A flat cost-of-living adjustment is no excuse for a $250 handout to seniors.

Friday, October 16, 2009

AS YOU WATCH the depressing spectacle of President Obama proposing to buy off senior citizens with a $250 handout and thereby boost the national debt by another $13 billion, here's something to keep in mind: If seniors' benefits were to be calculated fairly, they would actually go down next year.

Why? For one: In January, Social Security recipients got their biggest cost-of-living increase in 25 years: 5.8 percent. That was, it turns out, the inaccurate result of a quirk in timing; the COLA was based on third-quarter 2008 inflation numbers that were, well, inflated by soaring energy prices. The subsequent drop in energy prices meant that seniors' benefits were boosted to account for inflation that didn't take place. So seniors ended up with a 5 percent hike in their purchasing power -- an annual benefit increase of about $700 for a typical retiree.

For another: Because costs were lower in the third quarter of 2009 than during the same period last year, the coming Social Security adjustment should actually be negative -- in other words, to keep purchasing power on an even keel, benefits should be trimmed back slightly. It may not surprise you to learn that the law prevents this; benefits can go up with inflation but never back down. Instead, seniors will receive no cost-of-living adjustment in January 2010 -- the first time benefits would remain flat since automatic adjustments began in 1975. In economic reality, this is good news for seniors: It means that the real purchasing power of their benefits has actually grown. In political reality, this is untenable.

Thus, President Obama's proposal of a $250 handout. Make that another $250 handout; seniors already got one such "economic recovery payment" in the stimulus bill. "We must act on behalf of those hardest hit by this recession," Mr. Obama said. Fine, but what is the evidence that seniors have been "hardest hit?" They are less affected than other Americans by rising unemployment. Their benefits are guaranteed. Yes, they have lost equity in their homes and money in their retirement accounts; so have other Americans, many of whom face higher costs and more uncertain income than seniors. One measure of seniors' relative economic status: Children are twice as likely to be living in poverty.

But, you say, what about the price of health care? With health costs rising faster than inflation, surely it's unfair to leave seniors with a flat-lined Social Security benefit. Guess what? The law ensures that, except for the wealthiest sliver of seniors, Medicare Part B premiums cannot rise by more than the dollar amount of their Social Security benefit. If Social Security benefits do not rise, neither can Part B premiums. Moreover, even using a separate consumer price index pegged specifically to costs for seniors, there would be no Social Security cost-of-living adjustment this year.

At least the $250 is a one-time (okay, two-time) expense. It doesn't permanently increase Social Security costs. And while it goes to well-off seniors who don't need it, as a lump sum rather than a percentage of benefits, it is better targeted to the seniors who need it most. Some Republican lawmakers have proposed an across-the-board percentage increase in benefits, which would make the administration's $13 billion price tag look cheap by comparison. The best thing that can be said about the administration's payoff is that it could have been worse.

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