Committee for a Responsible Federal Budget

Lawmakers Offer "CORA" - the "Cost of Reelection Adjustment"

Oct 15, 2010 | Social Security

Today, the Social Security Trustees announced that for the second year in a row, there will be no additional cost-of-living-adjustment (COLA) for Social Security benefits next year. Automatic COLAs, first established in 1975, increase the dollar amount Social Security beneficiaries receive to make sure that inflation does not erode the real level of benefits. As a result, the COLA is determined by the Consumer Price Index and is calculated based off of third quarter to third quarter (July, August, September) changes in inflation. (Read our press release from earlier today here.)

This year, like last year, the Social Security Trustees have determined that the changes in the CPI-W do not warrant additional monetary benefits. The purchasing power of Social Security benefits has not fallen since the last 5.8 percent adjustment for benefits in 2009. The following table presents the CPI-W inflation changes that the economy has experienced since July 2008 (as measured by the Bureau of Labor Statistics).

 [chart:3168]

As can be plainly seen, even though there has been some inflation increases over the past year, benefits are still higher than what they could have been if they are allowed to fall in line with prices. Even looking at the CPI-E (an experimental measure looking at price changes affecting older Americans), prices still have not reached the peak levels of 2008 when the last COLA was set.

What is truly troubling is that both lawmakers and the Administration are once again pandering to seniors.  The Administration and several lawmakers have directly called for a one-time payment of $250 to seniors to "compensate" them for not having a COLA. Speaker Pelosi even said last night that the House would hold a vote on a one-time payment of $250 to seniors in November.

There's just no excuse here. A one-time payment to seniors or ad-hoc COLA would be economically unjustifiable since doing so would actually be relative benefit payment increase. With our fiscal outlook so poor and with Social Security's projections just as bad, increasing relative benefits, while politically a good move (I mean, who wouldn’t want free money!), is a terrible fiscal idea. Such a proposal (whether offset or not) would truly reflect poor policymaking and blatant pandering. (Click here to read our ranking of the most harmful to least harmful options for an ad-hoc COLA or one-time payment.)

If members of Congress feel that giving additional money to seniors is an appropriate use of money for economic stimulus purposes, then that is a separate debate that would have to be judged on different merits. No one here at CRFB underestimates the concerns about poverty among older-aged Americans, and in fact we have recommended and old-age bump-up in Social Security benefits to help combat this. This move, however, appears to be completely political. The COLA was not designed to give people additional real benefits, but to keep their benefit levels the same and unaffected by inflation.

This is the same nonsense that happened last year when the Trustees announced that there would be no COLA. Policymakers are setting a horrible precedent where they decide they should directly pander to a specific voting block, even when the Trustees, by their own pre-determined formula, decide that there is no economic reason for additional money based on inflation. If we are to give more out more Social Security benefits and fix the problem of impoverished seniors, we must have in place a concrete plan to make it a long-term viable program.

Instead of a COLA, this is more like lawmakers offering their own version: the CORA, or Cost of Reelection Adjustment. Members of Congress should be honest to seniors and the public. They should have a frank discussion with the public about the budget and Social Security's challenges. People will admire their honesty and bravery, not their pandering.

As CRFB President Maya MacGuineas said today in CRFBs press release, “This issue can be seen as a litmus test for fiscal responsibility. Let's hope politicians prove more committed to addressing the nation's fiscal challenges than to pandering to influential voters."