Seniors are going to scream and howl about this, but officially there was no price inflation this year. Actually we have deflation, and so there will be no cost-of-living adjustment to Social Security this year. But, eager to get more cash into the population, President Obama is proposing to give $250 each to over 50 million seniors, retirees, and veterans. So… no cost-of-living increase, just a check to make up for one. What’s the point of actually having a COLA adjustment then, if you just make it up to recipients when they don’t get one. And if severe deflation hits, will we actually trim monthly Social Security checks? Doubtful.
By STEPHEN OHLEMACHER, Associated Press Writer
WASHINGTON (AP) — The Social Security Administration makes it official Thursday: There will be no cost of living increase for Social Security recipients next year, the first year without one since automatic adjustments were adopted in 1975.
The announcement comes as President Barack Obama and key members of Congress call for a second round of $250 payments to more than 50 million seniors, veterans, retired railroad workers and people with disabilities.
The payments would be equal to about a 2 per cent increase for the average Social Security recipient. The cost: $13 billion.
Obama called on Congress Wednesday to approve the payments, and several key members of Congress 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.
Blame falling consumer prices for no automatic increase next year. By law, Social Security’s cost-of-living adjustment, or COLA, is pegged to inflation, which was negative this year, due largely to falling energy costs.
The $250 payments would go to Social Security recipients as well as those receiving veterans benefits 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.
Obama said he would not allow the payments to come out of the Social Security trust funds and 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 authorised to speak on the record.
The $250 payments would match the ones issued to seniors earlier this year as part of the massive economic recovery package enacted in February. Those, too, were financed with borrowed money.
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.
Other lawmakers said Social Security recipients 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.”
Social Security payments increased by 5.8 per cent in January, the largest increase since 1982. The big increase was largely because of a spike in energy costs in 2008.
Inflation has been negative this year as gasoline prices have dropped 30 per cent and overall energy costs have dropped 23 per cent, according to the Bureau of labour Statistics.
Social Security payments, however, cannot go down. The average monthly Social Security payment for all Social Security recipients is $1,094.
NOW WATCH: Briefing videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.