Mike Klein Online

Social Security: The Next Big One

This week’s advance warning that Social Security recipients might not receive the annual cost-of-living adjustment increase next year or the following year provided a wake-up moment to at least three constituencies.

The White House and Democrats on Capitol Hill do not want Social Security to become a November 2010 campaign issue now.  The administration wants to “fix” Social Security next year after it “fixes” health care this year.  Having both issues simultaneously in headlines creates too many hot coals and increases the possibility of angry seniors at the polls.

The third group is AARP which is working to recover from an awkward recent experience with health care insurance reform.   Some members believe AARP sold its soul to the Barack Obama administration.  Sixty thousand canceled their memberships.  That would be enough to fill most major league baseball stadiums but it’s not much in the AARP universe.

Social Security cost-of-living adjustments (COLA) have become standard for seniors and disability recipients since 1975.  COLA is tied to the rate of third quarter inflation but in October the government is expected to announce lower energy prices resulted in no inflation this year compared to 2008 levels.   The irony will soon become apparent.

Messing with Social Security has always been a significant political risk, but especially now.   Consider how the federal government has spent or wants to spend taxpayer dollars along with funds it borrows from China and anything it gets off the printing press.

Nearly two trillion dollars were spent on the Troubled Asset Relief Program.

One trillion or more dollars would be required for a new federal health care bureaucracy.

Hundreds of billions of dollars “saved” stumbling automakers General Motors and Chrysler.

Several billion taxpayer dollars were given to the ill conceived cash for clunkers auto program.

A significant portion of almost $800 billion for stimulus remains stuck in bureaucracy.

Hundreds of billions of dollars or more would be spent to “change” the world’s climate.

This year the federal budget has a projected $1.58 trillion deficit, almost four times greater than the previous largest annual budget deficit recorded in 2008 by George W. Bush.

Finally, the Obama administration forecasts a $9 trillion budget deficit over the next decade.

This extraordinary spending is repeatedly cast as doing the right thing for America.

The typical Social Security recipient receives about $1,150 per month.   A 2% monthly increase would result in $23 more per month.   From that number, subtract federal taxes and the increase would be small.  It is certainly affordable for a government on spending steroids.

Strict adherence to the COLA formula does not consider seniors trying to help adult children who are unemployed or underemployed.   Many seniors are raising grandchildren.

Nor does it realistically consider that a senior living on $1,150 per month before tax deductions and Medicare premiums is a senior living near the poverty level.   Some seniors are less dependent on monthly Social Security.  They are the fortunate ones.

This brings us back to AARP, the lobbyist and sales organization with enormous wealth and influence.   AARP has more members, 40 million, than Canada has citizens, 33 million.  If AARP was a state, it would be the most populous state in the country ahead of California which has 36 million legal citizens.  Actual population is larger due to illegals.  But you get the point.

AARP members generate hundreds of millions of dollars in annual dues, some of it prepaid since dues can be purchased in multiple year packages.   It also gives AARP a massive mailing list for the extensive health, insurance, travel, lifestyle products and discounts it offers, all of which have transformed AARP into a commercial organization as successful as Wal-Mart.

AARP is large, some believe too large.  Competitors are popping up around the country.  None has the assets, influence or clout of AARP which recruits members before they hit the big Five O, before retirement.  There is money to be made, products to be sold.  Hook ‘em early.

More important to AARP is access to power, especially Washington power.

All that power is why AARP’s reaction to a possible COLA freeze seems timid.

AARP’s legislative director said, “While inflation is down overall, medical inflation, which comprises 30 percent of seniors’ average expanses, is still going up.  Combined with losses in savings, investments and home values, seniors feel like they’re falling further and further behind.”   AARP has reached out to congressional committees to begin COLA conversations.

The irony in this discussion is that lower energy costs were cited as the primary reason to bypass the increase for up to two years.  The White House is adamant energy remains too cheap and the administration says we should be paying more.  Once energy prices go up, the White House, Democrats and AARP can claim victory when tiny COLA increases are restored.

The average COLA over the past seven years is 3.1%.  Even half that average, if announced now, would improve the lives of seniors, avert a political mess and it is affordable.  Do it now.

August 26, 2009 - Posted by mikekleinonline | Uncategorized