Emergency Bill Would Raise Social Security COLA to 3% for 2021

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House lawmakers are proposing emergency legislation to increase the 2021 Social Security cost-of-living adjustment to 3%. The move comes just days after the Social Security Administration announced that the COLA for 2021 would be 1.3%.

“Due to the COVID-19 pandemic, seniors are facing additional financial burdens in order to stay safe,” said Rep. Peter DeFazio, D-Ore., in a statement on Thursday. “This absolutely anemic COLA won’t even come close to helping them afford even their everyday expenses, let alone those exacerbated by COVID-19.”

Rep. John Larson, D-Conn., co-sponsor of the bill, added that “Social Security is our country’s number one financial security program, and, because of the COVID-19 pandemic, people are depending on it now more than ever.”

Seniors, Larson said, “are seeing a rise in food, medical, housing costs and more, and a 1.3% COLA is just not enough during these difficult times.”

A separate bill, the Social Security Expansion Act, introduced in 2019, would “increase benefits and use a new COLA index (CPI-E) to factor in seniors’ actual, everyday expenses,” he said.

Nancy Altman, president of the advocacy group Social Security Works, said “Social Security’s automatic cost of living adjustment is one of its most valuable features, even more so in the middle of a pandemic. But due to an inadequate measure, Social Security’s modest benefits are eroding.

“To offset that erosion, Representatives DeFazio and Larson are wisely proposing an ad hoc 3% increase. Social Security Works applauds their leadership and enthusiastically endorses their proposal. Congress should immediately pass their legislation, which will boost the economy and save lives,” she explained in a statement.

COLA Details

The Social Security Act ties the annual COLA to the increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers, known as CPI-W, as determined by the Labor Department’s Bureau of Labor Statistics. There were no increases in 2010, 2011 or 2016.

Based on the increase, the maximum amount of 2021 earnings subject to the Social Security tax (taxable maximum) will increase to $142,800 from $137,700.

However, the tax rates will remain the same for 2021 as in 2020 for employees (7.65%, with another 7.65% paid by employers) and self-employed workers (15.30%).

The estimated average monthly Social Security benefit will be $1,543 for all retired workers; $2,596 for an aged couple, both receiving benefits; $1,453 for retired widow(er)s; and $1,277 for all disabled workers.

The CPI-W, to which COLAs are tied, reflects prices paid by working adults under age 62 and gives greater weight to items like gas and electronics.

At the same time, this measure gives less weight to housing and medical expenses, which are the biggest areas of spending for older consumers, the Senior Citizens League says.

The U.S. Government Accountability Office, which reviewed the measurements this summer, concluded that the U.S. Bureau of Labor Statistics “faces accuracy, timeliness and relevancy challenges developing consumer price indexes (CPI) for subpopulations of blue-collar workers and older Americans.”

Read more on ThinkAdvisor.com

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