Anyone who's harboring any hope that President Obama and Congress will ever be able to make tough decisions to reduce the deficit should watch what happens to the Social Security COLA next month. Or the non-COLA, since inflation has been so low over the last two years that the government announced Friday that beneficiaries won't be getting a cost-of-living adjustment for the second year in a row -- unless Congress acts.
It should not. This is a test for the president and all those members of the House and Senate who say deficits and the debt are too big and that something has to be done. "Something" starts with decisions like this one. Inflation hasn't been high enough since 2008 to justify a COLA, and the rules that beneficiaries were happy to live with when inflation was generating annual raises now stipulate no raise for 2011. But President Obama has proposed giving $250 to every beneficiary as a quasi-COLA anyway, and House Speaker Nancy Pelosi, D-Calif., has promised a vote after the Nov. 2 elections. Congress should stick to the rules.
No one should minimize the difficulty of living on a fixed income. But for anyone who says it's unfair or hard-hearted to deny seniors a COLA for next year, here's a little history.
Until the 1970s, there was no yearly COLA. Whenever Social Security beneficiaries managed to put enough pressure on Congress, politicians coughed up a big catch-up COLA to try to make recipients whole (or more than whole) for however many years had gone by since the last one. But Congress wisely decoupled COLAs from politics beginning in 1975 by tying annual cost-of-living adjustments to inflation.
So beneficiaries got COLAs every year, right up to the big 5.8% annual increase for 2009, which was based on the enormous spike in energy prices in the summer and fall of 2008. (For COLA purposes, inflation is measured from the 3rd quarter of one year to the 3rd quarter of the next.) In 2008, spot prices for oil to more than $145 a barrel and pushed gasoline to more than $4 a gallon, and prices stayed fairly high through September, conveniently giving retirees a huge COLA for the following year. But then energy prices plummeted, wiping out much of the inflation the COLA was supposed to protect against. By Christmas, spot oil prices had fallen almost to $30 a barrel, and gasoline prices had sunk as low as $1.71 a gallon. But retirees had their 5.8% COLA anyway.
One way to look at that is that retirees got the equivalent of a nearly 2% COLA each year for 2009, 2010 and 2011 -- but all at once, which made it an even richer deal. That kept them more than whole for inflation, since prices fell in 2009, and while prices inched up this year, they still haven't climbed back to the 2008 level. Looked at this way, retirees have already gotten a far bigger raise than actual inflation entitles them to. But no one's talking about taking that away, are they?
Social Security recipients have a pretty good deal. Benefits are hardly princely, but they're protected against the inflation that can ravage salaries and private pensions. Social Security benefits can go up with inflation, but never down. Those who are still working have no such protection, and the last few years have been brutal. Many of those lucky enough to still have a job have gone without raises of any kind, and some have had their income reduced by mandatory furloughs. Layoffs have left millions with no income at all. Social Security beneficiaries don't have to worry about furloughs or layoffs.
If the $250 President Obama wants to give Social Security recipients doesn't sound like much, multiply it by 58.7 million beneficiaries. That comes to $14.7 billion, all of which would have to be borrowed, since the federal government is already running $1 trillion-plus deficits.
Here's another way to think about that: A president and a Congress who self righteously denounce deficits are talking about borrowing almost $15 billion the government doesn’t have to give Social Security recipients a raise to protect them against inflation that doesn't exist, and sticking their grandchildren with the bill.
Nice.
President Obama and any member of Congress who votes for this -- and here's guessing that many will -- should be asked just when they plan to get serious about a national debt problem that's getting worse by the day. No time soon, apparently.
George Hager is a member of the USA Today editorial board.
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