The Social Security Administration has made it official -- there will be no Cost of Living Adjustment (COLA) for some 49 million beneficiaries because inflation declined.
There are now five bills before Congress to try to help seniors either next year or beyond. Some would just give $150 next year while others would permanently amend the Social Security Act to change the formula used to calculate COLAs.
Presumably, some of them will be the basis for President Obama’s announcement on Wednesday that he wants to give seniors a one-time $250 payment next year.
“The only question is how close to unanimous will it be,” says Stanley Collender, a federal budget analyst and managing director at Qorvis Communications in Washington. “How many Republicans will vote against this thing?”
In fact, at least one Republican -- Walter Jones of North Carolina -- is sponsoring legislation that would amend the COLA to equal the average figure over the past ten years. That average, says one seniors group, is roughly 3 percent. If the Jones bill were to pass, it would give the typical beneficiary an additional $415.20 in 2010, a gain of $34.60 a month, calculates The Senior Citizens League (TSCL) which supports the bill.
While changing the COLA formula this year might help in years when there is low inflation, Mr. Collender points out the change may not help seniors during times of high inflation. “During a year when inflation is six percent, does it look like such a good deal?,” asks Collender.
The Congressional Budget Office is forecasting a zero COLA for 2011 as well. The result, says the TSCL, would be a compound loss of $20,144 over twenty years for the average Social Security recipient.
Although Congress is expected to pass the president’s request for the payment to seniors, Collender doubts lawmakers have the appetite to amend the Social Security Act.
“Once you open the act, who knows what amendments will come down the pike?” he says. “Someone may say, ‘If we do this let’s fix the actuarial balance problem.’ ”
Collender is referring to the fact that Social Security is expected to go into the red sometime in the future since promised benefits will outstrip contributions.
Congress originally passed the COLA provision in 1972 to go into effect in 1975.
“It was originally signed by Nixon,” recalls Marc Goldwein, policy director for the Committee for a Responsible Federal Budget in Washington. “Conservatives liked it because it took indexing out of the hands of Congress which on election years would pass an ad hoc cost of living adjustment so it could tell seniors it had raised their benefits that year.”
The legislation was amended in 1977 because of a double indexing of benefits during a period of high inflation and low economic growth.
In transmitting the proposal to Congress, then-president Gerald Ford wrote, “The new benefit formula contained in my proposal will prevent Social Security payment levels from being distorted by unusually high periods of inflation while helping to protect the financial integrity of the system itself.”
Mr. Goldwein’s group views the Obama proposal as temporary damage.
“There is still no justification for it, but it is less damaging than an ad hoc COLA,” says Goldwein who is not opposed to Congress looking at how it calculates the annual increase.
“Maybe there are broader ways to calculate the COLA,” he says. “Maybe moving to a yearly average makes sense.”
Currently, COLA is calculated by measuring the inflation rate in the third quarter (July to September) compared to the same period the previous year.
Separately, on Thursday the government reported the September Consumer Price Index (CPI) was down 1.3 percent on a year-over-year basis. It rose a modest 0.2 percent compared to August.
Follow us on Twitter.