Monthly Archives: October 2012

Social Security COLA Watch: October 2012

The CPI-W for September 2012 was released this morning by the Bureau of Labor Statistics, and, just as in August, the index increased considerably from last month, moving up from 227.056 to 228.184. The average of the July, August, and September CPI-Ws is 226.936 which is 1.65% higher than the third quarter 2011 average (the baseline for COLA calculations). In fact, the SSA has announced that beneficiaries will see in increase in their benefits of 1.7% starting in January of 2013.

As has been the case for the past few months, the increase in the CPI-W was mainly due to energy prices, but food prices, as well as the prices of all goods excluding food and energy ticked up slightly as well.

On this blog, we’ll keep an eye out for issues that may impact COLAs going forward. As we get closer to the third quarter of 2013, we’ll resume regular posts on the topic.

Presidential Debate: Romney and Obama on Social Security

During the first Presidential Debate the two candidates were directly asked to address the issue of Social Security.  Here is what they said:

LEHRER: All right? All right. This is segment three, the economy. Entitlements. First — first answer goes to you, two minutes, Mr. President. Do you see a major difference between the two of you on Social Security?

OBAMA: You know, I suspect that, on Social Security, we’ve got a somewhat similar position. Social Security is structurally sound. It’s going to have to be tweaked the way it was by Ronald Reagan and Speaker — Democratic Speaker Tip O’Neill. But it is — the basic structure is sound.

….(digression on Medicare)…..

 When it comes to Social Security, as I said, you don’t need a major structural change in order to make sure that Social Security is there for the future.

LEHRER: We’ll follow up on this.

First, Governor Romney, you have two minutes on Social Security and entitlements.

ROMNEY: Well, Jim, our seniors depend on these programs, and I know anytime we talk about entitlements, people become concerned that something’s going to happen that’s going to change their life for the worse.

And the answer is neither the president nor I are proposing any changes for any current retirees or near retirees, either to Social Security or Medicare. So if you’re 60 or around 60 or older, you don’t need to listen any further.

But for younger people, we need to talk about what changes are going to be occurring. Oh, I just thought about one. And that is, in fact, I was wrong when I said the president isn’t proposing any changes for current retirees. In fact he is on Medicare. On Social Security he’s not.

What can we learn from this exchange?

First, Social Security is not the problem that Medicare is.   While Social Security is underfunded, it can be fixed whereas there is much less agreement on how to fix Medicare.

Secondly, neither candidate is anxious to say that they will lower benefits for people who are 60 or older.  This constituency votes is large numbers, and politicians are loath to change the Social Security benefit structure in a way that will affect them adversely.  This does not mean that younger people will be so lucky.   As we have pointed out in an earlier post, http://www.socialsecuritychoices.com/blog/?p=93, Orszag and Diamond have analyzed the Romney proposals and have calculated that, because Romney’s proposal does not raise taxes, benefits would fall significantly for today’s young people.

“That’s exactly what’s going to happen,” Senator Bernie Sanders (Ind – Vt) said of Social Security being on the proverbial table, “Unless someone of us stops it — and a number of us are working very hard on this — that’s exactly what will happen. Everything being equal, unless we stop it, what will happen is there will be a quote-unquote grand bargain after the election in which the White House, some Democrats will sit down with Republicans, they will move to a chained CPI.”

Chained CPI, or consumer price index, is an alternative measure of calculating inflation that would lessen the cost of living increases for Social Security payments. When the president and Speaker John Boehner (R-Ohio) attempted to craft a deal on the debt ceiling last summer, Obama offered the chained CPI as a concession.

Sanders is one of 29 Senators who have signed a letter to “oppose including Social Security cuts for future or current beneficiaries in any deficit reduction package.” In addition Sanders has supported legislation that would enact the proposal that Obama put forward as a candidate for president in 2008, which entails putting in place a payroll tax on income over $250,000, in the process creating a gap between the current cap of $110,100 and that new level.

Obama’s openness to the tax proposal at the AARP forum prompted Sanders to call The Huffington Post to try and get the president’s commitment to that approach.

“When he says that he’s willing to look at changing the cap, that’s not good enough,” said Sanders. “Four years ago, he told us that, in fact, that was a proper solution, and he was right. I’ve introduced legislation to do just that … I think we’ve got to make sure that we reduce the wiggle room for the president, and he has got to make a very simple statement that, ‘If reelected, I will not cut Social Security.’”

By Monday morning, the Obama campaign had moved slightly in the opposite direction, with top adviser David Axelrod refusing to unveil any specifics about what the president had planned for Social Security reform.

“[T]he approach has to be a balanced one,” Axelrod told MSNBC’s “Morning Joe.” “We’ve had discussions in the past. And the question is, can you raise the cap some? Right now Social Security cuts off at a lower point. Can you raise the cap so people in the upper incomes are paying a little more into the program? And do you adjust the growth of the program? That’s a discussion worth having. But again, we have to approach it in a balanced way. We’re not going to cut our way to prosperity. We’re not going to cut our way to more secure entitlement programs — Social Security and Medicare. We have to have a balance.”

“So what is the president’s proposal?”, asked Time magazine’s Mark Halperin.

“Mark, I’ll tell you what: When you get elected to the United States Senate and sit at that table — this is not the time,” replied Axelrod.