The Social Security Administration has announced that there will be no social security COLA again this year. A COLA is a cost-of-living adjustment. This will be the second time in history that there has been no automatic adjustment. The first time there was no COLA was 2010.
According to the Richmond Times Dispatch:
The cost-of-living adjustments, or COLAs, are automatically set each year by an inflation measure that was adopted by Congress in the 1970s. Based on inflation so far this year, the trustees who oversee Social Security project there will be no COLA for 2011.
The projection will be made official on Friday, when the Bureau of Labor Statistics releases inflation estimates for September.
The timing couldn’t be worse for Democrats as they approach an election in which they are in danger of losing their House majority, and possibly their Senate majority as well.
“If you’re the ruling party, this is not the sort of thing you want to have happening two weeks before an election,” said Andrew Biggs, a former deputy commissioner at the Social Security Administration and now a resident scholar at the American Enterprise Institute.
“It’s not the congressional Democrats’ fault, but that’s the way politics works,” Biggs said. “A lot of people will feel hostile about it.”
This past Friday, the same bureau delivered another painful blow to Democrats: The U.S. lost 95,000 jobs in September and unemployment remained stubbornly stuck at 9.6 percent.
Democrats have been working hard to make Social Security an election-year issue, running political ads and holding press conferences to accuse Republicans of plotting to privatize the national retirement program
I am not at all sure how this affects the Democrats. Supposedly those on social security will feel hostility and that they are not getting ahead. It would seem to me that the idea that there was low inflation might slip into those thoughts but I guess not. On another not, this kind of news usually affects other retirement plans such as pension COLAS.
Social security is the main source of income for 64% of retirees who got benefits in 2008. Many of them have not had a raise since Jan. 2009. There will be no raise until at least Jan. 2012 and even then, a raise is not certain. Social Security recipients got a one time payment of $250 last year. A third of SS recipients relied on social security for 90% of their income.
Has the cost of living gone up that much? Is the system used to calculate COLA faIr or even accurate? Is military retirement going up or is it stagnating like other pensions? Should retirees get something like a stipend check again this year?
It might be easy for some of us who don’t fit into that social security demographic to suggest that the seniors suck it up and tighten their belts. Many of them already had a mighty tight belt. Its easy to be a worker and on the resentment end of the SS argument. What some of us hear though is a resentment about pensions, a resentment about social security and cry to increase the working age to 75 and not a lot of compassion for those who lost their 40-50% in the crash.
Sitting back, I am wondering who the lucky ones are who aren’t resented? Warren Buffett? Rich people? There is a great deal of age discrimination in this country. Try finding a job at 70. Fat chance. Actually finding a job at 50 isn’t the easiest thing to do. Hell, finding a job is difficult. Otherwise we wouldn’t have a near 10% unemployment rate. Americans speak one thing and that’s all it is…speak.
Listening to the financial prognosticators, gold is getting ready to bubble up. (who really knows) The housing market is no place to put your money. The stock market might be going bull. Or…it might be going bear. Social security is going broke and you shouldn’t count or depend on it. Pensions are unreliable and are sucking the life blood out of states like NJ. In the case of the VRS, Virginia is sucking the life blood out of the pension, but still its the fault of the state workers.
The point here, is what is a person to do? If you put your life savings in a sock, then inflation eats it away to nothing. Maybe it would just be smart to call in one of Sarah Palin’s death panels. Those of you doing the criticizing might want to take a look at what the RIGHT thing to do to prepare for the future is. How do you guard against the game plan changing? How do you know what is right now will be right when you go to retire?
Military pensions are not on the increase–trust me. Similar rules apply to military pensions as to Social Security. The cap needs to be lifted on Social Security tax and it needs to be done sooner than later. How many people do you know who have no other retirement than Social Security? The rate of savings among Americans is dismal–many people continue to be the grasshopper in the ant/grasshopper story. Yes, people lost a LOT of $$ from defined contribtuion retirement plans, but perhaps an even great bunch of people didn’t have anything in them to lose–putting off tomorrow until ????.
I don’t think this will hurt them since some Tea Party members are for cutting SS. We ARE out of money, so this makes sense.
Planning on Social Security to be your only source of income in retirement is a plan for failure.
