The Congressional Budget Office (CBO) dropped a bombshell on Social Security beneficiaries in mid-February by announcing that there likely will be no Social Security cost-of-living adjustment (COLA) for 2010. Worse, advocates now fear the CBO report will be used by Congress to make deep cuts in Social Security benefits in future years.
The Congress enacted the annual Social Security COLA law in 1975 to protect seniors on Social Security from losing purchasing power of their benefits to inflation. Each year the new CoLA would be based on the previous year’s increase in the consumer price index (CPI). The CPI is an index of prices paid by the typical boomer family of four for a representative market-basket of goods and services.
Very early on, economists at the Bureau of Labor Statistics (BLS) recognized the CPI did not accurately reflect the real impact of inflation on seniors for the goods and services they typically purchase for their livelihood. Seniors need more medical care and spend more on food and energy costs as a proportion of their overall income. The inflation in these sectors of the economy is typically higher, and seniors are disproportionately financially hurt. In short, the CoLA does not help seniors keep pace with the true inflated cost of the necessities they need just to maintain their standard-of-living.
To correct this inequity, the BLS economists developed a more accurate CPI formula that is based on the costs of goods and services more relevant to seniors by tracking the cost of medical care, energy, and food, each of which has costs that are increasing more rapidly than other goods and services in the economy. This more accurate formula was dubbed the “CPI-E“ and is an experimental cost-of-living index applied to seniors over the age of 62.
For more than twenty years, the CPI-E has been languishing in obscurity because it costs more to use it. It costs more, on its face, because it more accurately protects seniors and the inflation they face for the goods and services they purchase.
Congress accepted a $4,700 annual pay increase this year to help them maintain their lifestyle, but they have shown no interest in protecting the standard-of-living for seniors.
The CBO’s “Budget and Economic Outlook: Fiscal Years 2009 to 2019” plainly states the “CBO anticipates that the year-over-year change in consumer prices for the third quarter of 2009 will show a decline, which implies that next year’s cost-of-living adjustment for Social Security and most other benefit programs will be zero.”
Without a fair CoLA increase, tens of thousands of seniors will be forced below the federal poverty line every year, and seniors will face a continuing erosion of the retirement security they invested in during their working years.
Congress needs to act quickly to require the CPI-E be used to calculate the annual CoLA for Social Security beneficiaries.
