Social Security to Rise 3.1%--Smallest Hike in Decade

Social Security recipients, once accustomed to annual cost-of-living hikes of up to 14.3% in their retirement checks because of raging inflation, will receive a 3.1% boost beginning Jan. 1--the smallest since the checks were tied to inflation 10 years ago.

At the same time, workers whose payroll taxes feed the Social Security trust fund will find their maximum contribution rising too--by up to $211 a year.

Those increases, and an array of others, were triggered Wednesday when the Labor Department reported that consumer prices rose a bare 0.2% during September, rounding out the 12-month index used to compute changes in many federal benefit programs.

The September data lowered the official consumer inflation rate for the last 12 months to a modest 3.2%. For the slightly different index used to calculate Social Security benefit hikes, the 12-month rise was 3.1%--barely eking through the 3% floor beneath which no yearly adjustment is allowed.

The 12-month figures not only are the yardstick for increased Social Security payments but also for payments to the 3.7 million aged, blind or disabled recipients of Supplemental Security Income checks. In addition, the figures will be used by the Internal Revenue Service to index brackets for the 1986 tax year for the effects of a year’s inflation. Taxes for that year will be due April 15, 1987.

The 0.2% rise in the Consumer Price Index during September--the fifth straight month for such an increase--was dictated by stable gasoline prices and declining prices for cars, economists said. Some forecast that the price index would rise faster this winter as the prices of new cars and heating fuel begin creeping upward.

In Los Angeles and Orange counties, consumer prices held steady during September at a 4.1% annual pace--somewhat higher than the national figure--as rising housing costs were offset by declines in auto and fuel prices.

In San Diego County, where measurements are taken once every two months, the September price index rose at an annual rate of 1.2%, the Labor Department said.

Broad Effect

Beyond the now-routine word that inflation is likely to remain moderate, the September price report will have a broad effect on almost everyone’s 1986 balance sheet:

--The Social Security adjustment will boost the average $464-a-month check by $14. For a newly retired 65-year-old receiving the maximum monthly benefit of $739, payments will rise $22, and the average aged widow--now receiving $419 a month--will get an additional $12.

The increases will add $5.8 billion to annual withdrawals from the Social Security trust fund.

--Social Security beneficiaries who have outside work will enjoy a modest boost in the amount of pay they can take home without losing benefits. For workers under 65, the new ceiling will be $5,760, up from $5,400; for those between 65 and 69, the ceiling will rise $480, to $7,800 a year. There is no income limit on workers over 70.

SSI Increases

--Supplemental Security Income recipients will see an $11 increase in the maximum $325-a-month payment to individuals and a $16 boost in the maximum $488 payment to couples. However, because many SSI recipients also receive Social Security, some SSI checks will fall to account for increases in Social Security payments.

--The Social Security payroll tax will undergo a long-scheduled rise from 7.05% to 7.15% in January, raising taxes for all workers--but about 7.3 million employees who will earn more than $42,000 in 1986 will be hardest hit.

That is because the maximum amount of pay now subject to the tax, $39,600, will be increased to $42,000 next year. The tax increase will boost the maximum Social Security paycheck bite by $211, to $3,004.

‘Bracket Creep’

--The Internal Revenue Service, obeying Congress’ order in a 1981 tax reform law, will adjust the 1986 tax-year brackets to reduce so-called “bracket creep”--the process by which inflation boosts paychecks, pushing wage earners into higher tax brackets while diluting their earning power.

The 14 tax brackets for families--15 for singles--each will be broadened by 3.7%, meaning that a worker can earn slightly more next year before being subjected to a bigger tax bite. The $1,040 tax exemption will jump to $1,080, and the standard deductions for taxpayers who do not itemize will increase to $2,480 for singles and $3,670 for couples.

Durable Goods Fall

Separately, the Commerce Department reported that September orders of durable goods fell 1.1%, mostly because Pentagon purchases of aircraft and spare parts plummeted by nearly one-fifth. But orders for non-defense items climbed 4.7% during the month, a rise that forecasters called a harbinger of economic strength during the winter.