By Neil Irwin
Washington Post Staff Writer
Friday, October 16, 2009
Congressional leaders welcomed President Obama's proposal to make $250 payments to Social Security recipients Thursday, as a government report confirmed there will be no automatic cost-of-living adjustment for the program.
Some public policy experts, however, argued that the action amounts to a politically motivated giveaway to seniors.
Because consumer prices fell in the July through September quarter, compared to the same period last year, there will be no cost-of-living adjustment to Social Security benefits in 2010 for the first time in the 34 years that those adjustments have been made automatically. The Labor Department reported September's consumer price index Thursday morning, the final piece of data needed for that calculation.
Anticipating that news, White House officials said late Wednesday that the president would support a one-time, $250 payment to Social Security beneficiaries, hoping to bolster the finances of seniors who suffering from the economic downturn and are accustomed to an increase in their monthly checks every January.
There was broad support for that idea among congressional Democrats Thursday. Republican leaders were open to money for seniors, but advocated paying for it by canceling other planned spending under the $787 billion stimulus bill passed in February.
"I'd be happy to support the president's proposal if we pay for it out of stimulus funds that have not been spent," said House Minority Leader Rep. John Boehner (R-Ohio), in a news conference.
The $250 payments would cost a total of $13 billion under the White House's estimates, or $14 billion under congressional estimate.
Social Security recipients received a 5.8 percent benefits increase at the beginning of the year, reflecting price increases though September 2008. But last fall, prices for gasoline, food, and a wide variety of other items plummeted amid a deep global recession.
Overall, the Labor Department said Thursday, prices for the full range of items that Americans buy were down 1.3 percent in the year ended in September, as measured by the Consumer Price Index. Thus, even without a bump in their monthly checks, the buying power of Social Security payments has increased over that time.
"The reason people like me are flipping out is because there was an honest policy debate about the way these benefits should be indexed, which is how we got to the current formula," said Andrew Samwick, an economist at Dartmouth College who has studied Social Security and retirement issues extensively. "The formula seemed to work fine last year when it gave a 5.8 percent increase."
"This is pure political pandering," said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. "COLAs are meant to maintain buying power, not increase it."
Kathy Ruffing, a senior policy analyst at the Center for Budget and Policy Priorities, said that "there is no justification for a cost of living increase." But, she said, if the government does want to take new action to help seniors, the president's proposal -- of a lump sum payment -- makes more sense than other alternatives that would permanently increase benefits. The money could amount to a boost of economic stimulus, she said, as recipients spend most or all of the $250, which could then circulate through the economy.
Thursday's Labor Department report offered further confirmation that inflation is subdued amid the weak economy. The consumer price index rose 0.2 percent in September, in line with expectations. That reflected in part an increase in the price of gasoline; excluding volatile food and energy prices, prices rose 0.1 percent. Over the year ended in September, the index fell 1.3 percent.
Even as energy prices have risen somewhat in recent months, prices for a wide range of other goods have remained contained. With the economy still weak, few companies feel comfortable raising their prices, expecting that they will lose sales to competitors if they do. Indeed, deep discounting has been more common in many stores.
And with the U.S. economy producing well below its potential -- the unemployment rate is 9.8 percent, and factories are operating far below their capacity -- many economists think it unlikely there will be a burst of inflation anytime soon.
Staff Writer Amy Goldstein contributed to this report.