For only the third time since 1972, elderly Americans won’t be receiving a cost-of-living increase in their Social Security benefits. Reaction to this announcement in late October was muted in official Washington, which was enthralled with a House speakership election and a budget deal, but for the 65 million Social Security recipients who depend on benefits—and for certain veterans and Americans on disability who are also affected by the freeze—this was perhaps the biggest news to come out of DC this year.
A majority of Social Security recipients don’t have income from other sources, and rely on benefits that are already fairly meager. The average retired worker on Social Security got $15,943 in 2014, which is only 30 percent over the poverty level.
So a flat paycheck for another year represents a significant burden for millions of these beneficiaries. They aren’t getting a cost-of-living adjustment because there was actually a 0.4 percent decrease in the government’s calculation of the cost of living from the third quarter of 2014 to the third quarter of 2015. The government uses a formula called the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) to calculate Social Security benefits, and that index revealed a slight decrease in the cost of living, primarily because gasoline prices fell sharply in the past year.
This is where advocates for seniors call foul: A drop in gasoline prices largely benefits younger Americans, while seniors, who already pay twice the medical costs as the average American, saw inflation in healthcare prices along with traditional outlays like food and housing. In other words, an elderly grandmother who no longer drives but has seen her prescription prices go up is effectively being told by the government her benefit check won’t get a cost-of-living bump because gasoline is cheaper.
Many economists and advocates have called on the government to use a different price index for Social Security benefits that more accurately measures the cost of living for elderly Americans—the Bureau of Labor Statistics actually already tabulates this, called the CPI-E, in a strictly “experimental” mode, but doesn’t apply it. That formula showed a 0.6 percent increase in the cost of living over the last year, and elsewhere, core goods and services are up 2 percent.
In the meantime, Senator Elizabeth Warren and 16 Democratic colleagues have stepped into the breach proposed a bill on Thursday that would provide seniors with a one-time emergency payment of 3.9 percent of annual benefits, which would average out to a $581 payment. The Senators estimate that amount could cover up to a year of out-of-pocket pharmaceutical costs for seniors that have largely fallen victim to odd government accounting quirks.
This actually happened once before, in 2009, and Congress voted on but did not pass a similar emergency benefit payment in 2010. “People are very worried about not receiving any increase. Seniors see their costs go up, [are] paying more on drugs, paying more on rent, paying more on food, but the way the COLA is calculated leaves them behind,” Warren told The Nation.
Why 3.9 percent? It’s not tied to any price index, but rather is the exact amount that CEO compensation at the top 350 US firms increased last year. The top 100 CEOs have a combined $4.9 billion saved for retirement, which equals the cumulative retirement savings of 116 million Americans. As my colleague Zoë Carpenter noted last week, those CEO retirement accounts are explicitly subsidized by US taxpayers; the government provides CEOs with special tax-deferred retirement options and unlimited corporate deductions for executive “performance pay.” Almost half of the retirement assets held by Fortune 500 executives are in these tax-deferred plans, which are not available to most of the executive’s employees.
The legislation would fund the one-time emergency payment to seniors by closing the performance-pay loophole. The remaining revenue found after the one-time payment would be used to shore up the Social Security and Disability trust funds.“We have the money. We just decide how we want to spend it. We can spend it to subsidize pay for a handful of CEOs, or we can spend that very same money to help out seniors and vets,” Warren said. “Our spending should reflect our values.”
The bill has no Republican co-sponsors, so prospects are perhaps dim. But the door isn’t shut. Closing the performance-pay tax deduction did receive bipartisan support in the past when it was included in Representative Dave Camp’s tax reform proposal last year.