Do Seniors Really Need Obama's Costly COLA Substitute?

(MoneyWatch)  The political cost of no Social Security cost-of-living-adjustment (COLA) in 2010 seems to be about $250 per retiree. That's the value of a special Social Security payout President Obama proposed last week, timed to offset the news that for the first time since the Social Security COLA was introduced in 1975, there will be no inflation adjustment next year.

Then again, it's the first time since 1975 that there has been no official inflation to spur the COLA. The Social Security COLA is tied to the Consumer Price Index for wage and clerical workers (CPI-W); the level of the CPI-W in the most recent third quarter is compared to the level from the third quarter in the previous year. Alas, the CPI-W was 2 percent lower in Q3 2009 than in Q3 2008, thus no COLA for 2010.
Mention any of this to seniors, and you will likely get a very loud earful about how the official inflation rate does a lousy job capturing the higher costs -- read: medical care -- that come with the territory of older age. But even a special shadow CPI, which tracks costs for the elderly by giving more weight to factors such as medical expenses, didn't budge this past year.

Yet the Administration is intent on giving seniors more, and it's likely to have enough Congressional support to pass; saying no to the senior voting bloc is not a popular Hill gambit. So it looks like we will be spending more money to give Social Security recipients their COLA, even if we won't call it that, and even if there wasn't any inflation. Combine this $250 proposed special benefit with the $250 paid out to Social Security recipients last spring as part of the $787 billion stimulus bill, and the $500 adds up to more than 3.5 percent of the average annual Social Security retiree benefit. That's on top of the 5.8 percent COLA recipients received this year.

The cost of this latest senior supplement? An estimated $13 billion to $14 billion. Hill wrangling is underway to settle on how to pay for this latest bit of government spending. Given that the Congressional Budget Office forecasts there will likely be no Social Security COLA in 2011 either, I won't be surprised if this special one-time payout might materialize (for the third time) next year as well.

Image via Flickr user peretzpup, CC 2.0