Cost-of-living adjustments increase entitlement spending automatically every year. Most COLA’s use all or part of the CPI to calculate inflation. The US further embeds the CPI in the system by indexing a growing portion of its government debt via TIPs. Even welfare benefits like food stamps use applicable indices within the all-items CPI to calculate COLA.
In total almost $3 trillion of federal yearly liability is subject to automatic annual CPI-based increases. This calculation includes:
- All yearly means-tested welfare benefits subject to a COLA (e.g. SNAP, NSLP, etc…)
- All yearly social security spending (e.g. SSI, OASI, DI, everything…)
- All outstanding TIPs balance (every year the principal of an outstanding TIP is adjusted up/down by the inflation rate)
This time series represents the majority of yearly federal obligations that are subject to inflation-based COLA increases. We can thus attempt to calculate how much the government saved…
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