Mandatory Spending

Multiple Budget Functions

Use an Alternative Measure of Inflation to Index Social Security and Other Mandatory Programs

CBO periodically issues a compendium of policy options (called Options for Reducing the Deficit) covering a broad range of issues, as well as separate reports that include options for changing federal tax and spending policies in particular areas. This option appears in one of those publications. The options are derived from many sources and reflect a range of possibilities. For each option, CBO presents an estimate of its effects on the budget but makes no recommendations. Inclusion or exclusion of any particular option does not imply an endorsement or rejection by CBO.

Billions of Dollars 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2023–
Change in Outlays                        
  Social Security 0 -2.5 -6.1 -10.0 -14.2 -18.7 -23.4 -28.3 -33.4 -38.7 -32.6 -175.2
  Other benefit programs with COLAsa 0 -0.6 -1.6 -2.5 -3.3 -4.4 -5.2 -6.3 -7.4 -8.1 -8.1 -39.4
  Effects on SNAP from interactions with COLA programsb 0 0.1 0.2 0.3 0.4 0.5 0.5 0.6 0.7 0.8 0.8 4.0
  Health programsc 0 -0.3 -1.1 -2.0 -2.5 -3.4 -4.4 -6.9 -10.6 -10.0 -5.9 -41.3
  Other federal spendingd   0   *   -0.2   -0.2   -0.3   -0.5   -0.6   -0.8   -0.9   -1.1   -0.7   -4.6
    Total 0 -3.4 -8.8 -14.4 -20.0 -26.5 -33.1 -41.7 -51.7 -57.1 -46.5 -256.6
Change in Revenuese 0 * * -0.1 * * * * * * -0.1 -0.1
Decrease (-) in the Deficit 0 -3.4 -8.7 -14.3 -20.1 -26.5 -33.1 -41.7 -51.7 -57.1 -46.5 -256.5

Data sources: Congressional Budget Office; staff of the Joint Committee on Taxation.

This option would take effect in January 2024.

Estimates include budgetary effects for Social Security benefits; that spending is classified as off-budget.

COLA = cost-of-living adjustment; SNAP = Supplemental Nutrition Assistance Program; * = between -$50 million and zero.

a. Other benefit programs with COLAs include civil service retirement, military retirement, Supplemental Security Income, veterans' pensions and compensation, and other retirement programs whose COLAs are linked directly to those for Social Security or civil service retirement.

b. The policy change would reduce payments from other federal programs to people who also receive benefits from SNAP. Because SNAP benefits are based on a formula that considers such income, a decrease in those other payments would lead to an increase in SNAP benefits.

c. Outlays for health programs consist of spending for Medicare (net of premiums and other offsetting receipts), Medicaid, and the Children's Health Insurance Program, as well as outlays to subsidize health insurance purchased through the marketplaces established by the Affordable Care Act and related spending.

d. Other federal spending includes changes to benefits and various aspects (eligibility thresholds, funding levels, and payment rates, for instance) of other federal programs, such as those providing Pell grants and student loans, SNAP, child nutrition programs, and programs (other than health programs) linked to the federal poverty guidelines. (The changes in spending on SNAP included here are those besides the changes in benefits that result from interactions with COLA programs.)

e. The effects on revenues reflect slightly higher enrollment in employment-based health insurance coverage under the option.

Cost-of-living adjustments (COLAs) for Social Security and many other parameters of federal programs are indexed to increases in traditional measures of the consumer price index (CPI). The CPI measures overall inflation and is calculated by the Bureau of Labor Statistics (BLS). In addition to the traditional measures of the CPI, BLS computes another measure of inflation—the chained CPI—which is designed to account for changes in spending patterns and to eliminate several types of statistical biases that exist in the traditional CPI measures. Under current law, the chained CPI is used for indexing most parameters of the tax system, including the individual income tax brackets. Since 2001, the chained CPI has grown by an average of about 0.25 percentage points more slowly per year than the traditional CPI measures have, and the Congressional Budget Office expects that trend to continue.

This option would expand the use of the chained CPI. It would be used to determine COLAs for Social Security and to compute inflation-indexed parameters of other federal programs.