On the December 14 edition of FOX News' Special Report with Brit Hume, the "FOX All-Star" panelists agreed that Social Security's annual cost-of-living adjustment (COLA) is ripe for a cut, since the increase is indexed to wages rather than to actual cost of living, and wages generally increase faster than the cost of living. But this is incorrect. Social Security COLAs are tied to inflation -- that is, to increases in the actual cost of living. The wage index is used only to calculate a recipient's initial benefit level upon entering the program.
The Social Security Administration's website explains that the wage index is used only to calculate a recipient's initial benefit:
Social Security benefits are based on earnings averaged over most of a worker's lifetime. Your actual earnings are first adjusted or "indexed" to account for changes in average wages since the year the earnings were received. Then we calculate your average monthly indexed earnings during the 35 years in which you earned the most. We apply a formula to these earnings and arrive at your basic benefit, or "primary insurance amount" (PIA). This is the amount you would receive at your full retirement age, for most people, age 65.
By contrast, the COLA is indexed to inflation, using the Consumer Price Index, as this page explains.
On Special Report, Weekly Standard executive editor Fred Barnes, syndicated Washington Post columnist Charles Krauthammer, and Washington Post staff writer Jeffrey H. Birnbaum -- all regular FOX News contributors -- agreed that without benefit cuts, Social Security would be "insolvent"; they suggested that the proper way to institute the cut is to index the COLA to prices instead of wages. Hume then asserted that "cost-of-living adjustment" is a misleading title, since "they are not called raises," even though that's what they are. The other panelists agreed:
KRAUTHAMMER: [T]he only way to make the numbers work is to have a cut, in the sense that you're no longer going to index the pension to wages. And to be indexed to inflation.
BARNES: And there is a reason why you have to do that because --
KRAUTHAMMER: Otherwise it's insolvent.
BARNES: Yes. It's insolvent.
HUME: Let me go back to this question of these increases in benefits. They are called, if I'm not mistaken -- I remember you are covering this issue, "cost-of-living adjustments." They are not called "raises."
HUME: They are called "cost-of-living adjustments," and they are supposed to be for the purpose not of increasing their benefits as such, but of keeping the buyer power of the benefits they have now from going down.
HUME: So they are supposed to be holding senior citizens harmless to inflation. Correct? But they are indexed -- that is to say, they're adjusted to keep pace not with costs, not with prices. But they're adjusted now to keep pace with wages as they are generally paid. Is that a true statement?
BIRNBAUM: I think that is correct.
Finally, Barnes falsely claimed that incoming Senate Minority Leader Harry Reid (D-NV) and New York Times columnist Paul Krugman share an "untenable" position on the issue because they believe "we don't have to do anything about Social Security." In fact, Media Matters for America has noted that Reid has specifically said he is willing to consider changes to the program. Similarly, while Krugman aimed in his December 7 column to "debunk the hype about a Social Security crisis," he did not propose inaction. Rather, he described the Social Security situation as "a problem of modest size" and explained: "[I]t's not at all hard to come up with fiscal packages that would secure the retirement program, with no major changes, for generations to come."
BARNES: Look. Democrats, I think, have a totally untenable position and that is -- I mean you hear Harry Reid, the Senate minority leader, say, "Well, Republicans just want to destroy Social Security. That's what they want to do." I mean that's nonsense. The untenable position is one that says -- and Paul Krugman is champion of this, in The New York Times, he said, "We don't have to do anything about Social Security. It's just fine." Nobody believes that.