Today’s announcement that Social Security recipients will not receive a cost-of-living adjustment (COLA) again in 2011 brought an immediate reaction from House Speaker Nancy Pelosi (D–CA). She proposed that the lame duck Congress vote on giving seniors another $250 one-time payment supposedly to replace the COLA.
This seemingly altruistic gesture would help Social Security recipients, but the real effect would be raising their grandkids’ taxes. These checks would be paid for with borrowed money, money that today’s children would have to repay with interest.
Today’s Social Security is seen as an earned benefit paid for by payroll taxes on earnings. The program is governed by set rules that determine how benefits are calculated, to whom they are paid, and under what circumstances benefits are increased. These rules were put in place to protect the program from politicians who might try to turn Social Security into a welfare program that paid benefits to politically connected groups regardless of whether they actually paid the taxes for them. The COLA rules, especially, were designed to make sure that recipients’ buying power was protected against inflation and to stop lawmakers from raising benefits in an election year.
Pelosi’s move follows both a 2009 vote that also provided Social Security recipients with a $250 check after the COLA formula resulted in no increase for 2010 and stimulus checks in both 2008 and 2009 as part of failed efforts to restart the economy. It opens the door to more politically motivated payments any time that Congress wants to “help” seniors.
Most seniors will not be harmed by the absence of a COLA in 2011, because although prices went up by 1.4 percent over the 12-month measuring period, they are still below the level for the 2009 COLA increase. As a New York Times analysis pointed out, the 2009 COLA was the largest in 27 years since it was based on the inflation rate during the third quarter of 2008, a time of very high gas prices and other economic anomalies. In effect, the 2010 and 2011 COLAs were prepaid in 2009. In addition, for most Social Security recipients, their Medicare Part B premiums have been frozen.
In a year when Social Security will run a $41 billion cash flow deficit and the overall federal deficit is again over $1 trillion, Pelosi’s planned $250 payments just makes the situation worse. And while these checks appear to help retirees today, the real effect will be to take money from their grandkids. That is a sorry legacy to leave for future generations.