Still no COLA, but Granny may get a bonus anyway

Cost-of-living-adjustments to Social Security payments depend on changes to the Consumer Price Index. The CPI isn't moving, but politicians want to give seniors more, anyway.

By , Guest blogger

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    Cost of living adjustments to Social Security are meant to make the benefit keep pace with inflation. For the past two years, there's been no inflation, but seniors have been offered "non-COLA adjustments" anyway. This chart shows the Consumer Price Index (CPI-W) monthly from January 2008 to September 2010.
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The Social Security Administration announced today that for the second year in a row there would be no cost-of-living increase in Social Security benefits for 2011. Why not? As the SSA explains, this is a straightforward, non-political determination based on historical economic data:

The Social Security Act provides for an automatic increase in Social Security and SSI benefits if there is an increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) from the third quarter of the last year a cost-of-living adjustment (COLA) was determined to the third quarter of the current year.

So very objectively, there will be no cost-of-living increase in Social Security benefits in 2011 because there was no increase in the cost of living, as measured by the CPI-W, from the 3rd quarter of 2008 (the last time a COLA was triggered, for 2009 benefits) to the 3rd quarter of 2010 (which determines the COLA for 2011 benefits). The chart above comes from the Bureau of Labor Statistics and shows the CPI-W, by level (seasonally adjusted), from January 2008 to September 2010. Note that in September 2008, the CPI-W was 215.111; in September 2010, it was 214.345 (lower).

Well, no matter. Last year at this time, when the CPI in September 2009 came in even lower (note the data point in the chart), the President and members of Congress called for $250 checks for seniors to make up for the lack of a COLA. Policymakers downplayed the fact that there was no need to compensate seniors for (the lack of) inflation, and played up the fact that there was still very apparent need for continued economic stimulus. Most policy observers like me who are not politicians commented at the time that the biggest reason for the $250-check-for-lack-of-COLA proposal was that it was good pandering to seniors. I also remarked that maybe it wasn’t such bad stimulus, but I could think of better, and anyway, it had nothing to do with the non-COLA other than the non-COLA being a convenient way to get seniors riled up and especially receptive to the politicians’ pandering.

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Well, the $250 non-COLA bonus never passed last year, but good-for-politics ideas like that tend to resurface regularly. And this year is even a better year for it. Prices are still low but have come up since last year (but are still lower than two years ago which the current levels of Social Security benefits are based on), and to top it all off, this year is an election year! The Ways and Means Committee’s Social Security chairman, Earl Pomeroy, has announced the House will take up the $250 bonus proposal in November. The President has announced his support for the same. House Speaker Pelosi calls this a “fiscally responsible” proposal, and maybe she’d even consider proposals for double the cost to be so. (A bidding war may be coming in the final days leading up to the election.)

So my opinion about this proposal hasn’t really changed qualitatively since last year, when I said (in the Washington Post “Topic A” feature) that:

This is not about making seniors “whole.” Because seniors are guaranteed to receive Social Security benefits regardless of the strength or weakness of the economy, they more than others have had a significant part of their income protected in this recession, and they received special aid in the last stimulus package, too. This is about taking from one generation and giving to another. By choosing to finance the provision by borrowing, our politicians hope the beneficiaries (seniors) will notice — while those most heavily penalized (our kids and grandkids) are thankfully not old enough to vote. This seems to be a purely political strategy to pander to seniors (once again) over other groups.

…but maybe quantitatively, I’m a little sicker of hearing it this second time around.

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