There are many people going to work each and every day that are NOT getting raises due to the economic climate. I’m sorry, but I have very little to no sympathy on the subject of COLA for those drawing SS/retirement.
@marinm
Right you are.
COLA is based on changes in the CPI from the third quarter of one year to the third quarter of the next. The problem with this is that housing and wages are deflating and make up a big chunk of the CPI. If you strip both of these out, inflation looks positively insurgent. Crude was $75 a barrel in August, now it’s challenging $85 (this is like a 330 billion dollar tax on everyone at the pump BTW). Ditto grains and wheat and most other inputs to food prices.
We should probably make the COLA calculation more dynamic in the sense that when severe dislocations in the housing market occur we can apply a smoothing mechanism that would more accurately reflect the true cost of living.
I don’t know that raising the cap on Social Security would really do all that much good because there are only about 10 million Americans that earn more than the cap (in income, anyway) and my cocktail napkin math tells me that we’d only be buying ourselves 7 years of solvency.
I think the difficult answer here is that we need to take Social Security back to what was originally intended which is to say a safety net that ensures our seniors don’t live out their twilight years in abject poverty. In other words, we need to think about means testing benefits and say that if you have a net worth of X (and we can have an argument about what “X” is) then you’re going to get .50 on the dollar.
It’s hard for me to weep for some retiree’s lack of COLA adjustment when the money that has been stolen from me over decades in SS taxes will in all likelihood not be there for me when I retire. The current retirees are living off of my hard-earned cash. I can’t cry for them not getting a raise this year. I’m certainly not getting one.
The tea party members who are for cutting SS need to remove their heads from you know where.
What do they plan to do with all the people on SS right now?
Thank good ness they aren’t in control of anything. Also, they might be singing a different song in a few years.
You all are aware that many people out there really haven’t had a lot of options? How about a woman who stayed at home and raised a bunch of kids and never was in the work force? (just as an example)
I think many of you all are overlooking many of life’s situations. There are people out there bringing in very little …like $800 a month, and no increase in 3 years. The average social security check is only about a grand a month.
Emma, its the all likelihood that gets me. You are guessing. One thing if it had happened.
I think everyone needs to go back and read what Cato has said about why COLA is flatlining.
I would like to see that social security cap removed just as a matter of principle. What is the cap now? $120k or thereabouts?
On the other hand, not everyone has a 401k. Not everyone has an opportunity to save. There are way too many Americans living hand to mouth for any of us to get up on our high horses. Most people would love to save. Many people did. Many people lost their ass in the crash also, especially if their 401k plans weren’t set up to offer any protection.
This is a place where rather than being judgemental, I just thank my lucky stars that I didn’t get hit any harder than I did. Then I plot the demise of anyone who plans to pull the rug out from under my own plans.
A transition would need to occur. I think we could all agree that the switch couldn’t just be flipped. We have to do all that we can to avoid being Greece. We’re headed in the wrong direction and we can’t take options off the table.
My conservative friends may enjoy this. 🙂 http://online.wsj.com/article/SB10001424052748704696304575538502008810226.html
I believe the cap is 106,800. And you better believe I’ll vote against ANYONE who raises it another dime.
I’m interested to see what happens when Jan 1 rolls around, Taxes make their biggest jump ever, and people (like me) simply drop out of the economy completely. I think any economic activity you are seeing now is folks getting stuff done before Jan 1. We might see what’s left of the economy come to a screeching halt in the first quarter of CY2011. Hope I’m wrong, for all our sakes.
cato – re the mean test.
So, what you are saying is that the person who (possibly) did not save, but spent his money on luxuries and vacations he could not afford should get SS, but I who may have paid in more, saved my money, and went without should not get SS because I did not enjoy those sames things? No, that is not fair at all.
I hadn’t thought of it that way. @Pat
Why would any dummies pay in to it then?
I would suggest moving all the vampires off the social security program for starters. Too much has been attached to it that isn’t really for seniors. in retirement. Every bit counts. Remove the ceiling, there’s a little more money….
I think eventually there will just have to be another way. Someone smarter than I am will have to figure out what.
– Remember reading where the Japanese government, seeking to identify its
oldest man and woman, used the files of their version of SS to locate the oldest
250 people. They were surprised to find most of them had died years ago, but
their families, to keep the checks coming, never notified the government.
