Artificially Sweetening the COLA

4 Pages Posted: 8 Jan 2011

Date Written: November 2010

Abstract

For the second year in a row, Social Security recipients will not receive a cost-of-living adjustment (COLA) increase to their monthly benefits. Social Security benefits only rise when prices go up; in years with low price inflation, they remain steady. And although low price inflation benefits all consumers, Congress has proposed to give every Social Security beneficiary a $250 check, which could cost taxpayers $15 billion.

While it might sound reasonable or fair to give seniors a boost during tough economic times, giving in to such demands would be misguided and undermine the very reason for tying cost-of-living adjustments to the Consumer Price Index (CPI) in the first place - to prevent yearly interest-group lobbying for higher benefit increases and, as the name implies, only provide an adjustment when there’s an actual CPI-measured increase in the cost of living. Providing a COLA or one-time payment beyond what is warranted by an increase in the CPI would actually increase “real” benefits, artificially sweetening the COLA.

Keywords: Social Security, Cost of Living, COLA

JEL Classification: H55

Suggested Citation

Fichtner, Jason J., Artificially Sweetening the COLA (November 2010). Available at SSRN: https://ssrn.com/abstract=1736144 or http://dx.doi.org/10.2139/ssrn.1736144

Jason J. Fichtner (Contact Author)

Johns Hopkins University - SAIS ( email )

1717 Massachusetts Avenue NW
Washington DC, DC 20036
United States

HOME PAGE: http://https://sites.google.com/site/jasonjfichtner/

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