COLA Concerns: Could ‘Chained CPI’ Make a Comeback as Budget Pressures Mount?

COLA Concerns: Could ‘Chained CPI’ Make a Comeback as Budget Pressures Mount?
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When MOAA last discussed the budget-cutting options presented to Congress in late 2020, future spending plans remained unclear, but concerns about the cost of the government’s COVID-19 relief efforts loomed.


Four months later, we’ve still got few details on spending plans, but some of the costs of those relief efforts have come into view. It’s clear the harsh budget realities discussed in December aren’t going away, and that makes it important to look at some of the options provided by the Congressional Budget Office (CBO) to lawmakers looking for cost savings or increased revenue.


MOAA listed 13 of the proposals in the 2020 report in December, while detailing potential damage from options that would cap military pay increases and cut the Basic Allowance for Housing (BAH). These aren’t new proposals, and neither is the next one we’re covering.


Chained CPI and You

If you’re familiar with MOAA’s COLA Watch, you know that military retirement, Social Security, and other benefits are indexed to a variant of the Consumer Price Index (CPI), which measures the cost of a variety of goods and services. Adjusting how this index works could cost retirees and others receiving benefits a significant amount of the income they’ve earned and rely upon.


[RELATED: MOAA’s Advocacy in Action]


The CBO report lays out the case for doing just that, suggesting an expansion in the use of “chained CPI” in these calculations. Chained CPI calculates user spending patterns differently than the traditional model and – not surprisingly, given the goal of the CBO report – traditionally results in a lower growth rate leading to smaller COLA increases. One chained CPI variant tracked about 0.25 percentage points below the traditional calculation each year since 2001, per the report.


MOAA has taken action on previous chained-CPI recommendations, calling them out for what they are: A benefit cut that unfairly targets many members of the uniformed services community, particularly retirees and disabled veterans. These individuals access inflation-adjusted benefits at an earlier age than most, meaning any reductions in their benefit would have a longer lasting, more devastating effect on their bottom line.


What Can MOAA Do?

As with many other CBO-recommended budget tools, lawmakers must be made to realize the individual impacts of these proposals – going beyond the bottom line to see what damage could be done.


MOAA will work to ensure elected officials understand the wider impact of proposals such as using chained CPI, especially as it applies to the benefits earned by MOAA members and others through their service. MOAA members can stay engaged with these and other advocacy issues by visiting MOAA’s advocacy news page; should any proposals advance beyond the CBO-report stages, we will be ready to mobilize any necessary resources.


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About the Author

Kevin Lilley
Kevin Lilley

Lilley serves as MOAA's digital content manager. His duties include producing, editing, and managing content for a variety of platforms, with a concentration on The MOAA Newsletter and Follow him on Twitter: @KRLilley