Stagnant Prices Prevent Social Security Increase

Obama endorsed the idea, which is expected to cost at least $13 billion, as the administration gropes for ways to sustain an apparent economic rebound without the kind of massive spending package that critics could label a second stimulus act

The administration is already developing plans to direct billions of dollars in federal money to small businesses through community banks, government sources said Wednesday. That would probably include funds originally targeted to help bail out huge corporations. Obama aides are also attempting to extend programs to make loans from the Small Business Administration cheaper and easier to obtain.

In recent weeks, the White House has examined a wide range of proposals to funnel money to constituencies seen as suffering. Administration officials have also been supportive of extending unemployment insurance benefits that were to expire at the end of the year and are contemplating an extension of an $8,000 tax credit for first-time home buyers due to expire Nov. 30.

An increase in benefit checks each January has been a yearly ritual since the mid-1970s, when the government moved to ensure that its subsidies to retirees, pension recipients and others who receive Social Security benefits kept pace with inflation. Thursday's announcement by the Labor Department will mark the first time that the federal formula used since then, which is tied to the consumer price index, will translate into no increase at all. That is because consumer prices have remained stagnant in the weak economy -- a sharp reversal from this past year, when Social Security checks grew by 5.8 percent, an unusually large amount.

The unprecedented lack of a cost-of-living increase was first hinted at last spring in congressional budget estimates and in an annual report by the trustees who oversee Social Security and Medicare, the government's main financial props for the elderly and the disabled. Since then, some senior citizens have complained to government offices and seniors advocates, and federal officials are anticipating a fresh and more vociferous outpouring of complaint once the announcement is official.

In recent weeks, several members of Congress have proposed legislation that would, in varying ways, compensate Social Security beneficiaries and veterans for the lack of a built-in increase. Until Wednesday, those bills had attracted little notice. Their prospects have been uncertain at a time when deficits are rising, lawmakers are working on expensive changes to the health-care system and Congress has already enacted a stimulus package that included a similar $250 payment to retirees and others who depend on Social Security, veterans' benefits and federal pensions.

Obama's announcement, however, focused new attention on the prospect of further help to some of the nation's most economically vulnerable people.  Senate Majority Leader Harry M. Reid (D-Nev.) said for the first time Wednesday that he, too, thought that "providing another economic recovery payment is the right thing to do." In the House,  Speaker Nancy Pelosi (D-Calif.) urged lawmakers to support the idea, saying the original $250 payments in the stimulus package "proved an effective way to offer stability and security to millions of Americans and a boost to our economy."

House  Majority Leader Steny H. Hoyer (D-Md.), however, has resisted the proposal, saying recently that, in light of the emergency payments for older Americans in the stimulus package, "it's not as if the Congress has forgotten seniors."

The new payments would cost an estimated $14 billion, according to legislative sources, although the White House said the price tag would be $1 billion less than that.

In urging lawmakers to provide a second round of payments to older Americans, the president said the extra help would "not only make a difference for them, but for our economy as a whole," adding that it would "be especially important in the coming months, as countless seniors and others have seen their retirement accounts and home values decline as a result of this economic crisis."

The White House has essentially latched on to an approach envisioned in legislation introduced last month by  Sen. Bernard Sanders (I-Vt.) and  Rep. Peter DeFazio (D-Ore.). Their bills propose that the $14 billion measure be covered through extra Social Security payroll taxes on wealthy Americans -- specifically, on income between $250,000 and $359,000. "In the midst of a recession, when we are appropriately worried about unemployment and underemployment, we can't forget about seniors who are also hurting," Sanders said in an interview.

Since its origins in the Great Depression, Social Security has been a significant buffer between older Americans and poverty. It also provides subsidies to people who are disabled or who are survivors of workers who die prematurely. The average retiree gets a monthly check of about $1,150. The program provides 40 percent of all income received by elderly people in the United States; one in five older married couples and two in five older single people rely on it for at least 90 percent of their income.

The Social Security cost-of-living adjustment is set every year based on the percentage change in the consumer price index during the July-to-September quarter, compared with the previous year. The consumer price index captures changes in the prices of the full range of goods and services that people buy, including bananas, heating oil, telephone service, rent and hundreds of other items.

The consumer price index will be updated Thursday.

Lobbyists for AARP, the largest advocacy group for older Americans, contended Wednesday that the elderly need extra help even in a time of declining prices because they tend to spend more of their money than younger people on health care, the cost of which has been climbing more rapidly than the rate of inflation.

On the other hand, Andrew Biggs, a resident scholar at the American Enterprise Institute and former deputy commissioner of the Social Security Administration under the Republican administration of President George W. Bush, said: "There is essentially no substantive case for this on policy grounds. . . . This is a case of both Democrats and Republicans bending over backward to do the politically popular thing for seniors."