduction in the annual COLA amount. I can count on one hand the number of Social Security beneficiaries I’ve talked to over the years who think that is a good idea.
Finally, other automatic adjustments to Social Security provisions will take place in January. And these changes are not based on inflation, as measured by the CPI. Instead, they are based on increases in the average national wage. For example, the maximum amount of income subject to Social Security tax goes up from $127,200 to $128,700. And the amount of money a Social Security beneficiary under age 66 can earn with no reductions in his or her benefits increases to $17,040 next year, compared to $16,920 in 2017.
