Wednesday, October 14, 2009

New paper: “Case For a Social Security Cost-Of-Living Adjustment in 2010 Is Weak”

From the Department of Strange Bedfellows, the Center on Budget and Policy Priorities today released an issue brief titled "Case For a Social Security Cost-Of-Living Adjustment in 2010 Is Weak" that examines argument for paying an ad hoc COLA next year.

Under current law, there will be no cost-of-living adjustment (COLA) in Social Security in 2010 — the first time that has happened since automatic cost-of-living adjustments began in 1975. Several bills before Congress would grant a special increase in Social Security payments for 2010.

The inflation data, however, do not support an increase: overall consumer prices have fallen significantly in the past year and are not expected to return to their earlier peak until mid-2011. In addition, when no Social Security COLA is provided, Medicare Part B premiums — which are deducted from Social Security checks — are frozen for most beneficiaries so that the Social Security checks do not drop (see the box on page 5).

If policymakers nevertheless choose to act, they should grant a flat, one-time payment as an economic stimulus measure rather than an across-the-board percentage increase that undermines the mechanics and purpose of Social Security's indexing provisions

Couldn't have said it better myself. It's a very well presented paper.

My own AEI paper on the COLA came to very similar conclusions.



Rob Paris said...

The Social Security cost of living adjustment is messed up!

Jason said...

The Committee for a Responsible Federal Budget has also argued against enacting a one-time payment to seniors or an ad-hoc COLA. The only economic justification for a one-time payment would be if the Administration and Congress believe that the economy needs additional stimulus and the original one-time payments in the 2009 stimulus act were shown to be a particularly successful form of economic stimulus. If neither is true, then CRFB would also oppose the one-time payments because they would be pure political pandering.

Visit for CRFB analysis on this issue.