Social Security Payments Going Down in Value

[FrankRep]

Social Security Payments Going Down in Value


Steven Yates | John Birch Society
25 August 2009


Social Security payments are going down next year according to news reports. Well, actually, they aren’t going down numerically — by law they can’t do that. But seniors likely will not be able to buy as much because of what's happening to the value of the dollar, and some recipients may also see a numerical drop because of their participation in Medicare.

How far will the value of Social Security payments fall? The average monthly Social Security benefit for retirees is $1,153. This past January, the Cost of Living Adjustment (COLA) went up 5.8 percent based on the governmnent's measure of price increases for 2008, the largest increase in COLA since 1982.

The Social Security Administration has reported that for the first time since 1975, there won’t be an increase in COLA for the next two years. Monthly payments will drop slightly for millions of senior citizens in the Medicare prescription drug program because the premiums, often deducted from Social Security payments, are scheduled to increase slightly.

Over 32 million seniors are in the Medicare prescription drug program. Around 6 million have premiums deducted from monthly Social Security payments. Monthly premiums are scheduled to go from $28 this year to $30 next year — a figure that will be small but noticeable if not compensated for with a COLA.

COLAs are pegged to the official inflation rate which has been negative — because energy prices have returned to below 2008 levels. (The official inflation rate differs from the actual rate, of course, as a measure of the actual quantity of dollars in circulation in the world. This quantity has exploded over several years. Inflation does not always manifest itself as higher prices of consumer goods.)

Advocates for senior citizens are unhappy. Seniors will face higher prices because they spend more on healthcare where costs have risen. Many seniors, however, have seen the value of their homes and stock portfolios decline with the economy. They have also been relying on these assets as sources of income.

David Certner, legislative policy director for American Association of Retired Persons (AARP), said, “For many elderly, they don’t feel that inflation is low because their expenses are going up.” He added, “Anyone who has savings and investments has seen some serious losses.”

A group called the National Committee to Preserve Social Security and Medicare, led by Barbara Kennelly, a former Democratic congresswoman from Connecticut, maintains that Congress should increase Social Security benefits next year—or make a onetime payment of $150 to all beneficiaries.

Such a payment would cost taxpayers $8 billion, covered by increasing the amount of income subject to Social Security taxes.

It has been clear for many years that Social Security faces long-term financial problems. According to the Social Security trustees’ annual report this year, other things remaining equal, with an avalanche of newly retired baby boomers, the program will begin paying out more money than it receives in 2016. Assuming no changes, the fund will be depleted in 2037.

President Barack Obama says he would like to address the situation with Social Security. With the effort to “reform” the health care system, though, Social Security has been pushed to the back burner, at least until next year.

Medicare, too, is now also known to be unsustainable in the long run. Even President Barack Obama recently admitted as much when pressed on the subject. The cost of multigenerational federal entitlement programs is adding up rapidly.

Clearly it is time to look at what can be done to fix the problems with these entitlements programs. The answer, simply, is to work for measures that will bring these costly to an end, and provide much needed relief to increasingly beleagured taxpayers.


SOURCE:
http://www.jbs.org/jbs-news-feed/5264

[FrankRep]

Lower Social Security Payments?


Alex Newman | The New American
26 August 2009


The Associated Press is reporting that millions of Social Security recipients will receive smaller checks next year. The reason: premiums for Medicare’s prescription drug plan, which are usually automatically deducted from Social Security payments, are set to rise by a whopping average of $2 per month.

However, an analysis of the numbers reveals that despite the brouhaha created by the Associated Press’ article entitled ‘Millions face shrinking Social Security payments,’ seniors should likely have more purchasing power despite the potential for a smaller dollar amount.

The trustees in charge of Social Security project that for the first time since automatic cost of living adjustments (COLA) were instituted in 1975, there will be no increase in benefits for the next two years. This is because the Consumer Price Index (CPI), the government’s measure of price increases, has been negative this year and will likely remain so for the near future thanks mostly to the decline in energy prices. On the other hand, medical care is not included in the CPI and many analysts say costs are continuing to increase.

A congressional statute prevents a reduction of benefits, so despite the fact that prices are falling, the 5.8 percent increase in Social Security checks from this January will remain in force. And even though benefits for participants in Medicare part B are rising, most seniors are protected from premium increases if there is no COLA, since it cannot rise more than the increase in Social Security payments.

But critics are up in arms, contending that seniors depend on yearly increases and will be negatively impacted if they don‘t receive one next year.

"I will promise you, they count on that COLA," former Democratic congresswoman and current chief of the National Committee to Preserve Social Security and Medicare Barbara Kennelly told the Associated Press. "To some people, it might not be a big deal. But to seniors, especially with their health care costs, it is a big deal." Her organization is working to obtain a one percent increase next year or a one-time payment of $150 by raising the amount of taxable income for Social Security purposes.

Vermont’s self-described socialist senator is already working on a proposal to accomplish that. "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 noted.

The legislative policy director for the AARP, David Certner, also protested, explaining that anybody who had savings or investments has suffered “serious” losses. "For many elderly, they don't feel that inflation is low because their expenses are still going up," he said.

But Andrew Biggs of the American Enterprise Institute, who has studied Social Security for 10 years, explained that in reality, seniors will have an increase in purchasing power next year equivalent to more than $500.

“By January 2009 Social Security benefits were around 4.3 percent higher than needed to maintain purchasing power,” Biggs wrote in a piece titled ‘A Diet COLA for Social Security? Actually, Not.’ “Given that the average monthly Social Security benefit is around $1,061, this implies that the typical beneficiary will receive around $43 more in purchasing power per month.” He goes on to explain that seniors will actually be better off next year than they would in typical years when they receive increases in dollar amounts. Also noted is that retirees on Social Security already received a $250 “stimulus” check this year.

There are currently about 50 million Americans receiving Social Security, and with baby boomers nearing retirement age that number is only going to increase. If something isn’t done to fix the humongous fiscal problems with the program, it will be paying out more money than it takes in within about five years. So handing out more money than the Congressionally created formula calls for should simply not be an option.

The whole system is a gigantic Ponzi scheme that, together with other entitlement programs with tens of trillions in unfunded liabilities, is entirely unsustainable. Despite what politicians claim, the so-called “fund” consists of some government IOUs. The system simply pays out what it takes in.

Urgent and serious reform is desperately needed, and ultimately the program should be abolished. As Congressman Ron Paul notes, it wouldn’t be fair to take away benefits from people to whom they were already promised. But rather than figuring out how to pay out even more money and raise taxes again, Congress should spend its time figuring out how to fulfill existing obligations and over time how to eventually eliminate the entire unconstitutional system.


SOURCE:
http://www.thenewamerican.com/index....inmenu-43/1738