Up to 1.2 million elderly people would be pushed below the government's official poverty line by 1985, and 2.1 million by 1990, if Congress approves proposals to cut annual cost-of-living adjustments for Social Security, according to a new study.
The study was completed as Congress prepared to take up the politically explosive question of whether the annual cost-of-living adjustment (COLA) should be held below the increase in the consumer price index to help reduce the federal budget deficit.
The study was conducted by Data Resources Inc., a leading economic forecasting firm whose projections are often used by the government, and Dr. Thomas C. Borzilleri, an economist under contract to the American Association of Retired Persons.
The Senate Budget Committee will begin work Tuesday on next year's budget. Both Chairman Pete V. Domenici (R-N.M.) and senior Democrat Ernest F. Hollings (S.C.) have proposed cutbacks in the Social Security COLA. Both President Reagan and House Speaker Thomas P. (Tip) O'Neill Jr. (D-Mass.) say they are opposed, but the idea is gaining currency among many members of Congress.
The study cranked into DRI's basic economic forecasting model two plans for cutting the COLA. One, proposed by Domenici, would cancel it in 1982 and then hold it to 3 percentage points below the inflation rate after that. The other, mentioned by the Congressional Budget Office as a way to save $76 billion in government outlays over the next five years, would limit the COLA to two-thirds of the increase in the CPI each year from now on.
The study showed that the COLA cutbacks would have devastating results for many elderly persons, driving hundreds of thousands or even millions into poverty, depending on which formula was used.
The study came to these conclusions, according to Borzilleri:
In 1980 there were 4.1 million persons 62 and over who were below the official poverty line (about $4,000 for a single elderly person and $5,000 for a couple). If there were no change in the COLA and it continued to be paid at 100 percent of the CPI increase, the number of elderly people in poverty would remain close to that level in 1985 and would gradually drop to 3.6 million by 1990.
Under the Domenici proposal, the number of elderly below the poverty line would be 5.3 million in 1985. By 1990, that number would be 5.7 million.
Under the CBO's two-thirds proposal, the results would be less severe but still substantial. In 1985, the number of elderly in poverty would be 4.6 million, or about 500,000 more than if the full COLA were paid. By 1990, the number would grow to 5 million.
There are two major reasons why the cutbacks would have such a sharp impact on the elderly.
One is that many are clustered just above the poverty line. In 1980, according to the Census Bureau, 15.7 percent of those 65 and over were below the poverty line, compared with 13 percent for the population as a whole. But another 10 percent were just above the poverty line, so decreases in their income would plunge many below the level.
The second is that Social Security is by far the biggest income source for most aged people. Two-thirds of the elderly get at least half their income from Social Security and a quarter get over 90 percent.