Nearly 50 million Americans receiving Social Security, government pensions and other benefits will find their monthly checks 5.4 percent larger next year as a result of automatic increases triggered by a rise in the cost of living.
Almost 1 percentage point of the increase announced yesterday was attributed to the impact of higher oil prices caused by the Persian Gulf crisis.
The cost-of-living increases will boost government outlays by close to $20 billion in 1991, underscoring the enormous role entitlement programs now play in the federal budget. At a time when congressional budget negotiators are agonizing over cutting a few billion dollars from non-entitlement programs to reduce the deficit, the Social Security boost alone will cost $13.5 billion.
The 5.4 percent increases will go to about 40 million Social Security recipients; 2.2 million retired federal civilian employees or their survivors; 1.6 million retired military; 4.5 million low-income aged, blind and disabled persons receiving federal Supplemental Security Income welfare payments, and more than 1 million veterans with non-service-connected disabilities who receive veterans' pensions based on need.
"We're going to have to cope with entitlements -- they have been subject to runaway costs," said Kate Walsh O'Beirne, deputy director of domestic policy studies at the Heritage Foundation, voicing a familiar theme of conservatives. "Until we control, reduce, runaway entitlements we'll never be able to control federal spending."
Entitlement programs -- which guarantee benefits to those who qualify -- now constitute a third to a half of all federal outlays, according to the Congressional Budget Office.
Besides Social Security payments to the elderly, the programs provide benefits for mothers with dependent children, low-income blind, aged and the disabled. Medicare, Medicaid, food stamps, the earned income tax credit (a bonus for working poor families) and farm support programs are also defined as entitlements counted in calculating the budget deficit.
Entitlement programs for the elderly and disabled dwarf all others. While acknowledging that many of the elderly have no other major source of income or medical care, some critics believe the aid is increasingly disproportionate to assistance provided for low-income children and families.
In fiscal 1991 the major social entitlements, including pension programs, will cost the government more than $500 billion. Some are based on a means test -- the recipient must be poor to get the benefits -- but others are not.
Social Security, by far the largest entitlement program at an estimated $264 billion in fiscal 1991, is an example of a program that is not means-tested. Other non-means-tested entitlements are Medicare (about $114 billion in fiscal 1991), which was not directly affected by yesterday's announcements, and federal civilian and military pensions ($60 billion).
SSI and veterans' non-service-connected disability pensions are based on need.
Originally Social Security had no automatic cost-of-living adjustment, but in 1972 Congress added it with the assent of many Republicans who bridled at the Democrats claiming credit for increased benefits. Since then other programs have also adopted the formula, a special calculation based on the Consumer Price Index.
To calculate Social Security increases, the cost of living in the quarter ending Sept. 30 is compared with the cost in the same three-month period a year earlier. Benefits are then routinely raised the following January by the percentage the cost of living went up -- this time, 5.4 percent.
It was estimated a few months ago that the Social Security increase would be only about 4.7 percent and cost only $11.7 billion, but the cost-of-living increases fueled by higher oil prices resulting from Iraq's invasion of Kuwait boosted the raise to 5.4 percent.
Reducing Social Security increases by 1 or 2 percentage points below the formula to save money has frequently been broached in congressional budget negotiations -- most recently a few weeks ago -- but abandoned for fear of retaliation by the large and politically active bloc of 40 million beneficiaries.
Going back to the system of raising various benefits every few years on an ad-hoc basis could conceivably lead to even greater political conflict, according to Robert Reischauer, director of the Congressional Budget Office. "When they did that, they tended to more than compensate" for inflation, he said.
"The only thing COLAs do is keep the benefit even with inflation -- it is not an increase in real purchasing power," said Martin Corry, director of federal affairs for the American Association of Retired Persons. "For a single older person or disabled person, it is impossible to increase your income when inflation hits. And some are at such low incomes that even a tiny loss of purchasing power can make the difference between getting a prescription filled and having food on the table."