Social Security Payments to Go Up 2.6% in January : Budget: But one proposal floated by lawmakers seeks to reduce the cost-of-living increase, drawing opposition from senior citizen groups.

The nation’s 43 million Social Security recipients are due for a 2.6% boost in benefit checks starting in January, the second-smallest increase in the 21 years of annual cost-of-living raises.

But next year’s typical increase of $18, triggered by national inflation figures released Friday, would be $7 less under one budget-cutting proposal, and senior-citizen groups are upset about that prospect.

Opponents of the proposal contended that Democrats and Republicans scrambling to come up with enough spending cuts to balance the budget were trying to sneak through changes in the cost-of-living adjustments under the smoke screen that the current calculation overstates inflation.

“If the Congress wants to cut the cost-of-living adjustment, let them say so upfront. I don’t think the American people want to see Social Security COLAs cut for the sake of reducing the deficit,” said Evelyn Morton, congressional lobbyist for the American Assn. of Retired Persons.

The planned 2.6% increase for 1996 will mean that the average monthly Social Security benefit of $702 will increase to $720, starting with the Jan. 3 checks.

The increase is based on the change in the Labor Department’s consumer price index for the 12-month period ending Sept. 30. Congress in 1975 legislated automatic annual adjustments to the Social Security benefits based on the performance of the CPI.

The idea of reducing the cost-of-living adjustment has been floated by House Speaker Newt Gingrich (R-Ga.), Senate Majority Leader Bob Dole (R-Kan.) and Sen. Daniel Patrick Moynihan of New York, the top Democrat on the Senate Finance Committee.

Moynihan is pushing a proposal to limit cost-of-living adjustments to 1 percentage point below the CPI increase, citing comments by various economists, including Federal Reserve Chairman Alan Greenspan, that the current CPI overstates inflation.

If Moynihan’s plan were adopted and made effective for the upcoming increase, the average monthly benefit increase would be $11 instead of $18.

While the White House has not endorsed Moynihan’s proposal, it has left the door open to trimming the cost-of-living adjustment by some amount to compensate for its overstating inflation.

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Asked about that possibility Friday, Office of Management and Budget Director Alice Rivlin said she and Laura D’Andrea Tyson, head of the National Economic Council, both “regard this as a technical and statistical problem and a problem of some importance.”

Administration comments such as these have raised fears among senior citizen groups that a cost-of-living adjustment cut will be sprung at the last minute this fall to break a budgetary deadlock.

The deficit savings would be huge. A 1-percentage-point cut in the CPI adjustment would produce $281 billion in savings over seven years. That would be nearly one-third of the $894 billion that Republicans say they need to balance the budget by 2002.

The CPI is used not only to adjust government benefit payments such as Social Security but also personal income tax brackets. Reducing the CPI adjustment by 1 percentage point would raise an additional $19.2 billion in income taxes over 10 years because more income would be taxed at higher rates.

Increases in the CPI have been 3% or less for the past four years.