Bradley C. Bower/AP
Trays of printed Social Security checks wait to be mailed from the U.S. Treasury's financial management services facility. President Obama has endorsed a congressional effort to give Social Security recipients a one-time payment of $250 in the coming year.
Trays of printed Social Security checks wait to be mailed from the U.S. Treasury's financial management services facility. President Obama has endorsed a congressional effort to give Social Security recipients a one-time payment of $250 in the coming year. Bradley C. Bower/AP
When President Obama endorsed a congressional effort to give Social Security recipients a one-time payment of $250 in the coming year, he characterized it as an extension of the government's economic stimulus program.
And, technically, the White House can make that argument: Recipients received an equal amount this year in stimulus funds, though they weren't scheduled to get more.
But Obama's announcement Wednesday came less than 24 hours before the government made official expected but unwelcome news for the nation's seniors: For the first time since 1975, there will be no cost-of-living increase in their monthly Social Security retirement checks in the coming year.
"It's just more bad economic news in a year that's already had enough of it," says Cristina Martin Firvida, director of economic security for AARP.
And clearly the White House recognized that the cost of living announcement would also be bad political news for the president.
A Very Important Interest Group
Though the payment adjustment is tied by law to the Consumer Price Index — which fell 2.1 percent in the third quarter — the lack of an increase would no doubt prove troublesome for Obama with a very important interest group.
And troublesome even though last year the government approved a historically high 5.8 percent cost-of-living increase for seniors, due in large part to rising energy costs that prompted a brief but intense spike in consumer prices at the time the adjustment was calculated.
The index had plummeted by the time the government began to make payments that included the 5.8 percent bump, and it remains below the level at which last year's increase was calculated.
Still, the prospect of tens of millions of senior citizens opening their mailboxes this fall to notices that their retirement checks would not automatically go up in the coming year is not palatable to any politician.
"Seniors are already really upset with the administration over the health reform debate," says Andrew G. Biggs, a resident scholar at the business-oriented American Enterprise Institute. "And fairly or unfairly, they would blame the administration if there is no cost-of-living increase.
"The administration," Biggs says, "is trying to make the best out of a bad situation."
The nation's senior citizens, as a whole, have been skeptical of the young president and, in particular, of his move to overhaul the health care system.
A Gallup Poll released Thursday showed that those aged 65 and older have the lowest opinion of the president of any age demographic.
Forty-six percent of Americans aged 65 and older told Gallup surveyors that they approve of the president, compared with 52 percent overall. And those older Americans comprised the only age demographic that Obama failed to carry in the 2008 presidential election.
Politically speaking, Biggs says, it made sense for the president to get on board with a relatively inexpensive program — if a total $13 billion payout without a revenue offset can be characterized as inexpensive. (The White House has said it won't compromise the Social Security Trust Fund to pay for the program.)
"The plan proposed by the administration is the least bad of a range of bad options," says Biggs, a former Social Security Administration official in the George W. Bush administration. "It's a one-time payment, they've been careful not to link it too closely with COLA [cost of living adjustment], and it's not Cash for Clunkers. "
A Stimulative Effect?
Though the White House has suggested that the infusion of money to Social Security recipients could help stimulate the economy, most experts say the effect is difficult to predict.
"Going forward, it's not clear what the impact will be," says Craig Copeland, a senior research associate at the Employee Benefit Research Institute.
"If a couple relies on Social Security alone for retirement, it could be fairly significant," Copeland says. "The $500 they would get would be about half the average monthly payment for a couple, and that could help them purchase something."
However, with rising health care costs, the money could simply be plowed into paying for the rising costs of existing needs, like prescription drugs, he says.
About 20 percent of the nation's senior citizens rely solely on Social Security for their retirement income. Some 60 percent of seniors report that three-quarters of their retirement income comes from the government program.
Firvida of AARP says that the additional stimulus money will "make a meaningful difference" for seniors facing economic circumstances that many have never encountered in their lifetimes.
Setting A Problematic Precedent?
Still, the administration's decision to endorse the $250 payment to seniors in the face of the COLA announcement has made some squeamish.
The COLA formula, Copeland says, was established so there wouldn't be an annual discussion about what would constitute an appropriate annual adjustment.
"We've done it this way for 36 years, but this year the result, I guess, isn't liked," he said. "There is a formula that's been in effect, and the cost of living didn't go up."
Senior advocates have long argued that the Consumer Price Index doesn't accurately assess the types of expenses — particularly health care costs — that older Americans face.
The American Enterprise Institute's Biggs is among those who question that assertion. He says that over the past year, even taking into account what seniors spend their money on, they should have received no cost of living adjustment.
"It's a bad precedent to not look at facts, not stick with formulas, but to bow to a powerful pressure group that already benefits significantly from government programs," Biggs says. "This is moving in the wrong direction — bending the cost curve upwards."
Though it might be an investment in politics, Firvida and other senior advocates see the president's action as an important step to help the nation's oldest citizens.
"Criticism [of the program] ignores the realities of what senior citizens face today," Firvida says. "Their nest eggs have taken a hit, their home values have plummeted, and they are facing some very tough circumstances."