Social Security COLA
Bradley C Bower  /  AP
The Social Security Administration makes it official: There will be no cost of living increase for Social Security recipients next year, the first year without one since automatic adjustments were adopted in 1975.
updated 10/15/2009 6:39:08 PM ET 2009-10-15T22:39:08

Social Security recipients won't get a cost-of-living increase next year for the first time in more than a third of a century, and that could boost President Barack Obama's plan to send seniors another round of $250 payments before the congressional elections.

Democratic leaders in Congress have signed onto the plan, greatly improving its chances, even as some budget hawks say the payments are unwarranted and could add to the federal budget deficit. Republican leaders said they, too, favor the payments but don't want to increase the deficit to pay for them.

More than 50 million Social Security recipients will see no increase in their monthly payments next year, the government said Thursday, the first year without an increase since automatic adjustments were adopted in 1975.

Blame it on falling consumer prices. By law, cost-of-living adjustments are pegged to inflation, which is negative this year because of lower energy costs. Social Security payments do not go down, even when prices drop.

Social Security recipients at a senior center in Pembroke Pines, Fla., a suburb of Fort Lauderdale, took it in stride that come January they won't see an increase in their benefits.

"At my age, I've got a nice bedroom, I have clothes, I have anything I want, I got a walker, what else do I need?" said Marie Arrasate, 83, who ran a restaurant and candy shop with her husband in Washingtonville, N.Y., and now lives with her daughter in Pembroke Pines.

"You have to make do with whatever you get. What are you gonna do? You can't do nothing about it," said Ed Nunez, 69, a retired truck driver from Miami.

The White House said the stimulus payments would cost $13 billion, though a congressional estimate put the cost at $14 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 deficit, just as Congress did with the first round of stimulus payments.

Government analysts have been forecasting for months that there would be no increase next year in monthly Social Security payments because of falling consumer prices. In anticipation of Thursday's announcement, Obama said Wednesday he supported $250 payments to about 57 million senior citizens, veterans, retired railroad workers and people with disabilities.

Seniors groups applauded the proposal, saying the recession has reduced home values and diminished retirement funds. Recipients would be limited to one payment, even if they qualified in more than one category.

"Without relief, millions of older Americans will be unable to afford skyrocketing health care and prescription drug costs, as well as other basic necessities," said Tom Nelson, chief operating officer for AARP.

Major Market Indices

The payments would match the ones issued to seniors earlier this year as part of the government's economic recovery package. They would be equal to about a 2 percent increase for the average Social Security recipient.

Social Security has been the backbone of the nation's safety net for older Americans since it was enacted in the 1930s. Together with Medicare, the government health insurance program for the elderly, it helps keep millions of seniors out of poverty.

The poverty rate for U.S. residents 65 and older is below the rates for other age groups and has been for much of the past two decades. In 2008, the rate for seniors was 9.7 percent, according to the Census Bureau. That same year it was 11.7 percent for 18-to-64-year-olds and 19 percent for minors.

The average monthly Social Security payment for all recipients is $1,094.

Some Social Security experts say recipients shouldn't get a raise or an extra payment next year because their purchasing power has already increased with falling consumer prices.

They note that Social Security payments increased by 5.8 percent this year, the biggest rise since 1982, largely because of a spike in energy prices in 2008.

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. Consumer prices in general have 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.

"The real purchasing power of their benefits is actually higher today than it was last year," said Andrew Biggs, a former deputy commissioner at the Social Security Administration and now a resident scholar at the American Enterprise Institute.

"Nevertheless, there will be a big political price to pay if no COLA is granted," Biggs said.

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. House Republican leader John Boehner of Ohio said he wanted to use unspent funds from last year's stimulus legislation to offset the cost.

Advocates for seniors argue that they deserve a raise because they spend a disproportionate amount of their incomes on health care costs, which rise faster than other consumer prices.

"Any senior living in the real world knows that the cost of living has gone up over the last year," said Sen. Charles Schumer, D-N.Y.

Obama's plan also picked up an endorsement from Social Security Commissioner Michael J. Astrue, who was appointed to a six-year term by former President George W. Bush.

The lack of a monthly increase in payments 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.

Copyright 2009 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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