Flat-Rate COLA Could Cut Social Security Shortfall in Half
A proposed change to how Social Security calculates its annual cost-of-living adjustment (COLA) could close half of the program’s 75-year funding gap — while actually increasing benefits for the lowest-income retirees, according to a new analysis from the nonpartisan Committee for a Responsible Federal Budget (CRFB).
The proposal, known as a “flat-rate COLA,” would give every Social Security beneficiary the same dollar-amount increase each year, regardless of their benefit level. The idea was originally introduced by former Rep. Tim Penny (D-MN) in 1987 — and if Congress had adopted it then, CRFB estimates it would have achieved 75-year solvency, delaying insolvency until 2071.
The Looming Crisis
Social Security’s combined Old-Age and Survivors Insurance (OASI) trust fund is projected to reach insolvency in the fourth quarter of 2032, according to the 2026 Trustees Report. At that point, an automatic 22% across-the-board benefit cut would be triggered, reducing the average monthly retirement check of $2,071 by approximately $450 per month. For a medium-income, dual-earning couple, that translates to an annual loss of $16,900.
The 2026 Trustees Report revealed a significant deterioration in the program’s outlook, with the 75-year shortfall now estimated at 4.42% of taxable payroll, up from 3.82% in 2025. As Fox Business reported, the fast-approaching insolvency has intensified the search for reform options.
How the Flat-Rate COLA Works
Under the current system, Social Security benefits are adjusted annually based on inflation as measured by the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The 2026 COLA was 2.8%, adding roughly $56 to the average monthly retirement check.
The flat-rate COLA would replace this percentage-based approach with a uniform dollar-amount adjustment for all beneficiaries, set at the COLA received by someone at either the 20th or 30th percentile of benefits. This effectively combines a COLA cap — limiting growth for high earners — with a COLA floor, guaranteeing minimum growth for low earners.
CRFB asked Karen Smith, a senior fellow at the Urban Institute, to model the proposal using the DYNASIM4 microsimulation model. The results were striking: a flat-rate COLA set at the 20th percentile would close 50% of Social Security’s 75-year shortfall, while a version set at the 30th percentile would close approximately 40%. For comparison, switching to the often-discussed Chained CPI would close only 15% of the gap.
Progressive by Design
What makes the flat-rate COLA politically notable is its progressive structure. Rather than cutting benefits across the board, it asks the most from those who can afford it most.
At the 20th percentile option, the bottom fifth of lifetime earners would see their benefits decline by just 3% by 2065, while the top fifth would see a 19% reduction. Even more striking, the lowest-income quintile would actually receive a 13% increase in payable benefits under this approach. Both the 20th and 30th percentile options would reduce old-age poverty — by 5% and 10%, respectively — compared to the scheduled benefits baseline.
As CRFB president Maya MacGuineas told Fox Business: “Adopting a flat-rate COLA back when Congressman Penny proposed the idea would have achieved solvency through 2071, nearly half a century from now, and would have done so by protecting lower-income beneficiaries and reducing old-age poverty; now, that same plan would only delay insolvency another two years.”
A Piece of a Larger Puzzle
On its own, even the 20th percentile flat-rate COLA would only delay insolvency by two years. But CRFB notes that pairing it with complementary policies — such as its proposed Employer Compensation Tax, which would apply the employer payroll tax to all wages and fringe benefits — could achieve 75-year solvency under the 2025 baseline, and come close under the more pessimistic 2026 projections.
This underscores a central theme of the analysis: delaying reform dramatically reduces what can be achieved. A policy that would have fully solved Social Security’s long-term challenges in 1987 now only buys two years.
What’s Next
The flat-rate COLA proposal enters a debate already shaped by bipartisan urgency. A coalition of senators — including Dick Durbin (D-IL), Bill Cassidy (R-LA), Thom Tillis (R-NC), John Cornyn (R-TX), and Tim Kaine (D-VA) — recently introduced the PROMISE Act, a procedural bill designed to force congressional action on Social Security solvency before the 2032 deadline.
“The good news is there are plenty of options out there that, when combined, can save Social Security from abrupt across-the-board cuts in just six years,” MacGuineas said. “But taking options off the table and waiting until the last minute leaves fewer and fewer ways to make the math work.”
As the 2026 midterm elections approach, Social Security is poised to become a major campaign issue. Whether the flat-rate COLA — or any single proposal — can bridge the partisan divide over reform remains an open question. But the analysis serves as a powerful reminder that the cost of inaction grows steeper with every passing year.