Stick by Social Security rules: no inflation, no cost of living increase

This editorial appears in the Aug. 27, 2009, Yakima Herald-Republic.

The trustees who oversee Social Security projected this week that recipients won't receive an increase in their monthly checks come 2010. The reason: The automatic cost of living increases (COLAs) that Congress enacted in 1975 are tied to inflation, and inflation has been negative this year.

While holding the line will be painful for some recipients, Congress would be wise to not bow to public pressure that surely will be mounted to boost payments. The reality is that with negative inflation, those Social Security checks will have greater buying power next year.

Advocates for seniors argue that seniors pay a higher proportion of their income for health care, which rises at a rate higher than the rate of inflation, whether covered by insurance or not. They point out that without a hike in Social Security payments, many recipients will see reductions in their checks because of an anticipated increase in premiums for the Medicare prescription drug program. Of the 32 million people in the program, 6 million have premiums deducted from their checks, though the average monthly premium is projected to increase only $2 next year. (Millions of people who receive Medicare Part B medical coverage also have premiums deducted from their checks. However, there's a provision that prevents those premium from rising at a greater rate than the increase in Social Security benefits for most recipients.)

Further, advocates argue that the recession's impact on retirees is magnified because the investments they now need to rely upon have shrunk.

The Social Security Act of 1935 was designed as a safety net for senior citizens, protecting them from financial ruin once they left the work force. It was expanded in 1956 to provide payments to Americans who've become disabled and are no longer able to work. Today, some 50 million retired and disabled Americans -- about one in six of us -- receive benefits.

The entitlement program is being crushed, however, under the weight of its payouts. Insolvency is looming. The Social Security Administration projects that it will pay out more money than it takes in starting in 2016. By 2037, the fund will have evaporated unless changes are made.

Every president since the 1970s, when the COLAs were enacted, has proposed some sort of reform for Social Security. President Barack Obama, his new administration heavily engaged in a political battle over health-care reform and still dealing with a messy financial recovery plan, has signaled a desire to begin tackling Social Security reform next year.

Until there is a sensible plan and the political will to change the system, this is no time to make piecemeal changes such as those proposed by Barbara Kennelly, a former Democratic congresswoman from Connecticut. Kennelly, head of the National Committee to Preserve Social Security and Medicare, proposes increasing the amount of income subject to Social Security taxes. Currently, those taxes are paid on the first $106,800 of income. Kennelly's group has suggested boosting the limit -- which can only be increased so long as benefits increase -- to provide a one-time payment of $150. In the alternative, her group suggests a small, 1 percent rise in monthly payments.

While the income cap for which Social Security taxes apply doesn't make much sense to us, adjusting it as a method to increase payments doesn't either.

First off, the increases would be negligible. Secondly, recipients have benefited under current law. This year, Social Security beneficiaries received a 5.8 percent increase, the largest increase since 1982. Many recipients also received $250 stimulus payments.

Given the drop in consumer prices this year, Social Security recipients have greater buying power because of the January increase. Andrew Biggs, a resident scholar with the American Enterprise Institute, a conservative Washington think tank, says, "Seniors may perceive that they are being hurt because there is no COLA, but they are in fact not getting hurt."

Another conservative think tank scholar, Chuck Blahous of the Hudson Institute, wrote in the Washington Post this week that the consumer price index has actually declined by 4 percent since food and energy costs skyrocketed last year. "Benefit payments are exceeding inflation, and seniors will simply pocket this 4 percent increase in real purchasing power for the indefinite future, until prices once again exceed their 2008 levels and further COLAs resume," he argued.

Social Security is vitally important for millions of Americans. It's a program that greatly needs shoring up, and one that the Obama administration and Congress cannot ignore. But skirting the law's provisions that provide for automatic increases -- and no increases when circumstances warrant --  is not the way to go.

* Members of the Yakima Herald-Republic editorial board are Michael Shepard, Bob Crider, Spencer Hatton and Karen Troianello.