A new proposal from the Committee for a Responsible Federal Budget (CRFB) suggests changing how future Social Security cost-of-living adjustments (COLAs) are calculated. Instead of every beneficiary receiving the same percentage increase, everyone would receive the same dollar increase.
The proposal is designed to slow the long-term growth of benefits for higher-income retirees while providing relatively larger increases to lower-income beneficiaries. It is not legislation, has not been introduced in Congress, and would require congressional action before becoming law.
Key Takeaways
- The proposal would replace percentage-based COLAs with a flat-dollar annual adjustment.
- Lower-benefit recipients would receive a larger percentage increase than higher-benefit recipients.
- The proposal is intended to improve Social Security’s long-term finances while protecting lower-income retirees.
- CRFB estimates the policy could significantly reduce Social Security’s long-term financing gap, but by itself would not permanently solve the program’s solvency challenges.
- This is a policy proposal—not an official Social Security Administration change or pending law.
Every year, millions of Americans look forward to the announcement of the Social Security cost-of-living adjustment (COLA), which helps benefits keep pace with inflation. Under current law, everyone receiving Social Security receives the same percentage increase, regardless of the size of their monthly benefit.
A recent proposal from the Committee for a Responsible Federal Budget has sparked discussion by suggesting a different approach. Instead of a percentage increase, every beneficiary would receive the same dollar increase. While the proposal has generated attention, it is important to understand that it is not currently under consideration as legislation.
What Is Being Proposed?
Today, Social Security COLAs are based on inflation. If the annual COLA is 3 percent, nearly every beneficiary receives a 3 percent increase regardless of the amount of their monthly benefit. For example:
| Monthly Benefit | 3% COLA | New Benefit |
| $1,200 | +$36 | $1,236 |
| $2,500 | +$75 | $2,575 |
| $4,000 | +$120 | $4,120 |
Under the CRFB proposal, everyone would instead receive the same dollar increase. The dollar amount would be based on the COLA received by a beneficiary around the 20th or 30th percentile of benefit levels. As a result, lower-benefit recipients would receive a larger percentage increase, while higher-benefit recipients would receive a smaller percentage increase.
The flat-rate COLA idea isn’t entirely new. It traces back to 1987, when then-Congressman Tim Penny first proposed paying all Social Security beneficiaries the same COLA, set at the level received by a beneficiary around the 20th percentile. Penny, who now serves as a co-chair of CRFB, saw his proposal revived in the organization’s recent analysis. According to CRFB’s rough estimates, had lawmakers enacted the idea back in 1987, it would have achieved 75-year solvency for Social Security at the time and pushed insolvency out to 2071.
Why Supporters Favor the Proposal
CRFB says a flat-rate COLA would make Social Security more progressive by directing relatively larger increases to retirees receiving smaller benefits. According to the organization, the proposal could:
- Increase lifetime benefits for many lower-income retirees.
- Reduce poverty among older Americans.
- Slow the growth of benefits for higher-income retirees without immediately reducing existing monthly payments.
CRFB estimates that a flat-rate COLA based on the 20th percentile beneficiary could eliminate roughly half of Social Security’s projected 75-year funding shortfall under its modeling assumptions.
It’s worth noting that CRFB’s estimate of closing roughly half the 75-year shortfall is based on the prior year’s Social Security Trustees report. Because the program’s projected finances shift somewhat with each new Trustees report, CRFB itself has cautioned that the proposal would likely close a smaller share of the gap under the most recent outlook. In other words, the “roughly half” figure is a useful ballpark rather than a fixed number, and it may be revised as newer solvency projections come out.
Concerns Raised by Critics
Although Congress has not begun debating this proposal, several concerns are likely to be raised if the idea moves forward. Some observers argue that workers who paid more into Social Security during their careers should continue receiving inflation adjustments based on the benefits they earned. Others point out that inflation affects everyone, regardless of income, and question whether higher-benefit retirees should receive smaller inflation adjustments.
Another concern is the long-term effect of compounding. Even small differences in annual COLAs can result in substantially different benefit amounts over a retirement lasting 20 or 30 years. Critics may also argue that Social Security’s financing challenges should instead be addressed through changes to payroll taxes, retirement ages, or other reforms.
What This Could Mean for Federal Employees
Most FERS employees pay into Social Security, meaning they receive both a federal retirement annuity and Social Security benefits during retirement. If Congress ever adopted a flat-rate COLA for Social Security, the proposal would affect only Social Security benefits. It would not directly change how FERS or CSRS annuity COLAs are calculated. Federal retirees who receive Social Security, however, could experience slower or faster benefit growth over time depending on the size of their monthly Social Security benefit.
Is This Likely to Become Law?
At this point, there is no indication that Congress is preparing to enact a flat-rate COLA. The proposal is one of many ideas being discussed as policymakers consider options for improving Social Security’s long-term financial outlook. Other proposals include raising payroll taxes, increasing the taxable wage base, changing retirement ages, modifying benefit formulas, or adopting different inflation measures. Any significant change to Social Security would require congressional approval and the President’s signature before becoming law.