The COLA wars are coming for Social Security

By Brett Arends

As the entire program nears financial insolvency, the annual cost-of-living adjustment comes under scrutiny

If they change your COLA, will you be ready?

The annual cost-of-living adjustment, known as COLA, may soon be capped, curtailed, means-tested or scrapped altogether under various proposals being actively considered in Washington, D.C.

That's because policymakers are facing the program's looming financial insolvency, which under current forecasts is expected to hit within several years.

One proposal under review would scrap annual cost-of-living adjustments altogether for beneficiaries with higher incomes. The Social Security Administration reckons the government could fill about a third of the program's long-term financial shortfall by ending COLAs for those making more than about $117,300 a year (for single tax-filers) or $234,600 (for joint filers), along with reducing the annual COLA for everyone else.

The Committee for a Responsible Federal Budget, an independent think tank, offers a more modest idea: Simply limit the dollar value of COLAs for higher earners to the amount received by median beneficiaries. That would work at around $75 a month for next year's COLA. (The median and the average are very similar in this case.)

So a couple with a $3,300 monthly Social Security benefit, which places them on the cusp of the top 10%, would get a 2027 benefit increase of $75 instead of the $122 they currently expect.

Another idea would be still more progressive: Give everyone the dollar amount received by some lower earners. This was first proposed by former Rep. Tim Penny, now co-chair of the CRFB, back in the 1980s.

For example, using calculations from the Urban Institute's Karen Smith, the CRFB estimates that Social Security could cut its long-term shortfall by about half by limiting everyone to the dollar increase received by those at the 20th percentile. (The way to conceptualize the 20th percentile is to imagine lining all Social Security beneficiaries up in a really, really, really long line, from those getting the least at one end to those getting the most at the other, and then finding the person who is 20% of the way along from the lowest earner.)

And they reckon the program could cut its shortfall by 40% by limiting COLAs to the dollar amount received by those at the 30th percentile.

That would mean everyone would get a 2027 COLA of just $50 per month, regardless of their current benefit levels.

Other proposals making the rounds may be politically easier, but they are more egregious as well. One involves cutting Social Security's COLA for everyone. The Social Security Administration has run the numbers on cutting the annual COLA across the board by one full percentage point a year, or by half a point, or by changing how it's calculated, replacing the current CPI inflation calculation with a less generous rate known as the "chained" CPI. The Social Security Administration estimates this would cut the COLA by a third of a percentage point a year.

The problem with these ideas is that they would effectively fall hardest on those who get the least, and who are most dependent on Social Security.

Howard Lutnick, the billionaire commerce secretary, bragged last year that if the Social Security Administration stopped sending checks to his mother-in-law she wouldn't complain. But that's not true for 90% of beneficiaries. Many depend on Social Security to live. Cutting their annual COLA by the same percentage as the annual COLA for Lutnick's mother-in-law probably appeals to a certain group of people, but they are a tiny minority.

If you object to any changes to the COLA calculations, then how will you fix Social Security's finances?

Eliminating the taxable-income ceiling for Social Security taxes, set to rise to $192,300 next year, would cause a huge effective jump of 12.4 percentage points in the marginal federal tax rate among higher earners.

Raising the retirement age would be a benefit cut across the board, and would most hurt those who do more physically demanding jobs, many of which are lower paid.

Some people suggest that we could help address the problem by actually levying some taxes - any taxes at all - on people as rich as Jeff Bezos and Elon Musk, whose personal wealth recently hit $1 trillion. And by making private-equity managers, hedge-fund managers, venture capitalists and other Wall Street types just pay income taxes like the rest of us.

But people making those suggestions are probably all communists and can be ignored.

Other options include getting in a time machine, going back 30 years, and voting against the 2001, 2017 and 2025 tax cuts, as well as the massive federal deficits of the global financial crisis and the COVID crisis. Without all that, if we had kept the income taxes we had when President Bill Clinton left office in 2001, there would be no federal budget crisis and Social Security could just be shored up from general funds.

If you don't have a time machine, there's one other option: waiting for the magical "waste, fraud and abuse" fairy to turn up and shower us all with trillions in free money. We've been waiting since Ronald Reagan announced her imminent arrival way back in 1980, and we haven't seen her yet. But here's hoping!

-Brett Arends

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10-14-26 1719ET