WASHINGTON (Oct. 15) - There will be no cost of living increase for more than 50 million Social Security recipients next year, the first year without a raise since automatic adjustments were adopted in 1975, the government announced Thursday.
Blame falling consumer prices. By law, cost of living adjustments are pegged to inflation, which is negative this year because of lower energy costs. Social Security payments do not go down, even when prices drop.
The Obama administration, meanwhile, is pursuing a different way to boost recipients' income. On Wednesday, President Barack Obama called for a second round of $250 stimulus payments for seniors, veterans, retired railroad workers and people with disabilities.
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The payments would match the ones issued to seniors earlier this year as part of the government's economic recovery package. The payments would be equal to about a 2 percent increase for the average Social Security recipient.
Social Security payments increased by 5.8 percent in January, the largest increase since 1982. The big increase was largely because of a spike in energy costs in 2008.
"Social Security is doing its job helping Americans maintain their standard of living," said Social Security Commissioner Michael J. Astrue.
But, he added, "In light of the human need, we need to support President Obama's call for us to make another $250 recovery payment for 57 million Americans."
The Labor Department reported Thursday that consumer prices had declined 2.1 percent since the third quarter of 2008. The cost-of-living adjustment for Social Security, or COLA, is based on the change in consumer prices from the third quarter of one year to the next.
Social Security recipients shouldn't get a raise next year because their purchasing power has already increased with falling consumer prices, said the Center on Budget and Policy Priorities, a liberal-leaning think tank.
"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," Kathy Ruffing, a senior policy analyst at the center, wrote in a report this week.
Over the past 12 months, gasoline prices have fallen 29.7 percent and overall energy costs have decreased 21.6 percent, the Labor Department said Thursday.
Ruffing noted that government forecasters don't expect consumer prices to return to 2008 levels until 2011.
Some advocates for seniors, however, argue that older Americans spend a disproportionate amount of their incomes on health care costs, which rise faster than consumer prices.
The lack of a cost of living increase triggers several provisions in the law. Among them, the amount of wages subject to Social Security payroll taxes will remain unchanged. The first $106,800 of a worker's earned income is currently subject to the tax.
Also, Medicare Part B premiums for the vast majority of Social Security recipients will remain frozen at 2009 levels. However, premiums for the Medicare prescription drug program, known as Part D, will increase.
Obama called on Congress Wednesday to approve the second round of stimulus payments, and several key lawmakers said they would.
"This additional assistance will be especially important in the coming months, as countless seniors and others have seen their retirement accounts and home values decline as a result of this economic crisis," Obama said in a statement.
The $250 payments would go to Social Security recipients as well as those receiving veterans or disability benefits, railroad retirees, and retired public employees who don't receive Social Security. Recipients would be limited to one payment, even if they qualified for more.
The White House put the cost of the payments at $13 billion. Obama said he would not allow the money to come out of the Social Security trust funds, which would further erode the finances of the retirement program. Social Security already is projected to pay out more in benefits than it collects in taxes in each of the next two years.
However, Obama did not offer any alternatives to finance the payments. A senior administration official said Obama was open to borrowing the money, increasing the federal budget deficit. The official, who requested anonymity, was not authorized to speak on the record.
Senate Majority Leader Harry Reid, D-Nev., said he supports sending out another round of payments, as did Rep. Charles Rangel, D-N.Y., chairman of the Ways and Means Committee, which has jurisdiction over Social Security in the House.
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House Speaker Nancy Pelosi, D-Calif., said she would work to "help seniors, veterans, and people with disabilities hit by the worst economy since the Great Depression."
Other lawmakers said seniors shouldn't get the extra payments because the formula doesn't call for it.
"I think it would be inappropriate," said Sen. Judd Gregg, R-N.H. "The reason we set up this process was to have the Social Security reimbursement reflect the cost of living."
The average monthly Social Security payment for all Social Security recipients is $1,094.
