Artificially Sweetening the COLA
4 Pages Posted: 8 Jan 2011
Date Written: November 2010
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: Suggested Citation