Social Security COLA Will Add $56 Billion to 2027 Spending | Cato Analysis
Following today’s Social Security cost-of-living adjustment announcement, the Cato Institute’s Romina Boccia argues that the program relies on an outdated inflation measure that overstates increases in the cost of living and adds unnecessary spending to an already strained system.
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The newly announced 3.6% COLA will add an estimated $56 billion to Social Security spending in 2027 compared with leaving benefits unadjusted, according to Cato’s Social Security model.
Boccia highlights several problems with the current approach:
- The inflation formula is outdated: Social Security uses the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI‑W), which reflects the spending habits of only about one-third of Americans and does not fully account for how consumers change their purchases when relative prices shift, such as buying more chicken when beef becomes more expensive.
- Congress applies a double standard: Lawmakers switched federal income-tax brackets and many other tax provisions to the more accurate chained CPI in 2017, increasing revenue relative to the previous indexing formula, while leaving Social Security COLAs tied to CPI‑W.
- A more accurate formula would generate meaningful savings: Cato estimates that adopting chained CPI for Social Security beginning in 2027 would reduce spending by $2 billion that year and $188 billion over 2027–2036, while closing 11.5 percent of the program’s 2032 cash-flow shortfall and 12 percent of its 75-year actuarial shortfall.
Boccia argues that chained CPI would not solve Social Security’s financing problem on its own, but it would reduce excess spending caused by an outdated and upward-biased inflation measure, while benefits would generally continue to rise.
If you’re interested in speaking with Romina about the new COLA, its cost to taxpayers, or reforms to Social Security’s inflation adjustment, I’m happy to connect you.
Best,
Ryan Carver
Media Relations Manager
540–589‑0573
Cato Institute
1000 Massachusetts Avenue, N.W.
Washington, DC 20001
Source: https://www.cato.org/news-releases/social-security-cola-will-add-56-billion-2027-spending-cato-analysis
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