Subject: RE: Current Legislative Proposals Roundtable
Contributor: MODERATOR: Ron Gebhardtsbauer
Ronald Vetter,
Interesting question on the COLA's. Before the 70's, Congress gave ad hoc increases in benefits. Usually they were enacted right before an election, and they were big. So President Nixon and the Congress at the time, set the COLA's equal to the CPI and made them automatic. It has been called a fiscally responsible bill. It was quickly realized however, that the COLA caused benefits to escalate faster than intended, so the formula was changed (decoupled - they called it), so that it wouldn't happen anymore. That is probably the exponential spiral that you were talking about. It is gone now. Thus, benefits now are indexed by wage increases while you are working and by CPI while you are retired. It was decided that a retiree's purchacing power should not go down after they retire, but they don't get the benefits of increased productivity (that workers get - on average).
You also discussed subsidies for higher income people. In the past, people clearly got more from Social Security than they put in. This is true when you start up a new pay-as-you-go system. Even though the formula is progressive (i.e., it's a better deal for lower income people on a proportional basis), it still gave more subsidies in dollars to higher income people in the early years. This is no longer happening, now that they system has matured.
