Social Security and VA COLA Cuts Will Have a Big Effect on Veterans and Their Families

Transcription

1 n. Social Security and VA COLA Cuts Will Have a Big Effect on Veterans and Their Families Some politicians in Washington are proposing to cut the cost- of- living adjustment (COLA) for people who receive Social Security and for Veterans Affairs (VA) benefits even after two years without those programs providing a COLA. This COLA cut has an obscure name the chained CPI (consumer price index). It would do real damage by changing the formula used to calculate the annual COLA. The chained CPI would cut significantly the benefits of all current and future Social Security beneficiaries, including retired and disabled veterans, even after politicians promised repeatedly that any changes to Social Security would not affect current beneficiaries. Veterans who receive VA disability compensation benefits or VA pension benefits also would be harmed as the COLA for those benefits is based on Social Security s COLA. The Congressional Budget Office estimates that switching to the chained CPI would save $208 billion over ten years by reducing Social Security, disability and other benefits, and by increasing revenues. More than half of this amount $127 billion would come from Social Security alone. 1 Up to $38 billion would come from VA benefits and civilian and military retirement pay. 2 Switching to the chained CPI to calculate the COLA would be very unfortunate because the evidence suggests that it is a less accurate way to adjust for inflation affecting seniors and persons with disabilities. A more accurate CPI would result in a higher COLA because it would reflect the greater share of spending that seniors and people with disabilities devote to health care and to the greater rate at which health care prices increase. Effect of the COLA Cut on Social Security Retirement Benefits One of our nation s most important programs, Social Security paid benefits to 9.6 million veterans in 2012, which is over 1 out of 5 (21 percent) veterans. 3 Over one- third (33.8 percent) of adult Social Security beneficiaries are veterans and their families. 4 The proposed COLA cuts would have their biggest impact when benefits are needed the most, in very old age or when someone has been receiving disability benefits for many years. The average benefit for a veteran receiving Social Security was $15,768 in Using the chained CPI would significantly reduce those benefits. A veteran with average earnings who retires at age 65 would get a benefit cut of $588 at age 75 and $1,025 at age 85. By age 95, when Social Security benefits are probably needed the most, that person would lose $1,450 a reduction of 9.2 percent. 6 [See Figure 1]

2 Figure 1 Effect of the COLA Cut on Veterans VA Disability Compensation Benefits Veterans who become disabled due to injuries or illnesses sustained during, or as a result of, military service, are generally eligible for VA disability compensation benefits. There were 3.4 million veterans receiving such benefits in Fiscal Year A 100 percent service- connected disabled veteran, unmarried and without children, is currently entitled to receive $33,228 a year in VA disability compensation benefits. 8 Under the chained CPI, which is a cut in the formula traditionally used to determine the COLA for VA benefits, a disabled veteran who started receiving VA disability benefits at age 30 in 2012 would have his or her benefits reduced by $1,425 at age 45, $2,341 at age 55 and $3,231 at age 65. [See Figure 2] Veterans receiving VA disability compensation benefits, who also receive Social Security disability benefits, would be hurt twice since both of their income sources would be affected by the COLA cut. About 771,000 veterans received Social Security disability benefits in

3 Figure 2 *Note: VA disability compensation benefits vary based on the severity of the veteran s service- related disability, injury or illness, and in some cases the size of his or her family. For the purposes of the analysis above, the beneficiary was assumed to be a 100 percent disabled veteran claiming the 2012 annual rate of $33,228 at age 30 for a veteran who is unmarried and has no children. Effect of the COLA Cut on VA Pension Benefits for Permanently Disabled and Poor Veterans Aged 65 or Older Veterans with low incomes who are either permanently and totally disabled or age 65 and older, may be eligible for pension benefits if they served during a period of war. There were more than 313,665 veterans receiving such benefits in Fiscal Year A veteran with no income is currently entitled to receive $12,256 a year in VA pension benefits. 11 Under the chained CPI, which is a cut in the formula traditionally used to determine the COLA for VA benefits, a veteran eligible for a VA pension who started receiving benefits at age 65 and was living in poverty would have their benefits cut by $353 at age 75, $696 at age 85, and $1,029 at age 95. [See Figure 3]

