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ECONOMIC SCENE: Social Security pensioners deserve a $250 ‘raise’

With no COLA adjustment this year, the Obama administration is right to give seniors a $250 boost.

By David R. Francis / November 12, 2009

In September, Esther Lenette, 91, of Montgomery County, is applauded after delivering remarks at news conference to urge Congress to pass the Social Security $250 one-time Cost-of-Living Adjustment (COLA) for 2010. Lenette gets by on $13,400 a year from Social Security.

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Congress is likely to give Social Security pensioners a raise of sorts next year.

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President Obama has proposed a $250 payment per pensioner, which is expected to pass Congress, speculates Andrew Biggs, a scholar at the American Enterprise Institute in Washington. Such a one-time payment is cheaper than conjuring up a cost-of-living-adjustment (COLA), which is unjustified since prices are falling, not rising. It also makes sense politically.

Relatively more seniors vote than those under age 65. Facing an election next year, it will be difficult for members of Congress, Democrat or Republican, to vote down a modest boost to Social Security benefits.

Mr. Obama made his $250 proposal the evening before the Social Security commissioner announced there would be no COLA in 2010, the first time there’s been no rise in 35 years. If Obama had done nothing, many seniors “would hold that against his administration, even if the administration had nothing to do with it,” says Mr. Biggs. Because healthcare reform might affect Medicare, Obama’s political standing among seniors has been suffering.

It’s not only necessary politics but proper policy that Washington heeds the needs of its 39.5 million senior citizens.

The US Social Security system is less generous than those in much of Western Europe. The American system assumes most seniors will have corporate pensions and perhaps personal savings and investments to help their retirement finances. But many companies have had trouble keeping up on pensions and 401(k)-type plans for their current or retiring workers. Moreover, with so much income moving to the richest 1 percent and middle incomes stagnating in the past decade or so, many of the elderly and near elderly are facing financial difficulties.

For example: Debt levels of those in or near retirement are heading up. In 2007, 63 percent of American families headed by someone 55 or older had some level of debt, up nearly 10 percentage points from 1992, according to a new study by the Employee Benefit Research Institute in Washington. Their average debt: $70,000, more than double the 1992 level even after adjusting for inflation.

Of course, any boost in Social Security payments would be a further strain on the system. A $250 payment would cost billions, although as a one-time event it would not add to costs in subsequent years. Also, the number of seniors applying for Social Security jumped a large 19 percent in the 2009 fiscal year. Some of these applicants retired earlier than age 66, the minimum age for a full pension. So their monthly benefits are scaled down. Thus, the impact on the system’s finances is not expected to be large.

Utilizing payroll tax revenues plus money in the Social Security trust fund, the system is presently seen as able to provide full benefits until 2040. Thereafter, relying on payroll tax revenues alone, benefits would decline 25 percent.

The recession, however, is also prompting many seniors to work beyond normal retirement age. They are subject to payroll tax on some of those earnings and, says Biggs, get only 50 cents back in Social Security benefits on every dollar of tax. That should delay any revenue shortfall.

Stay cool, prospective pensioners. Forecasts decades into the future are shaky, to say the least. And if the president and Congress can come up today with an extra $250 for most of the 51 million Social Security beneficiaries, when the rules don’t call for it, imagine the political pressure to fix the system a decade from now when millions more baby boomers will have retired.

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