WASHINGTON, July 29 (DC Times Online) — A Social Security change that would give all beneficiaries the same dollar cost-of-living adjustment, instead of the same percentage increase, could cut about half of the program’s 75-year funding shortfall, according to the Committee for a Responsible Federal Budget.
The idea is simple in concept, but important in effect: it would slow the growth of benefits most for people with the largest checks and the highest lifetime earnings, while leaving low-income retirees better protected.
What is a flat-rate COLA?
A COLA is the annual cost-of-living adjustment Social Security uses to help benefits keep up with inflation. Under current law, everyone gets the same percentage increase. That means someone with a larger benefit gets a bigger dollar raise.
A flat-rate COLA would work differently. CRFB says every beneficiary would get the same dollar increase each year. In the version it analyzed, that dollar amount would be tied to the COLA received by a beneficiary at the 20th percentile of the benefit range. In plain terms, that is the level where 20% of beneficiaries receive less and 80% receive more.
CRFB says the approach would act like a cap for higher benefits and a floor for lower ones.
How much money could it save?
Using Urban Institute modeling by Karen Smith, CRFB said a flat-rate COLA set at the 20th percentile and starting in 2027 would close 50% of Social Security’s 75-year shortfall, compared with the group’s baseline outlook.
CRFB said a 30th-percentile version would close about 40% of the shortfall.
The group also said the 20th-percentile version would delay insolvency of Social Security’s main trust funds by two years. Paired with other changes, such as an employer compensation tax proposal, CRFB said the idea could keep the combined trust funds solvent for 75 years or nearly that long.
Who would gain and who would lose ground?
CRFB says the plan is relatively progressive because it would slow benefit growth most for people with the highest lifetime earnings and the highest retirement income.
Under the 20th-percentile design, CRFB’s analysis found that the bottom fifth of lifetime earners would see benefits fall by 3% in 2065, while the top fifth would see benefits fall by 19%.
Under the 30th-percentile design, the bottom quintile would see a 1% increase, while the top fifth would see a 17% decrease.
CRFB also said both the 20th- and 30th-percentile versions would increase benefits for the lowest quintile by 13% to 14% compared with a payable-benefits scenario.
Why does this matter now?
Social Security faces a long-term financing gap as benefit promises outpace dedicated revenue. Policy ideas like a flat-rate COLA matter because they can change both sides of the ledger at once: they affect how quickly benefits grow and how quickly the trust funds are depleted.
The idea is not new. CRFB says a similar flat-rate COLA concept was proposed in 1987 by then-Rep. Tim Penny. In a retrospective estimate, the group said that if Congress had adopted the idea then, it would have achieved solvency through 2071.
Is this policy in effect today?
No. The research reviewed here describes a proposal, not a change already approved by Congress. Under current law, Social Security continues to use its existing percentage-based COLA formula.
For workers, retirees, employers, and taxpayers, the practical question is whether Congress wants to slow benefit growth in a way that protects lower earners more than higher earners. CRFB’s analysis suggests a flat-rate COLA could do that while also making a meaningful dent in Social Security’s long-term funding gap.
