Administration Proposes One-Time Payment to Seniors

Today, the Social Security Administration (SSA) announced that, in light of the deflation experienced over the past year, there will be no COLA for Social Security benefits in 2010. This will mark the first year without a COLA since automatic indexing began in 1975.

Given that prices have gone down, we find this lack of COLA to be entirely appropriate, and put out a press release today urging politicians not to enact an ad-hoc COLA. As CRFB President Maya MacGuineas explained:

“Prices have fallen substantially since last year’s 5.8 percent COLA was announced*…Even holding Social Security benefits steady means they will have increased in value. There is no economic or moral justification for increasing them further…[calling for an ad-hoc COLA] is pure political pandering. COLAs are meant to maintain buying power, not increase it.”

Responsible parties on both the left and the right have agreed with us that an ad-hoc COLA is unjustified (see Andrew Biggs’s paper here at the American Enterprise Institute and Kathy Ruffing’s paper here at the Center on Budget and Policy Priorities).

In place of an ad-hoc COLA, the Obama Administration has just proposed a one-time payment of $250 dollars to 57 million seniors. The total cost of this program would be roughly $13 billion, with White House officials not saying exactly how they would fund it. In an uncharacteristic move, the SSA also announced in their press release today that they urge Americans to support the Administration’s proposal for a one-time payment.

Although a one-time payment would be less damaging than an ad-hoc COLA (since its effects would more likely be temporary), there remains little economic justification for this. Due to falling prices, seniors will already be seeing an increase in the value of their Social Security benefits.

There could, theoretically, be some justification for payments on stimulus grounds. But there would have to be strong evidence that the original payments included in the 2009 stimulus act (see CRFB’s Direct Assistance to Individuals category on for a breakdown of these payments) were a particularly successful form of economic stimulus – and that the positive stimulative effect of more deficits will outweigh the economic costs.

Absent such evidence, CRFB opposes the one-time payments. With our entitlement programs out of control, our nation can’t afford this type of pandering to seniors.

*Our original release said that prices had gone down by 4 percent. This was a mistake on our part. In fact, they have gone down by somewhere between 1 and 2 percent, depending on the measurement used.