Wonder if some of that is going on here.
– A kicker is that many folks who might have worked 5-6 years more were
forced by the recession to take PT jobs and file for social security early
(which reduces monthly payments), but they still have to pay SS on their PT jobs –
money that will never add to their benefits.
Aside from the fact that you’re arguing from the assumption that every senior who retires poor is that way because he/she was a spendthrift and frittered their money away, of course it’s not fair.
Collectively we need to get away from this trend of thinking about what’s “fair” and start thinking about what works. The fact of the matter is that we have an aging population and workforce imbalance that makes the status quo unsustainable. The alternative is for the Fed to continue to print money and engage in perpetual quantative easing which causes the printed money to flock out of the United States and into places like China, Brazil and Saudi in the form of commodity inflation.
If you really want to talk about what will inflict more misery on the working poor then paying 8 bucks a gallon at the pump and 6 bucks for a box of oatmeal at the grocery store will do exactly that.
Agree with howler – get SS back to what was originally intended and that is a program to protect vulnerable seniors. I’m sorry, but if you have a net worth of 1 million then you probably can afford to take reduced SS benefits.
@Cato the Elder
Another piece of this puzzle is life expectancy. In 1937, life expectancy was 60, today it is 77+. Means testing is probably going to take place one of these days, but setting the cutoff is going to be one hell of a fight. And as I have already noted, people drawing SS will take more out than they ever put in. Linking other programs to SS has not helped. But I suppose this was the easiest way to make them work. SSDI, SSI are two examples. But SSDI does not come easily and you don’t get SS unless you have sufficient covered quarters. Presuming we will find a way to fix SS, I think it will be interesting to see how those who now complain about SS will stand with their hand out when they reach SS age. Or will they magnanimously turn it down?
Obamacare should fix the life expectancy problem soon enough.
@George S. Harris
Good point on the life expectancy. Personally, I’d be fine with reduced benefits if it means we’re solvent for the next 100 years.
cato – if you saw what I wrote, it said possibly – meaning that those who do spend all they have their money away, will get rewarded, but I on the other hand will be punished.
The wealthy will be able to give away all their wealth, and still collect SS, while those that are on the lower scale of wealth will not be able to afford the high priced lawyers needed.
@Slowpoke Rodriguez
Uncalled for comment!
I understood Pat’s point. I also wonder when the virtues of thrift, hard work and saving became the new “selfish.”
Mixed feelings here. For starters, we aren’t talking about anyone getting rich off of ss.
I understood what Pat was saying also and he has a point. I hadn’t thought of that either.
More American workers and a higher ceiling would help fix things. Keeping people’s mits out of the SS till would help. Why is aid to dependent children coming out of SS? I am not saying not to give children with a dead parent money, just don’t take it from SS. Its about a grand a month now per child.
For that matter, there was no reason for VA to defer its VRS payment either, and now people are crying the blues that the fund isn’t solvent. Ya think? DUH!!!!! What the state did isn’t even constitutional. Then they act like they have a surplus. Pay back VRS.
No COLA because the gov’t discovered that there was no inflation. Pay no attention to the rising cost of fuel, food, and drugs. Their calculations are correct. And they’ll change those calculations until they match the numbers they want.
Cargo, you might be right on that one.
I have seen an increase in water bill, light bill and fuel bill. If inflation is going up whey are my bills. i worked 42 years! I have been on social security for two years. I don’t even know what it’s like to get an increase in COLA. If I could find a job I would probably let my daughter, son-in-law, or grandaughter have it since they are all unemployed! I started working just as social secrurity began, I paid FICA from day one. I still have a home to maintain. What should we seniors do walk away from homes we worked so hard to pay for. All that are not sympathetic, keep living you will be in our shoes one day.
sick and tired of senior apathy
Welcome Dorothy King.
And you make a good point. There is a lot of senior apathy both on the job and as to their fate. Not being a spring chicken myself, I try to keep these issues alive, rather than burying them. There are lots of NON spring chickens here.
If your prediction is as wrong as your facts I’m optimistic we’ll be okay.
