Saturday, October 17, 2009

Cut another $250 check to U.S. seniors?

Social Security, the U.S. social insurance/retirement program, is indexed to the Consumer Price Index, which measures the inflation rate. As with any sort of measure, the CPI is not perfect. It is a measure of inflation based on the average consumption of a very diverse nation. The CPI increased nearly 6% last year, mainly driven by a spike in energy prices. There's some evidence that much of that spike was driven by speculation, and energy prices and the CPI have since fallen. The law requires that Social Security benefits not be reduced no matter what happens to the CPI, and the CPI isn't expected to exceed 2008 levels until 2010 or 2011. This means that Social Security payments are staying flat this year, and probably next. However, seniors are spending more on healthcare, which the CPI doesn't capture adequately (the CPI measures a basket of goods used by the 'average' American consumer, but healthcare prices rise faster than the CPI, and the elderly use more healthcare services).

If I have my facts straight, seniors, most of whom aren't currently paying taxes, got a one time $250 rebate last year under the stimulus bill. Taxpayers got a tax credit that the Administration would like to make permanent, and which is going to continue for the next year at least. However, seniors aren't getting any further aid. The Administration has called for a one time $250 payment this year.

There is some case for giving seniors an additional rebate this year based on fairness. However, many sources I respect feel that the overall case is weak. Here are some excerpts from a Washington Post article:


Institute Fellow at the Urban Institute; director of the Congressional Budget Office from 1983 to 1987 [Editor: Urban is considered to lean slightly left.]

The Great Panderer strikes again. It is outrageous to give seniors "emergency" aid when so many in our society suffered far more during the recession than the lack of a cost-of-living adjustment. Even if the cost of the proposed handout is paid for with tax increases or cuts in other spending programs, it would be much better to preserve such measures for deficit reduction.

Irresponsible proposals of this type will probably hasten the day when foreigners stop lending us money. Then, seniors may suffer an economic collapse along with everyone else. At that point, there won't be any money available to help them.

Some day we may get serious about the deficit, but there is no sign of it yet. The Senate Finance Committee's health reform is partially paid for by a cut in physician reimbursements that will never occur. Various components of the stimulus program will probably be extended. And if the administration has a long-run plan, it is keeping it secret.

On the other hand, perhaps I should reconsider. My wife and I appreciated the $500 we got earlier this year. The boat needed fixing, and that was a real emergency. This time, a good dinner at Citronelle would be nice.


Senate majority leader (D-Nev.)

Providing an additional economic recovery payment to seniors, veterans and disabled Americans won't only provide helpful relief, it also makes sense as a matter of fairness and economics.

Older Americans on fixed incomes are being squeezed by rising health costs, even while retirement savings and home values have plummeted. Next year, without a Social Security cost-of-living adjustment and with few jobs available for those able to and needing to work, many will face real economic pressures.

To respond to such pressures and help strengthen the economy, Congress provided two years of tax relief to working Americans through the Recovery Act's "Make Work Pay" credit. But we provided only a single, smaller companion benefit for those who already have spent a lifetime contributing to their community. Extending that benefit another year provides some measure of equity, along with a very modest boost to the economy.

At a time when so many Americans are struggling, I hope we can put aside partisan bickering to help struggling seniors, veterans and disabled Americans. It's the right thing to do, and I will be doing all I can to make it happen.


Chief economist at the Concord Coalition and blogger at

Congress and the administration are calling for a $250 payment to seniors to make up for the lack of a cost-of-living adjustment (COLA) to Social Security benefits in the coming year. But the purpose of a COLA is to help incomes keep pace with inflation, which means when there's no inflation, there's no adjustment in benefits needed. President Obama claims that this "emergency" aid is justified because seniors' wealth has declined in this recession. But, of course, all kinds of Americans have suffered.

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.



Chief economist of Moody's [Editor: Zandi consulted for the McCain campaign and likely leans conservative. However, he's a well-respected economist who doesn't seem overly partisan.]

Cutting another check to senior citizens isn't at the top of my economic policy priority list, but it is on it. The economy needs more temporary help to ensure that it does not unravel back into recession. Giving hard-pressed seniors a bit more cash will provide a measurable boost to their spending, just about when they realize that there won't be a cost-of-living increase to their Social Security payment.

If the checks are mailed, say, next January, the annualized increase in real GDP during the quarter would be about 0.2 percentage points. This is small but meaningful. Most importantly, it signals policymakers' willingness to remain aggressive in responding to the economy's ongoing ills.

The stimulus has been effective in bringing an end to the recession, but important parts of it will soon expire before a self-sustaining expansion takes hold. It also makes sense to extend benefits to unemployed workers who lose their jobs next year when the unemployment rate will be in double digits; so does extending the first-time homebuyer tax credit and certain tax cuts for businesses. Taxpayers have reason to worry about the costs of all this, but the price tag for not doing these things would be greater.


