Social Security announced two changes: one relatively substantial, one not. Both were generally expected.
First, the small change. The cost-of-living adjustment will increase about one-third of 1% in 2017. That 0.3% increase will raise the average monthly Social Security benefit for more than 60 million Americans, according to the Social Security Administration, by about $4 to about $1,360.
The small increase was mocked in some immediate press reports and if the increase weren’t small enough, some seniors will see it diluted even further by expected increases in Medicare Part B premiums, which are usually deducted from Social Security payments.
Last year, there was no increase. And for the three years before that, it hovered between 1.5% and 1.7%. The Social Security Administration uses the broad CPI inflation index as a base for its increases, and last year the CPI increased just .1%. The two years before that, it increased 1.6% and 1.5%. So while the COLA increases mirror the inflation rate, they still often create controversy because advocates for seniors argue that the goods and services tracked by the CPI do not accurately reflect a retiree's true cost of living.
The bigger announced change is an increase in the maximum earnings subject to the Social Security tax to $127,200 from $118,500, beginning in January. Any part of a worker's salary above the threshold is not taxed for Social Security. As such, it's a regressive tax hitting lower-income workers harder in percentage terms, although this rule change will make it slightly less so.
Raising this threshold had long been cited as one of the possible fixes to help the solvency of the federal program. Other options included increasing the tax rate and raising the full retirement age.
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