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WASHINGTON — There will be no cost of living increase for more than 50 million Social Security recipients next year, the first year without a raise since automatic adjustments were adopted in 1975.
Blame falling consumer prices. By law, cost of living adjustments are pegged to inflation, which is negative this year, the government said Thursday, because of lower energy costs. Social Security payments do not go down, even when prices drop.
The Obama administration, meanwhile, is pursuing a different way to boost recipients' income. On Wednesday, President Barack Obama called for a second round of $250 stimulus payments for seniors, veterans, retired railroad workers and people with disabilities.
The payments would match the ones issued to seniors earlier this year as part of the government's economic recovery package. The payments would be equal to about a 2 percent increase for the average Social Security recipient.
Social Security payments increased by 5.8 percent in January, the largest bump up since 1982. The big increase was largely because of a spike in energy costs in 2008.
"Social Security is doing its job helping Americans maintain their standard of living," said Social Security Commissioner Michael J. Astrue.
But, he added, "In light of the human need, we need to support President Obama's call for us to make another $250 recovery payment for 57 million Americans."
The Labor Department reported Thursday that consumer prices had declined 2.1 percent since the third quarter of 2008. The cost-of-living adjustment for Social Security, or COLA, is based on the change in consumer prices from the third quarter of one year to the next.
Social Security recipients shouldn't get a raise next year because their purchasing power has already increased with falling consumer prices, said the Center on Budget and Policy Priorities, a liberal-leaning think tank.
"Since the purpose of COLAs is to preserve beneficiaries' purchasing power, the decline in overall prices means that beneficiaries do not need a COLA in January 2010," Kathy Ruffing, a senior policy analyst at the center, wrote in a report this week.
Over the past 12 months, gasoline prices have fallen 29.7 percent and overall energy costs have decreased 21.6 percent, the Labor Department said Thursday.
Ruffing noted that government forecasters don't expect consumer prices to return to 2008 levels until 2011.
Sen. Judd Gregg, R-N.H, called the $250 payments "inappropriate."
"The reason we set up this process was to have the Social Security reimbursement reflect the cost of living," Gregg said.
Some advocates for seniors, however, argue that older Americans spend a disproportionate amount of their incomes on health care costs, which rise faster than consumer prices.
The lack of a cost of living increase triggers several provisions in the law. Among them, the amount of wages subject to Social Security payroll taxes will remain unchanged. The first $106,800 of a worker's earned income is currently subject to the tax.
Also, Medicare Part B premiums for the vast majority of Social Security recipients will remain frozen at 2009 levels. However, premiums for the Medicare prescription drug program, known as Part D, will increase.
Obama's proposal calls for sending $250 payments to Social Security recipients as well as those receiving veterans 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.
The White House put the cost of the payments at $13 billion. Obama didn't say how the payments should be financed, leaving that up to Congress. The president is open to borrowing the money, increasing the federal budget deficit, just like Congress did with the first round of stimulus payments.
Obama's proposal has picked up support from key members of Congress, including Senate Majority Leader Harry Reid, D-Nev., and House Speaker Nancy Pelosi, D-Calif.
Several groups that advocate for seniors have also endorsed the $250 payments, including the AARP and the National Committee to Preserve Social Security and Medicare.
One group, The Senior Citizens League, said Social Security recipients would be better off with a 3 percent increase in their monthly payments.
"Although President Obama's call for a one-time payment of $250 will help seniors, it is a distraction since the zero COLA will cost retirees thousands in lost compounding throughout their retirement," said Shannon Benton, executive director of The Senior Citizens League.
The average monthly Social Security payment for all Social Security recipients is $1,094.
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