Millions face shrinking Social Security payments

According to the August 23, 2009 article "Millions face shrinking Social Security payments," Associated Press writer Stephen Ohlemacher says:

WASHINGTON – Millions of older people face shrinking Social Security checks next year, the first time in a generation that payments would not rise. The trustees who oversee Social Security are projecting there won't be a cost of living adjustment (COLA) for the next two years. That hasn't happened since automatic increases were adopted in 1975.

By law, Social Security benefits cannot go down. Nevertheless, monthly payments would drop for millions of people in the Medicare prescription drug program because the premiums, which often are deducted from Social Security payments, are scheduled to go up slightly.

"I will promise you, they count on that COLA," said Barbara Kennelly, a former Democratic congresswoman from Connecticut who now heads the National Committee to Preserve Social Security and Medicare. "To some people, it might not be a big deal. But to seniors, especially with their health care costs, it is a big deal."

Cost of living adjustments are pegged to inflation, which has been negative this year, largely because energy prices are below 2008 levels.

Advocates say older people still face higher prices because they spend a disproportionate amount of their income on health care, where costs rise faster than inflation. Many also have suffered from declining home values and shrinking stock portfolios just as they are relying on those assets for income.

"For many elderly, they don't feel that inflation is low because their expenses are still going up," said David Certner, legislative policy director for AARP. "Anyone who has savings and investments has seen some serious losses."

About 50 million retired and disabled Americans receive Social Security benefits. The average monthly benefit for retirees is $1,153 this year. All beneficiaries received a 5.8 percent increase in January, the largest since 1982.

More than 32 million people are in the Medicare prescription drug program. Average monthly premiums are set to go from $28 this year to $30 next year, though they vary by plan. About 6 million people in the program have premiums deducted from their monthly Social Security payments, according to the Social Security Administration.

Millions of people with Medicare Part B coverage for doctors' visits also have their premiums deducted from Social Security payments. Part B premiums are expected to rise as well. But under the law, the increase cannot be larger than the increase in Social Security benefits for most recipients.

There is no such hold-harmless provision for drug premiums.

Kennelly's group wants Congress to increase Social Security benefits next year, even though the formula doesn't call for it. She would like to see either a 1 percent increase in monthly payments or a one-time payment of $150.

The cost of a one-time payment, a little less than $8 billion, could be covered by increasing the amount of income subjected to Social Security taxes, Kennelly said. Workers only pay Social Security taxes on the first $106,800 of income, a limit that rises each year with the average national wage.

But the limit only increases if monthly benefits increase.

Critics argue that Social Security recipients shouldn't get an increase when inflation is negative. They note that recipients got a big increase in January — after energy prices had started to fall. They also note that Social Security recipients received one-time $250 payments in the spring as part of the government's economic stimulus package.

Consumer prices are down from 2008 levels, giving Social Security recipients more purchasing power, even if their benefits stay the same, said Andrew G. Biggs, a resident scholar at the American Enterprise Institute, a Washington think tank.

"Seniors may perceive that they are being hurt because there is no COLA, but they are in fact not getting hurt," Biggs said. "Congress has to be able to tell people they are not getting everything they want."

Social Security is also facing long-term financial problems. The retirement program is projected to start paying out more money than it receives in 2016. Without changes, the retirement fund will be depleted in 2037, according to the Social Security trustees' annual report this year.

President Barack Obama has said he would like tackle Social Security next year, after Congress finishes work on health care, climate change and new financial regulations.

Lawmakers are preoccupied by health care, making it difficult to address other tough issues. Advocates for older people hope their efforts will get a boost in October, when the Social Security Administration officially announces that there will not be an increase in benefits next year.

"I think a lot of seniors do not know what's coming down the pike, and I believe that when they hear that, they're going to be upset," said Sen. Bernie Sanders, an independent from Vermont who is working on a proposal for one-time payments for Social Security recipients.

"It is my view that seniors are going to need help this year, and it would not be acceptable for Congress to simply turn its back," he said.
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On the Net:
Social Security Administration: http://www.ssa.gov/
National Committee to Preserve Social Security and Medicare: http://www.ncpssm.org

Burdening Future Generations

An editorial cartoon by Gary Varvel appeared on the Jacksonville Observer website on June 19, 2009. It depicts future taxpayers being burdened by a big government. I agree with the cartoon with a few modifications. The big government ship also should include the wars in Iraq and Afghanistan started by President George W. Bush, the fiscally irresponsible but popular prescription drug benefit pushed through by the Republican-controlled Congress in 2003, and the thousands of other government programs. And instead of just Barack Obama on the ship's bow, it also should include Ronald Reagan, George W. Bush, and most of the other politicians in Washington since 1981. That is when our culture of fiscal irresponsibility was established under the disguise of supply-side economic theory. See the "U.S. Public Debt Since 1940 - Adjusted for Inflation." Baby Boomers have been burdening future generations for decades.

Robert Reich Says Powerful Lobbies are Impeding Health Care Reform

The big decisions on health care reform are happening right now. Congress is "mixing the concrete" of the health care reform bill, as the economist Robert Reich puts it on his blog, "And after it's poured and hardens, universal health care will be with us for years to come in whatever form it now takes."

But who's doing the mixing? Robert Reich, who served as Secretary of Labor in the Clinton administration, tells Bill Moyers on the JOURNAL that the fight to shape health care reform is the biggest test to date for President Obama. Powerful lobbies have lined up to oppose what is being called "the public option," a key element of the president's plan.

The public option, according to Reich, is a government-run non-profit insurance pool, that, by virtue of its size and bargaining power, could control costs and offer people who are either uncovered by, or unhappy with private insurers an affordable alternative path to health care. Medicare is an example of a public option, notes Reich, with one important caveat — the Medicare drug benefit bill passed during the Bush administration expressly forbids Medicare from using its size to negotiate for lower costs, an important key to keeping prices down.

Robert Reich was the nation's 22nd Secretary of Labor and is a professor at the University of California at Berkeley.

Robert Reich´s blog.

Robert Reich´s website.

U.S. Public Debt Since 1940 - Adjusted for Inflation

Here is the U.S. public debt since 1940 adjusted for inflation:

Adjusting the public debt for inflation provides a good account of federal government borrowing. The public debt increased in the 1940s to finance World War II. The public debt remained fairly constant from the late 1940s through 1981. This means the U.S. was reasonably responsible with its finances, collecting sufficient revenues to pay for government services. There is a slight increase in the 1970s. With the exception of a few years in the late 1990s, the U.S. government has increased its debt every year since 1981. Revenues have been insufficient to cover expenditures because government revenues have been reduced by tax cuts, but government spending has continued to increase. Most analysts attribute the reduction in the public debt in the late 1990s to the Congressional adoption of pay-as-you-go (PAYGO) rules. PAYGO required increases in discretionary spending to be accompanied by either tax increases or equivalent reductions in other government spending. After the election of President George W. Bush in 2000, the PAYGO rules were allowed to lapse in the House of Representatives and watered down in the Senate to facilitate the passage of tax cuts and the Medicare prescription drug plan, which former U.S. Comptroller General David Walker called "...probably the most fiscally irresponsible piece of legislation since the 1960s... because we promise way more than we can afford to keep." There was a subsequent dramatic increase in the U.S. public debt.

See also the "U.S. Public Debt Since 1940" and "U.S. Public Debt as a Percentage of Gross Domestic Product (GDP)".