No Social Security Increase Next Year
NYT reports No Social Security Increase Next Year:
One feeling reported was this:
“I just hope there is some way to reconsider that decision (on the COLA) because it is going to affect so many people,” Edelman said. “I can’t understand why the Congress hasn’t seen that there’s been an increase in everything.”
More than 58 million retirees and disabled Americans will get no increase in Social Security benefits next year, the second year in a row without a raise.
The Social Security Administration said Friday inflation has been too low since the last increase in 2009 to warrant an increase for 2011. The announcement marks only the second year without an increase since automatic adjustments for inflation were adopted in 1975. The first year was this year.
The cost-of-living adjustments, or COLAs, are automatically set each year by an inflation measure that was adopted by Congress back in the 1970s.
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A little more than 58.7 million retirees and disabled Americans receive Social Security or Supplemental Security Income. Social Security was the primary source of income for 64 percent of retirees who got benefits in 2008.The average Social Security benefit: $1,072 a month.
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The last increase in benefits came in 2009, when payments went up by 5.8 percent, the largest increase in 27 years. The big increase was caused by a sharp but short-lived spike in energy prices in 2008.Gasoline prices topped $4 a gallon in the summer of 2008, jolting the inflation rate and resulting in the high COLA for 2009. When the price of gasoline subsequently fell below $2 a gallon, so did the overall inflation rate. Seniors, however, kept the high COLA for 2009.
The reality of how it is determined from Econospeak and PGL:
There has been no recent decision by lawmakers to freeze nominal Social Security benefits. As our graph shows, the consumer price index for August 2010 is actually lower than it was in July 2008. So if CPI properly measures the cost of living – then seniors have received a slight increase in real income. Some prices may have increased while others have decreased. And perhaps food and utility for some seniors carry a higher weight in their own budgets than the typical consumer.
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According to the Bureau of Labor Statistics, energy prices have dropped dramatically over this period. It is true that the food price index has increased slightly. Over the same period, the housing price index has declined slightly. The medical price index, however, has increased by 6.8 percent. OK, seniors who budgets are heavily weighted towards the cost of medicine may have to make cutbacks.
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Thanks to Econospeak reader JWMason who asks us to check the CPI-E, which is discussed here:
The Bureau of Labor Statistics (BLS) also calculates an experimental price index for Americans 62 years of age or older (often called the CPI-E). This article reviews price changes seen in the experimental CPI-E from December 1997 through December 2009 and reiterates the methods, sources of data, and limitations of the experimental index described in earlier articles. Over the 12-year period from December 1997 through December 2009, the experimental CPI-E rose 36.1 percent. This compares to increases of 33.9 and 33.8 percent for the CPI-U and CPI-W, respectively … The relative importance data for the CPI-E and the CPI-U and CPI-W populations show that older Americans devote a substantially larger share of their total budgets to medical care (see Table 1). In addition, for each population group, medical care prices rose more rapidly than the overall (all items) index during each of the eight years studied. For this reason, the medical care component accounts for a significant portion of the difference between the higher rate of increase measured for the CPI-E relative to the two official population groups during the 1998-2009 period … The CPI-E, reweighted to incorporate the spending patterns of older consumers, behaved more like the CPI-U than the CPI-W. This was expected, because the CPI-U includes the expenditures of all urban consumers, including those 62 years of age and over. The CPI-W, however, is limited to the spending patterns of wage-earner and clerical families and, therefore, specifically excludes the experience of families whose primary source of income is from retirement pensions. Finally, the medical care component of the CPI has a substantially larger relative weight in the experimental population compared to the CPI-U or CPI-W. As a result, the medical care component tends to have a larger effect on the elderly population than it does on the other two indexes. Other differences also play an important role, however, such as the greater weight of homeownership in the CPI-E.
Our own Bruce Webb also leaves a comment at Econospeak:
The closing of the Medicare Part D donut hole via the ACA should have the effect of closing much of the gap between CPI-U and CPI-E. Or at least someone should run the numbers before we chase our tails arguing about indexes. Even if I believed CPI-E could possibly capture the true COL of seniors. My state and even my city offer a wide range of direct and discounted services to people over 55, something certainly not uniformly done across the country. But just about every place has something, even if it is as simple as the Early Bird Special at the local cafe. Trying to quantify for that and things like the variable opportunity costs for bargain shopping between current workers and retirees being pretty difficult, or so I would think.
