A provision in the recently enacted tax law regarding an inflation index is causing some confusion regarding its potential impact on federal retirement COLAs, the NARFE organization has said, stressing that there is no direct impact.
The new law indexes increases in tax brackets to the so-called “chained” consumer price index. That is a variant of the standard CPI that attempts to take into account changes in consumer buying habits in response to changing prices, rather than assuming that purchasing remains steady regardless of prices.
Proposals have been raised over time to use the chained CPI for a variety of programs in which payments are linked to inflation, including federal retirement benefits. Projections by CBO and others have shown that switching to that index would reduce the value of inflation adjustments on the order of a half percentage point each year. NARFE and other organizations oppose that change.
The use of the chained CPI in the tax law affects only tax brackets and not retirement or other benefits, NARFE said.