The Diet COLA Myth
The Wall Street Journal, August 27th, 2009
AARP and other self-styled senior lobbies are raising a ruckus over
the news that in 2010, for the first time in 35 years, Social Security
recipients won't be getting a cost of living increase in their monthly
checks. Members of Congress are calling for an investigation into the
way COLAs are calculated. But the only real scandal here is the
opposite of what Congress, the press and AARP are moaning about. The
recent fall in prices has served up a windfall for seniors and a real
$600 average increase in their Social Security payments this year.
There will be no COLA increase this year because consumer prices
have been level or even falling. In the past nine months, the consumer
price index—the official measure of the cost of living—has fallen by
2.3%, meaning the real purchasing power of a Social Security check has
risen. How is this bad for seniors? In the 1970s we were told that
inflation robs seniors more than most because they live on fixed
incomes. Now we're told grandma suffers from no inflation.
Most seniors will have to pay about $2
a month more next year because of an increase in Medicare drug coverage
premiums that are withheld from Social Security checks. But this is
dwarfed by the Social Security windfall over the past 12 months that
resulted from a 5.8% COLA increase awarded for 2009. This was an
overpayment for sure. Prices rose by nearly 6% through August of 2008,
but then inflation fell in last year's fourth quarter as energy prices
crashed.
Prices have been roughly flat since that time according to the
government's calculations. By January of this year, says Andrew Biggs,
the deputy commissioner of Social Security under President George W.
Bush, "Social Security benefits were about 4.3% higher this year than
needed to maintain constant purchasing power." He figures that because
the average Social Security check is $1,160 a month, the typical senior
received a $516 bonus above inflation this year.
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