Which leads us back to where? Who, like reader CreativeGeneration on a different thread regarding proprietary trading and his lack of knowing, will grit their teeth to learn the outline of what is being discussed and try to find out? And does it matter to someone age 83 living on $1,029/month, or Greg Mankiw’s feelings on his extra $1000 and a marginal tax?
I have lots of things to say about Mankiw, but do not mix apples and oranges. That is what all those who want to gut social security keep doing and while I welcome your post–indeed I emailed Bruce on the topic this morning–I would rather not mess with the benefit structure of social security. I am certainly a staunch defender of social security as it presently exists, I think it has been a marvelously successful program, but I am not in favor of either upsetting the balance that has been struck in contributions and benefits, nor am I in favor of increasing the deficit or skimping on food stamps, or education or childrens health care because some seniors feel pinched. Now if we want to dismantle the military/industrial complex and use the savings to improve the lives of all Americans including seniors, I am all for it.
terry,
You’ll gain no significant influence in the blogosphere with that kind of level headed approach to the issue.
“And does it matter to someone age 83 living on $1,029/month, or Greg Mankiw’s feelings on his extra $1000 and a marginal tax?”
Well, we have found a place for Mankiw to send his extra $1,000, haven’t we? 😉
Min,
I could not resist the juxtaposition…but under the fold.
And to terry,
In this political and media climate any ‘fix’ would need careful scrutiny, something not offered by many in the Social Security media industry.
Yes.
Social Security is a very good program for what it does. It should not be asked to carry the weight of every perceived need of the poor. If SS benefits are not keeping up with medical or food costs for the very poor SS beneficiary, some kind of welfare supplement might be in order… but it should not be a part of the SS program, which works only because it is NOT welfare.
Meanwhile, however. the CPI was Boskinized so that it does not reflect true cost of living… Boskin would argue that if you have a refrigerator, that is a reflection of improved standard of living and not cost of living compared to, say, 1803, therefore retired folk are not entitled to have the cost of owning a refrigerator figured as part of their cost of living.
There are, unfortunately, “friends” of Social Security who follow the same logic without even realizing it.
Meanwhile the answer is clear, if gas prices are down, and food prices are up, the retired folks should simply drive more and eat less. I believe that was another of Boskin’s arguments.
Y’all–Bruce is right about running the numbers. What if any adjustment to SS benefits needs to be made during deflationary periods was never considered by the Greenspan Commission. The reasons are obvious, but this administration has yet to explain how to deal with this novel situation.
Meanwhile, everyone knows the President established the Catfood Commission one of whose main goals is to cut benefits. What will SS beneficiaries think? They are going to think whatever Fox News tells them to think, that’s what. And, I don’t think Democrats will be very happy with the result.
Fox constantly beats the deficit and national debt drum. Their news people show pie charts of “Your Family Gets” as a tiny sliver of total govt spending including, of course, a big, big chunk labelled “Runaway Entitlements.” All of this is narrated by the Fox person complaining about the governments wasteful spending standing next to an actor in an Uncle Sam suit who says, “I’m greedy, alright!”
This stuff works. And, it’s out there right now convincing people that the government is bad, the Republicans will save them from the bad, bad govt, and Obama is a socialist bent on the destruction of the country. It’s getting nasty out there. NancyO
Buffpilot and I are in the same boat as SS recipients, military retirement (federal civil servcie as well with CoRev) is indexed as SS to COL we will for a second year live on/within last years’ monthly check.
Yep, ilsm, all us old federal employees are right out there with no COLA too. During the Carter and Reagan admins, we had a lot of no COLA years too. We sucked it up knowing that the advocates of abolishing civil service and cutting public pensions are at it again. The more things change the more they stay the same. Oh well. NancyO
back during the high inflation years, public employees in Oregon did not get cost of living increases that kept up with inflation because “the state couldn’t afford it.” many bitter jokes about the relation of their pay to the cost of prominent items in their budget over a period of about ten years. good a way as any of lowering public employee pay.
but the public still thinks public employees are over paid.
NO,
I was active duty military those years. While the serving folk had no COL raises, that was before they needed to recruit for endless wars of occupation, the retired folk got COL raises so that when Reagan put out raises to military pay scales one argument was ‘retired guys’ annuities were more than the same grades on active duty’.
Civil Service folk were excluded as “old ladies in tennis shoes” by the Reagan crowd.
and the disabled folks on ssi because they didnt earn enough points are just SOL with their $674 a month huh? the system needs to be fixed. ssi was never meant to be full time income yet we expect those disabled who cant work and who havent earned their full 40 points to live off of it. that is atleast one thing we SHOULD fix.