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Isn't zero inflation a good thing for seniors?

October 15, 2010 | 12:44 pm

Social Security benefits, COLAThe Social Security Administration announced  Friday morning that, for the second consecutive year, there will be no automatic cost-of-living adjustment to Social Security benefits. Not because Social Security is hurting for cash (although tax receipts in 2010 and 2011 are expected to dip below benefit outlays, thanks to the economic downturn) but because prices haven't been going up. More specifically, the price hasn't increased on the basket of goods that the program uses to track inflation (known as the Consumer Price Index for Urban Wage Earners and Clerical Workers, or CPI-W to stat geeks) since the third quarter of 2008.

In response, the Obama administration called for Congress to again cut a $250 check for every senior, military veteran and disabled person, just as it did in the 2009 stimulus bill. The price tag last year was a little under $14 billion, which is chump change in the context of a $1.3-trillion deficit. So only a heartless skinflint would object, right?

Maybe not. Seniors may worry about their benefits staying put while their Medicare premiums increase, but the system has a built-in safeguard: According to the Social Security Administration, more than 70% of its beneficiaries (i.e., those with low- to mid-sized incomes) pay income-adjusted Medicare Part B premiums and would be shielded from any increase.

Benefits were also goosed in 2009 by 5.8%, well above the annual rate of inflation, because gas and oil prices were unusually high during the months when the CPI-W was measured. Besides, when Congress created the automatic cost-of-living adjustments in 1972  -- 35 years after the first benefits were paid -- it made sure the payments could go in only one direction: up. According to the Committee for a Responsible Federal Budget, the average benefit would be about $250 lower now if it had been reduced in proportion to the drop in the CPI-W last year.

Still, some advocates for seniors have been clamoring for more than a year for Congress to provide a larger benefit because, regardless of the CPI-W, seniors on fixed incomes are feeling the squeeze. For example, Barbara Kennelly, a former congresswoman who now leads the National Committee to Preserve Social Security and Medicare, noted in a letter to Congress earlier this year that Medicare Part D premiums (for prescription drugs) and other medical costs are increasing, and that the recession clobbered many seniors' retirement accounts.

If the CPI-W really isn't an accurate proxy for seniors' cost of living, then the government should find a better formula. But it's worth noting that advocates for seniors have long complained about the adequacy of Social Security benefits, which account for more than half the income received  by about 60% of Americans over 65. Proponents of the $250 boost in benefits also argue that it would stimulate the economy  by promoting consumer spending. But if stimulus were the goal, the checks would be directed only at low- and moderate-income seniors, who would almost certainly spend them, and not to upper-income seniors, who'd be more likely to save the money.

-- Jon Healey 

Credit: AP Photo / Bradley C Bower

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