4 Figure 3 *Note: VA pension benefits are available to permanently and totally disabled veterans of any age, and veterans aged 65 or older, with little or no income. For the purposes of the analysis above, the beneficiary was assumed to have no income and claimed benefits at age 65. Chained CPI is Not an Accurate Measure of Inflation for Seniors and People with Disabilities Veterans deserve no less than to have the COLA adjustments of their Social Security and veterans benefits based on an accurate measure of the effects of inflation. The current COLA formula does not take into account the higher share of spending devoted to health care by seniors and people with disabilities, and that health care prices rise much more rapidly than overall prices. For instance, in 2009 spending on health care was more than twice as large as a percentage of total spending for people age 65 and over (12.9 percent) than for people ages (5.3 percent). Moreover, since 1989 health care prices have risen 50 percent more than overall inflation. 12 Although veterans who have service- connected disabilities and those receiving pension benefits are eligible for VA health care, they may still be impacted by rising out- of- pocket health care costs. Adopting the chained CPI would make the current inadequate COLA worse. Instead, Social Security and VA benefits should be based on a COLA formula that takes account of these higher health care costs called the CPI- E (Experimental CPI for the Elderly).

5 The CPI- E rises at a slightly faster rate than the formula (CPI- W) currently used to determine the Social Security and VA COLAs, and at a still faster rate than the proposed chained CPI. Compared with the CPI- E, the chained CPI registers bigger declines in purchasing power over time about $2,500 a year in Social Security retirement benefits by age [See Figure 4] Figure 4 Social Security does not contribute a penny to the federal deficit, and its benefits should not be cut to reduce the deficit. Most Americans receiving VA benefits live modestly; they cannot afford to have their benefits reduced through a COLA cut. Instead, Social Security and VA benefits should be adjusted by a COLA that more accurately accounts for the higher health care costs of seniors and people with disabilities, one that would do a better job of assuring that benefits, earned through work and sacrifice, maintain their purchasing power no matter how long a veteran lives. The federal budget should not be balanced on the backs of Americans who need help the most or who have made significant sacrifices to defend our nation. 1 Congressional Budget Office (CBO), Preliminary Estimates of the Budgetary Effects of Using the Chained CPI for Mandatory Programs and the Tax Code Starting in 2014, March 2013.

6 wide_chained_cpi_estimate- 2014_effective.pdf 2 CBO, Ibid. 3 Social Security Administration (SSA), Anya Olsen, Veteran Beneficiaries, 2012, January sheets/veteran- beneficiaries.html 4 Unpublished SSA calculations performed by Anya Olsen based on data from the March 2012 Current Population Survey. 5 SSA, Anya Olsen, Veteran Beneficiaries, 2012, January sheets/veteran- beneficiaries.html 6 Analysis of data from the Social Security Administration Chief Actuary, Effects on Social Security Financial Status and on Benefit Levels of Two Potential Modifications to the Automatic Annual Cost of Living Adjustment (COLA) Requested by Representative Xavier Becerra, June 21, Department of Veterans Affairs (VA), Annual Benefits Report, 2012, p. 5. Available at 8 VA, Veterans Compensation Benefits Tables, Available at 9 Anya Olsen and Samantha O Leary, Ibid., p VA, Annual Benefits Report, 2012, p. 31. Available at 11 VA, Veterans Compensation Benefits Tables, Josh Bivens, A Protection, not a Windfall: Proposed change to Social Security COLA would further erode retirees financial security, Economic Policy Institute, June 30, 2011, pp Available at data.org/temp2011/briefingpaper320.pdf 13 Analysis of data from the Social Security Administration Chief Actuary, Effects on Social Security Financial Status and on Benefit Levels of Two Potential Modifications to the Automatic Annual Cost of Living Adjustment (COLA) Requested by Representative Xavier Becerra, June 21,