Director of the Congressional Budget Office from 2003 to 2005; senior economic adviser to Sen. John McCain's presidential campaign

No. Social Security benefits are indexed to ensure that benefits keep up with consumer inflation. Inflation has been flat, so there is no need to raise benefits. That should be the end of the story. Instead, two rationales have been offered for raiding the barren Treasury to send $250 checks to seniors. The first is that the cost of living for seniors rose anyway, despite the flat inflation. This argument neatly sidesteps two key facts: (1) The consumer price index does not measure any particular person's cost of living perfectly -- it is always a rough measure; and (2) there are probably many years -- such as last year, when seniors got nearly a 6 percent increase -- when the usual adjustment is probably too high. Why only adjust up?

The second argument is that the economy needs more stimulus. It does not. And if it did, this is the worst kind -- one-time, lump-sum checks. The most recent demonstration of this was the ineffectual Bush administration checks in 2008.

A more likely rationale is purely political. Seniors are nervous that health-care "reform" will eat at the foundations of their Medicare benefits, so it is a good time to assuage their fears by greasing their palms. Their fears are unwarranted -- no future Congress will have the gumption to follow the Senate plans for Medicare. But the logic suggests that we all deserve checks because reckless health-care reform will create another underfunded entitlement that will erode the foundations of all our livelihoods.

Diana Zuckerman

President of the National Research Center for Women and Families

The proposal to give an extra $250 to every Social Security recipient is a great example of how politics undermines common sense. Social Security benefits go up each year to keep up with inflation, but since the cost of living went down this year, there is no rational reason to give $250 to each beneficiary, regardless of their income.

This $250 gift is not free. It adds to our deficit and undermines the health of our Social Security system, which already faces a crisis when large numbers of baby boomers are retired. Future Social Security benefits will need to be decreased to make up for the $13 billion spent on this program.

Even if the temptation to assist Social Security recipients is irresistible, this is not the way to do it. Instead, why not provide a $250 bonus to those with incomes below a certain level, or not provide it to people with unearned income above a certain level, rather than to everyone, including aging millionaires and billionaires? One reason why Americans love Social Security is that it is not "welfare" -- it is earned, based on taxes previously paid. This $250 is not. If this is not an earned benefit but rather a program to help the poor, we should give it to those who most need it, regardless of age. If it is a poverty program for the elderly, why not give the money to elderly people who most need it and will soon spend it?

In addition, the Center on Budget and Policy Priorities, which leans left, has a more detailed article by Kathy Ruffing arguing that there should be no cost of living adjustment. An excerpt:

... Before 1975, Congress periodically granted across-the-board increases in Social Security benefits — acting ten times between 1950 and 1974 (and six times between 1965 and 1974). The 1969-71 Social Security Advisory Council, a congressionally mandated panel convened every four years to review the program, urged legislators to replace this ad hoc system with automatic increases that would assure beneficiaries of stable purchasing power. Groups representing senior citizens supported the proposal, as did a number of fiscal conservatives who believed that providing an automatic COLA would be more fiscally responsible than basing Social Security benefit levels in part on the outcomes of periodic congressional bidding wars.

In 1972, Congress voted overwhelmingly to adopt automatic COLAs beginning in 1975, with the increases based on the Consumer Price Index for Urban Wage and Clerical Workers (the CPI-W). They also provided for automatic adjustments in the wage and salary level up to which Social Security payroll taxes are levied — the so-called “taxable maximum” — in step with average wage growth. With some refinements (notably in 1977 and 1983), this structure remains intact today.


The Bureau of Labor Statistics (BLS) calculates that overall consumer prices have fallen significantly since then (see Figure 1). Energy prices have declined by nearly one-quarter, and prices for other goods and services have increased only modestly. Since the purpose of COLAs is to preserve beneficiaries’ purchasing power, the decline in overall prices means that beneficiaries do not need a COLA in January 2010.

In fact, if Social Security and other indexed benefits that use the CPI-W — Supplemental Security Income (SSI), railroad retirement, veterans’ compensation and pensions, and federal civil service and military retirement — were strictly pegged to the inflation rate, their recipients would receive a negative COLA (i.e., a reduction in benefits) of 2.1 percent in January 2010. Fortunately for those recipients, the programs’ statutes bar a downward adjustment of benefits.

The Congressional Budget Office and the Social Security trustees do not expect the CPI-W to return to its summer 2008 peak until mid-2011. Under that assumption, Social Security beneficiaries and recipients of other indexed benefits will get their next COLA in January 2012. In the meantime, their benefits are safe from reduction.


These proposals are costly. A 3 percent increase would cost $15 billion to $20 billion annually in Social Security benefits in 2010 and beyond. (The two bills that propose an across-the-board increase contain no mechanism for cancelling that increase, or subtracting it from future COLAs, so the higher benefits would last for the rest of their recipients’ lifetimes.) A lump-sum payment of $150 for Social Security beneficiaries would cost about $8 billion, while the proposed one-time payment of $250 would cost about $14 billion (including SSI and other programs). ...

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