A proposal to overhaul Social Security's cost-of-living adjustments could significantly reduce the program's long-term funding shortfall, according to a new analysis from the Committee for a Responsible Federal Budget. The plan, which would replace the current percentage-based COLA with a flat dollar increase for all beneficiaries, has resurfaced as lawmakers search for ways to avert automatic benefit cuts in the early 2030s.
How the Flat-Rate COLA Would Work
Under current law, every Social Security recipient receives the same percentage increase each year, tied to inflation. But because that percentage is applied to different base benefit amounts, higher-income retirees get larger dollar boosts—a gap that widens over time. A flat-rate COLA would instead give everyone the same dollar increase, pegged to a benchmark benefit level, such as the amount received by someone at the 20th percentile of earners.
Former Rep. Tim Penny (D-Minn.) first advanced this idea in 1987, arguing it would protect the most vulnerable while generating savings for the Treasury. “While we protect those most in need of the cost-of-living allowance, we would at the same time make appreciable savings for the Treasury,” Penny said at the time.
For context, this year's 2.8 percent COLA boosted the average retired worker's monthly check by about $56. But someone receiving the maximum benefit of $5,181 per month saw an increase of roughly $145. Under a flat-rate system, both would get the same dollar adjustment, effectively capping growth for higher earners.
Impact on Social Security's Finances
Adopting a flat-rate COLA alone wouldn't fully solve Social Security's financial woes, but it could make a sizable dent. According to Urban Institute modeling cited by the Consumer Financial Protection Bureau, if enacted in 2027 and based on the 20th percentile benefit, the change would close roughly half of the program's 75-year funding gap. The CRFB cautioned that under the latest trustees' projections, the share would likely be smaller, but still substantial.
The trade-off is that benefit growth would slow for most recipients, with the steepest reductions hitting those with the highest lifetime earnings. By 2065, the bottom fifth of earners would see benefits about 3 percent lower than under current law, while the top fifth would face cuts of roughly 19 percent, the analysis found.
Without congressional action, the Social Security trust fund for retirees is expected to be depleted by late 2032, triggering an automatic 22 percent benefit cut. Lawmakers have considered various fixes, from raising the payroll tax cap to adjusting the retirement age, but none have gained enough political traction. Even popular ideas like lifting the cap on taxable earnings would require additional reforms to fully close the gap.
The flat-rate COLA remains one of several options on the table, but its political viability is uncertain. Americans overwhelmingly oppose benefit reductions, making any major change to the program a heavy lift. As debates over judicial security funding and Democratic midterm prospects dominate headlines, Social Security reform remains a third rail that few in Washington are eager to touch.
