A nonpartisan budget group says capping Social Security's annual cost-of-living increase at a flat dollar amount would cut the program's long-term deficit in half, but decades of congressional delay have shrunk the fix from a full solution to a partial one.
The Committee for a Responsible Federal Budget asked Urban Institute analyst Karen Smith to model what would happen if every Social Security beneficiary received the same dollar-amount COLA each year, rather than the current percentage-based increase that gives larger checks to higher earners. The results, reported by Fox Business, show a single structural tweak that could erase roughly half the program's projected 75-year funding gap, while actually raising benefits for the poorest retirees.
Social Security's main trust funds face insolvency by 2032. When the money runs out, current law triggers an automatic 22 percent cut to every beneficiary's check. For a medium-income couple that both worked, that amounts to roughly $16,900 fewer dollars a year starting in 2033. No vote required. No warning letter. Just a smaller deposit.
CRFB modeled the flat-rate COLA at two levels. Set the annual increase at the dollar amount received by a beneficiary at the 20th percentile of earners, meaning someone near the bottom of the income scale, and the proposal closes 50 percent of Social Security's 75-year shortfall. Set it at the 30th percentile, and it closes about 40 percent.
The math tilts toward lower earners by design. Under the 20th-percentile version, the bottom fifth of lifetime earners would see their benefits dip only 3 percent by 2065, while the top fifth would absorb a 19 percent reduction. Under the 30th-percentile version, the lowest quintile would actually gain 1 percent, while the top fifth would lose 17 percent.
Both versions would boost benefits for the very poorest retirees, those in the lowest quintile, by 13 to 14 percent. That is not a rounding error. It is a meaningful cushion for people who depend on Social Security for nearly all of their retirement income.
But even the more aggressive version, the 20th-percentile cap, would only delay insolvency by two years on its own. Two years. That is the distance between a 2032 crisis and a 2034 crisis, not a solution, just a longer runway.
Former Rep. Tim Penny, now a CRFB co-chair, first proposed a flat-rate COLA in 1987. CRFB estimates that if Congress had adopted Penny's idea back then, it would have achieved 75-year solvency at the time, pushing the insolvency date to 2071 and covering roughly three-quarters of the funding gap through 2100.
That is nearly half a century of breathing room, gone because Congress did nothing.
CRFB president Maya MacGuineas framed the contrast bluntly:
"Adopting a flat-rate COLA back when Congressman Penny proposed the idea would have achieved solvency through 2071, nearly half a century from now, and would have done so by protecting lower-income beneficiaries and reducing old-age poverty; now, that same plan would only delay insolvency another two years."
Thirty-nine years of inaction turned a complete fix into a partial one. The underlying policy did not change. Congress's refusal to act did.
The political math has always worked against reform. When Social Security skipped its COLA for two consecutive years in 2009 and 2010, because inflation was flat, the backlash was immediate. President Obama proposed a $250 rebate for the 58 million retirees and disabled Americans who received no increase, and Sen. Bernie Sanders argued the payments were essential. At the time, MacGuineas pushed back, noting that seniors had already received an artificially high 5.8 percent COLA the prior year, above the actual 3.8 percent inflation rate, meaning they were already ahead of the cost curve. The episode illustrated a pattern: any proposal to adjust benefits, even modestly, meets fierce resistance from lawmakers who treat Social Security as untouchable.
The flat-rate COLA alone will not save Social Security. CRFB acknowledged as much, arguing that if the COLA cap were paired with other policies, including its own proposal for an employer compensation tax, the merged trust funds could remain solvent for 75 years or close to it.
MacGuineas said options still exist, but the window is narrowing:
"The good news is there are plenty of options out there that, when combined, can save Social Security from abrupt across-the-board cuts in just six years. But taking options off the table and waiting until the last minute leaves fewer and fewer ways to make the math work."
"Six years" is the operative phrase. Social Security's trust fund depletion is no longer a distant budget projection. It is closer than the next presidential term after this one. And the automatic 22 percent benefit cut waiting on the other side requires no legislation, it happens by default when the money runs out.
The people who would absorb that cut are not abstractions. They are retirees on fixed incomes, disabled Americans who cannot return to work, and surviving spouses who depend on a check that averaged $1,072 a month as recently as 2010. A 22 percent reduction for a couple pulling in modest benefits is not a line item. It is groceries, medication, and rent.
Meanwhile, the Social Security Administration itself has been shedding staff at a historic pace, with more than 7,100 workers cut in the largest reduction the agency has ever seen. Disability cases are already piling up. The agency charged with delivering benefits to tens of millions of Americans is shrinking at the same moment the program's finances are deteriorating.
MacGuineas called the analysis "a stark reminder of the real cost of waiting to save Social Security." That framing deserves weight. The flat-rate COLA is not a radical idea. It does not privatize the program. It does not raise the retirement age. It does not cut benefits for the poorest recipients, it raises them. And it still only gets halfway there, because Congress spent four decades pretending the problem would solve itself.
The CRFB analysis does not specify every policy that should accompany the COLA cap to reach full solvency. It names the employer compensation tax as one option but leaves the rest of the menu undetailed. That vagueness is itself a tell: the specific combination matters less than the fact that no single lever is strong enough anymore. The era of one-fix solutions ended sometime around the turn of the century, while Washington was busy not acting.
Future COLA adjustments remain a live question. Rising inflation may push the 2027 cost-of-living adjustment well above this year's rate, which would widen the gap between what the program pays out and what it takes in, accelerating the very insolvency the flat-rate COLA is designed to slow.
And broader proposals to reshape the program's structure entirely, including ideas like personal retirement accounts, continue to circulate on Capitol Hill, though none has gained enough traction to move through both chambers.
The open questions are significant. CRFB has not detailed the full package of reforms it believes would close the remaining gap. The Urban Institute analysis was commissioned by CRFB, and while the Urban Institute is a respected research shop, the modeling assumptions, baseline COLA levels, income definitions, trust fund projections, are not fully laid out in the public reporting. And the $193 trillion combined shortfall figure for Medicare and Social Security that appeared in the headline of the Fox Business segment has not been broken down or sourced in detail.
What is clear is the trajectory. Every year that passes without reform makes the remaining options fewer, the required adjustments steeper, and the eventual pain sharper, especially for the people who can least afford it.
Washington had a fix that would have worked in 1987. It chose not to use it. Now it needs five fixes instead of one, and it still cannot agree on any of them. The bill for that inaction lands on retirees, not on the lawmakers who dodged it.