Rubio consultant Todd Harris is tweeting out a Fortune article that claims that Senator Cruz “wants to raise taxes on your grandma.” The argument goes that Cruz’s plan includes a value-added tax, which would raise consumer prices, including for retirees who are “living off Social Security.”
The article is wrong: Seniors would not take a hit, because of an important feature of federal law. The words “cost of living adjustment” or “COLA” do not appear in the article. Assuming that consumer prices would increase under Cruz’s plan (which I believe is indeed probable), federal law will protect retirees because it will automatically increase their Social Security checks. Retirees would lose purchasing power only to the extent that they relied on income streams that a) come from outside of Social Security and b) include no protection for inflation.
The people who could take a bigger hit from the plan are near-retirees. Assume that the Cruz plan raises prices but leaves wage rates the same. Initial benefit levels will be calculated based on those wage rates, but those wages will now buy less. So these future retirees would take a hit. Of course it is also true that most conservative plans for entitlement reform would involve paying lower benefits than the government is currently saying it will pay to people who are not yet retired.