How Trump's tariffs could impact the Social Security 2026 COLA estimate

Yahoo

12-04-2025

Tariffs aren't just clouding the outlook for markets, but also Social Security recipients and what they can expect for their cost-of-living adjustment next year.
Based on Thursday's slower-than-expected annual March inflation report, the estimated Social Security COLA for 2026 is 2.2%, according to Mary Johnson, retired Social Security policy analyst who continues to track the data. In March, prices decreased in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), the index used to calculate the annual adjustment to Social Security benefits, to 2.2%.
Overall inflation rose 2.4%, down from February's 2.8% rise. That was the lowest annual increase since September and below economists' average forecast for 2.6% but still above the Federal Reserve's 2% goal.
But with President Donald Trump's tariff plan remaining uncertain for the rest of this year, the COLA estimate could still change a lot, she said.
Trump paused most of his aggressive reciprocal tariffs but raised his tariff on China to 145% to punish the Asian nation for its retaliatory tariff.
"A trade war with China or higher tariffs with other trading partners, would cause higher inflation," Johnson said. "That could push COLAs higher as well."
A higher COLA wouldn't hurt seniors, but the reality is that even steeper adjustments haven't helped seniors pull out of the red. Items seniors spend most of their money on continue to outpace the inflation rate that COLA calculations are based on.
For example, medical care services and food each rose 3% year over year in March, electricity gained 2.8% and hospital and related services were up 3.9%.
Recent sharp stock market declines also haven't helped, Johnson said.
"Higher sticky consumer prices, home repairs, changes in health are forcing older consumers to spend more from savings at a faster rate, at the same time extreme stock market volatility pummels the value of retirement account holdings," she said.
Many seniors support Trump's promise to end taxes on Social Security.
It "is ridiculous!" said David Alston, 65, of Woodbridge, New Jersey, in an email. "You pay taxes for 'years' while you're working. Then after you file to get your benefits, the government taxes them again?! This is 'double taxation' and that's unconstitutional!"
Though almost everyone would welcome fewer taxes, Johnson warns "be careful what you wish for."
While popular with older Americans, the proposal holds pitfalls that could reduce the amount of money that Social Security and Medicare needs to fund the benefits of today's retirees, she said.
'Alternate streams of revenue would be required for both programs or benefit cuts and substantially higher healthcare costs could follow, that far outweigh the tax benefit,' Johnson said.
Taxation of Social Security benefits for 2025 is expected to supply about 4% of the income needed to fund the benefits of today's retirees and to cover 10% of the income needed for Medicare costs according to the most recent Social Security and Medicare Trustees reports.
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [e-mail] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday.
This article originally appeared on USA TODAY: Trump tariffs could have impact on Social Security 2026 COLA estimate