The numbers are in. To be specific, one number that matters tremendously to retirees is in. On Thursday, the Social Security Administration (SSA) announced the amount of the "raise" that Social Security recipients will get next year.
Beginning in January, Social Security benefits will go up by 3.2%. But Joe Biden would like to see the annual cost-of-living adjustment (COLA) calculated using a different method. Here's how much your 2024 Social Security increase would have been if Biden had his way.
Image source: Official White House Photo by Adam Schultz.
How Biden would like to change Social Security
In 2020, then-candidate Biden campaigned for president on a platform that included several proposed changes to Social Security. The biggest one in terms of preventing future benefit cuts was to increase the payroll tax cap to $400,000. He also supported several benefit increases. For example, he wanted to set the guaranteed minimum benefit to at least 125% of the federal poverty level.
Biden's sole proposal about COLAs was to change the inflation metric used in the calculation. Currently, the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is used. His presidential campaign platform called for this metric to be replaced by the Consumer Price Index for the Elderly (CPI-E).
The CPI-E is similar to the CPI-W in that it measures the changes in prices of products and services. However, it focuses on price changes based on spending patterns for Americans ages 62 and above. In particular, the metric gives more weight to healthcare costs, which are a major concern for older Americans.
What the 2024 Social Security COLA would have been
We don't have to imagine what next year's Social Security COLA might have been if the CPI-E was used instead of the CPI-W. It's pretty easy to run the numbers for ourselves.
To determine the 2024 COLA of 3.2%, SSA compared the average CPI-W for the third quarter of 2023 against the average CPI-W for the third quarter of 2022. We only need to perform a similar calculation swapping out CPI-E in place of CPI-W to find out what the COLA would be if Biden's 2020 proposal was in effect.
Based on data from the Bureau of Labor Statistics (BLS), the average CPI-E for the third quarter of 2022 was 320.934. The average CPI-E for the third quarter of 2023 was 333.882 -- a 4% year-over-year increase.
If Biden had his way, retirees would receive a 4% COLA in 2024 instead of a 3.2% increase. To paraphrase a comment he made that received a lot of attention when he was vice president during the Obama administration, that's "a big deal."
Not a pipedream
Unfortunately, these kinds of what-if scenarios don't help retirees cope with inflation that remains higher than they would like. Although Biden included a proposal to revise the COLA calculation in his 2020 platform, he hasn't pushed for the change during his time in the White House. There's no guarantee that he would have been able to win enough support in Congress to actually implement the change even if he had fought hard for it.
However, replacing the CPI-W with the CPI-E isn't a pipedream. A survey conducted by the University of Maryland's Program for Public Consultation (PPC) in 2022 found that 59% of Democrats and 55% of Republicans supported using an inflation metric that reflects the spending patterns of the elderly to calculate Social Security COLAs.
The main knock against using the CPI-E is that it could make Social Security's financial challenges only worse. The PPC calculated that the proposal would increase the looming Social Security shortfall by 12%.
To have any chance at gaining enough political support to revise the COLA calculation would likely require a package including other changes to increase revenue for the beleaguered federal program. Such major reforms just might be on the way within the next few years as the clock ticks down until Social Security's trust funds run out of money.
