Thursday, October 15, 2009

It’s official: No COLA (justified) next year, but you’ll probably get one anyway…

The Social Security Administration today officially announced what had long been suspected: that no Cost of Living Adjustment to retirement, disability and survivors benefits will be paid next year. As has been discussed here ad nauseum, the Consumer Price Index dropped rapidly after the last COLA was calculated in October of 2008, so overall prices today are still below that level. Instead of paying a negative COLA, Social Security simply will pay no COLAs until prices rise to match the level as of the fall of last year. Sounds fair to me, but apparently not to others.

Some links and thoughts:

  • Here's SSA's fact sheet with details of the COLA and other benefit amounts that may or may not change based on the lack of a COLA.
  • But don't worry, seniors, it seems that President Obama has endorsed proposals to give all seniors a $250 ad hoc payment this year. Wisely, the Obama administration stuck to a theme of helping those in need and stimulating the economy rather than trying to make a substantive inflation-based case for the payment. (That said, seniors are hardly the most in need in the current recession and it's not clear how well these payments work as stimulus. I didn't say it was a good argument, just better than the alternative.)
  • The payments would cost around $13 billion; no talk of finding ways to actually pay for this, but when you're already $1.4 trillion in the hole I guess they figure there's not much point in being coy.
  • The Obama policy is less bad than the Republican alternatives from Reps. Walter Jones (NC) and Rodney Alexander (LA). These would have given all beneficiaries a 3 percent increase (2.9 percent in Alexander's proposal; got to be fiscally responsible these days…) but then build future COLAs on top so that benefits would always be 3 percent higher. My guestimate is that these plans could cost close to $200 billion over the long run, so I guess we dodge a bullet on that one.
  • Interestingly, the SSA itself has endorsed the administration's proposal. It's a little out of the ordinary for the agency to get involved in these things, but since it's probably going to happen anyway probably no harm in jumping on the bandwagon.

3 comments:

Rob Paris said...

The Social Security cost of living adjustment is messed up!
http://robvstate.com/2009/10/10/social-security-cola/

Bruce Webb said...

Seniors may not be the worst off in this recession on a current cash flow position. But for every senior that thought they were passing on a $500,000 asset to their kids or mulled over taking out a reverse mortgage the housing collapse overwhelms the benefit of a $250 check.

Andrew G. Biggs said...

Sure, but the loss of the bequest is to the kids, and not many people take out reverse mortgages (wish they would, but it's a screwed up market and so currently not a great deal). I guess the larger question is whether this is the best way to spend $13 billion policy-wise or economically; I'd say probably not, but there are big political reasons for both parties to do it.