The Social Security Administration announced today that due to a low inflation rate, Social Security benefits will not experience a Cost of Living Adjustment (COLA) in the year 2011. This is due to federal law that links Social Security COLA to the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). The CPI-W did not increase between third-quarter 2008 and the same time in 2010. Since the COLA is linked, there will be no corresponding positive adjustment to Social Security benefits.
In contrast, overall consumer prices rose 1.1% from a year ago (2009), with core prices up 0.8% over the past 12 months.
US House Speaker Nancy Pelosi on Thursday announced a plan pay out a one-time payment of $250 to Social Security recipients and veterans, claiming the House will vote on the measure after the November 2 election. The White House apparently supports the measure.
It is widely viewed that Social Security faces a dire future, and is currently predicted to become insolvent in the year 2037. At that time the program will no longer be able to pay out projected full benefits.
Despite the near-universal view that Social Security cannot continue to exist the way it does today, instead of viewing the lack of a COLA as a positive (because it keeps more money in the trust fund, versus depleting it further), Pelosi’s stand is to apparently “compensate” with a one-time payment to beneficiaries. It is yet unclear how this payment would be funded.
Rep Dave Camp, the top Republican on the House Ways and Means Committee said this:
"It will be difficult for many seniors to deal with the lack of a COLA for a second year in a row, but that will pale in comparison to the actual hardships future Social Security recipients will experience if Congress continues to ignore the program's underlying financial problems."
Interestingly, the White House added another twist to the conversation. Obama said on Thursday that increasing the amount of wages subject to Social Security tax would be the best approach to prolong the solvency of the program.
Pelosi’s and Obama’s statements/announcements appear to be well-timed moves as we near the November 2nd elections. It doesn’t take a political geniuos to make the obvious connection that appealing to Social Security beneficiaries with promises of $$, funded (potentially now or in the future) through higher payroll taxes (notably taking from those not yet benefiting from the system), is a great way to garner support for your candidates from those who do stand to benefit in the short term. Of course I would never go so far as to say anyone is attempting to buy votes…
Personally, I am not planning my retirement assuming ANY funds coming from Social Security, even though I do plan and expect to contribute to the program my entire career. (and apparently my contribution should be higher than it is today). I feel for those who have been led to believe, over the course of their careers, that Social Security would continue to support them indefinitely. I have a hard time stomaching, however, the obvious use of this popular but inherently flawed program as a political lever.
Painful sacrifices on BOTH SIDES of the aisle (those paying in and those getting paid out) will be necessary in order to save this program, and sustain it, in some form, into the future. The Democratic election-season approach doesn’t appear to contemplate anything but sacrifices on the contribution side.
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