Should Seniors Get $250 Due to No COLA?

October 15, 2009

The top fiscal story in Washington today appears to be policymakers scrambling as a result of the news that the cost-of-living allowance for Social Security next year would be zero. Barack Obama is suggesting a $250 check be sent to seniors. Some Democrats are suggesting that these checks, which would cost about $13 billion, be paid for by higher taxes on high-income taxpayers.

One argument for sending out these checks is merely for the fact cited above: seniors aren’t getting any increase in Social Security beneifts this year. This justification is baseless. Why do allowances based upon cost-of-living then? The supposed justification for COLAs is to maintain real purchasing power. But what the AARP won’t tell you is that price levels actually fell last year, meaning that a true COLA would actually reduce Social Security benefits. But that’s not allowed as there is a floor of zero. If anything, Social Security benefits should be declining, not staying the same or increasing.

(Some argue that the price level of a typical basket of goods for seniors has risen faster than others, but if that’s the case, then maybe Social Security benefits should be pegged to a different basket index.)

Another point to make is that last year was one of the largest COLA amounts ever (5.8 percent). Imagine if last year’s adjustment had been 2.9 percent and this year’s adjustment 2.9 percent instead of 5.8 percent and 0 percent. We wouldn’t be hearing anything about it.

There is another argument for these $250 checks: economic stimulus. I’m not going to get into a huge debate about the efficacy of using deficit-financed transfers for the purposes of stimulating short-term macroeconomic growth, but if you truly believe that, why give them to just seniors?

From a public choice view of government, I can say that the answer is the same answer as to why politicians do anything: they are trying to stay in power. The same reason that Republicans are scaring seniors about health care reform is the same reason Obama is proposing $250 checks for seniors. From a public interest view of government, all I can say is that both sides are full of it.


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