Over the last few days there has been quite a bit of panic over the suggestion that the Obama Administration may have placed an adjustment of the Social Security Cost of Living Adjustment (COLA) on the table by pegging it to a different calculation of the Consumer Price Index (CPI).
"While it is often claimed that this switch will make the COLA more accurate, this is not clear. What is certain is that the switch would lower benefits. The research on the C-CPI-U shows that the switch would reduce benefits by roughly 0.3 percentage points a year compared with the baseline. This means that after someone has been retired for 10 years, their benefits would be 3 percent lower. After 20 years of retirement, their benefits would be 6 percent lower and people living into their 90s and collecting benefits for more than 30 years would see a drop in benefits of more than 9 percent. This might be especially difficult since the oldest of the elderly also tend to be the poorest.
Well, that's pretty dire.
The problem I have with a lot of this is the fact that my mother is already on Social Security and she's told me that her checks have been frozen for the last two years with no cost of living increase at all.
So what's really going on here?
As FactCheck.org explains the COLA's have been frozen, but it's not neccessarily the fault of Congress or the President.
Social Security checks have gone up automatically every year since 1975, when the first automatic cost-of-living adjustment (COLA) took effect. Prior to that, a separate act of Congress was required to grant any adjustment to compensate for inflation. But this January, there won’t be any COLA, for the first time in the 35 years the system has been in operation.
It’s a reversal of what happened last year, when soaring fuel prices pushed the cost of living measure sharply upward, producing the 5.8 percent COLA increase that went into effect last January. That was the largest increase since 1982.
...
But now things are different. The CPI-W peaked a year ago, just before the 5.8 percent increase was calculated, and took a nose dive in the months that followed. Quarterly figures won’t be available until October, but based on monthly figures, the CPI-W now stands 1.9 percent below where it was 12 months before.
As of now there has not been a COLA increase in Social Security for the last two years and there won't be one until the CPI-W gets above 215 (as shown on the above chart).
By law Social Security Benefits are not allowed to go down so in theory using this method their last increase in 2009 when the CPI peaked at 5.8% should be giving them substantially better buying power if the actual CPI has crashed all the way down to 1.9% and their payouts remain at the 5.8% level.
But how many of us who know people on Social Security really believe their getting more bang for their buck?
Again according to Factcheck the reason for the 5.8% spike appears to be Oil Prices which dropped dramatically in 2008-2009, as well as the housing market and general recession which continue to be soft.
The Social Security Trustees Report that COLA's will finally return in December of 2011.
I'm not an actuarial or an expert on this, just a concerned layman so I probably can't say this for certain, but it seems to me that if we had already pegged the COLA to the CPI-U it might have already returned if you look at this chart.
According to my reading of this the first six months of 2011 have already been higher than the 2008 peak which both charts indicate. Also the CPI-U peaks higher (219) and doesn't dip as low (about 208) as the CPI-W (215 to 205), so it seems generally a liitle higher with a cursory glance. But then again, I could be wrong as this CPI-W Chart shows us surpassing the 2008 peak in March of this year.
So I don't think it's quite as simple as saying switching to the CPI-U from the CPI-W will cut COLA's by 0.3%, particularly when there haven't been any COLA's for the last two years. If they made that change right now - it wouldn't make a wit of difference because 0.3% of Nothing - Is Still Nothing.
Many people have seen simply having this discussion as a horrible betrayal of Democratic Principles to support and protect Social Security. I think that may be drastically overstated, or "Overshooting the Runway" as has been quipped.
0.3% is an Average and in any particularly year might be a bit lower, or it might be a bit higher - so maybe widespread panic and teeth gnashing isn't really warranted.
IMO I think if this is going to be considered, Obama needs to honor his pledge and ensure that these changes will only affect Social Security Recipients and Tax Payers making more than $250,000/year. if it really does have the risk of either reducing benefits or increasing taxes as has been suggested.
If we put this on the table, the question is - what do we get for it?
Well, if we can close $1 Trillion in loopholes and tax breaks that send our jobs overseas - such as those TPM has described...
The president’s renewed efforts follow what knowledgeable officials said was an overture from Mr. Boehner, who met secretly with Mr. Obama last weekend, to consider as much as $1 trillion in unspecified new revenues as part of an overhaul of tax laws...
For $1 Trilion in Revenues, this just might be worth it IMO.
Please remember that the CBO has Said that under current law (and with some modifications to the "Doc Fix") the Budget Will Balance Revenues with match Outlays - not including Interest on the Debt - in 2016. The problem is that would require All of Bush Cuts, including those for people making less than $250,000 to expire in 2012.
The Top Chart Shows what happens under current law, the bottom chart shows what happens if the people at Heritage get their way and the Bush Tax Cuts (all of them) are extended.
Obama desperately Needs those additional Revenues (as well as cover the interest payments on the debt to reach balance) in order to keep from raising taxes on the Middle class without jeopardizing this projected balance. If this COLA change is what he's dangling out in front of the GOP to get it, considering again the fact that the COLA hasn't gone up in two years and it might not even go up again in December if elements like the Job Numbers keep missing their mark, what he's bargained away is essentially nothing.
There is no deal yet, these are all just discussion topics. Let's all please calm down and take it one step at a time and see what comes out before we get on the warpath of either giving Obama a primary or sitting out 2012 over this.
President Romney with Vice President Bachmann are not worth it.
Just a suggestion.
Vyan