A strong argument is easy to make when you don’t let little things like reality stand in the way. On January 1, assuming the Republicans do as they’ve promised and let taxes go up for everyone if the top 2% of earners don’t get to keep the break Bush scored for them), the maximum rate will revert to where it was during the Clinton years (what part of those years didn’t you like, Slow, the peace or the prosperity?), which was one of the strongest periods of economic growth in the nation’s history.
The maximum income tax rate topped out at 94% during WW II (a period when we fought wars AND raised taxed to pay for them rather than cutting taxes and turning surpluses into deficits for future generations to have to worry about). And despite Slow’s claim that the jump from 35% to 39.6% is the “biggest jump ever,” it pales in comparison to the jump that occurred in 1916-1917 (another tax increase that coincided with a war) when the maximum rate went from 15% to 67% (thanks in part to the Department of Education, I know a 52% boost is bigger than a 4.6% boost).
Here’s a link to the tax rate tables back to 1913 if you want to check my facts: http://www.taxfoundation.org/files/fed_individual_rate_history-20100923.swf
The biggest tax increase was actually the one in 1913 where we went up from 0%……..
No, that year income tax began with a top rate of 7%, so going from 0 to 7 is not bigger than the bump from 15 to 67% during WW I. The top rate was over 90% until LBJ was in office and didn’t fall much until Reagan. By historical standards even 39.6% is well below average and compared to what we’ve paid during periods when the nation is at war it is ridiculously low and sent us into deep deficits.
@punchak
I agree–SP’s comment was inappropriate and not correct. Health Care Reform has nothing to do with life expectancy except to maybe improve it for a whole lot of people who don’t have health care.
It looks like the first income tax was insituted during the Civil War with the establishment of the Commissioner of Internal Revenue in 1862. People earing $600 to $10,000 a year paid a 3% income tax. Those making over $10,000 paid more.
We want services but we don’t want to pay–can’t have it both ways I’m afraid.
Here is another interesting link on the history of income tax:
http://www.infoplease.com/ipa/A0005921.html
Wiki says this about U.S. income tax:
“The first United States income tax was imposed in July 1861, at 3% of all incomes over 800 dollars in order to help pay for the war effort in the American Civil War.
In 1868, Congress again focused its taxation efforts on tobacco and distilled spirits and eliminated the income tax in 1872. It had a short-lived revival in 1894 and 1895. In the latter year, the U.S. Supreme Court decided that the income tax was unconstitutional because it was not apportioned among the states in conformity with the Constitution.
In 1913, the 16th Amendment to the Constitution made the income tax a permanent fixture in the U.S. tax system. The amendment gave Congress legal authority to tax income and resulted in a revenue law that taxed incomes of both individuals and corporations. In fiscal year 1918, annual internal revenue collections for the first time passed the billion-dollar mark, rising to $5.4 billion by 1920. With the advent of World War II, employment increased, as did tax collections—to $7.3 billion. The withholding tax on wages was introduced in 1943 and was instrumental in increasing the number of taxpayers to 60 million and tax collections to $43 billion by 1945. This tax was repealed and replaced by another income tax in 1962.”
Any way you look at it–taxes are here to stay.
@dorothyking
WOW! I’m impressed Dorothy! You must have started working in 1937 and worked until 1979 if you worked 42 years and paid FICA from the day Social Security started.
What happened after that? Why did you wait until two years ago to start drawing Social Security?
And finally, is Social Security your only retirement?
@Moon-howler
@cargosquid
Wanna know more about the CPI? Perhaps not as easily manipulated as one might expect, but keep in mind the old saw that says: Figures lie and liars figure!
This from the Bureau of labor Statistics:
http://www.bls.gov/cpi/cpifaq.htm#Question_7
Have a nice day! 😎
So, if these reduced tax rates were the best we could have, why didn’t Congress way back when (2005ish) make them permanent? It is because of the Byrd PayGo – Congress could not justify the reduced revenues to make them permanent. With a record deficit in 2003 (17% higher than 2002), we got a tax cut – with a war going on. Unfunded Part D – more tax cuts. More spending, more tax cuts – none of it made sense, but that is what we want to go back to?
Do I want to pay more in taxes – the answer is NO. But – when you are living off your credit cards, the last thing you want to do is ask your boss to cut your salary – and that is exactly what the Bush Administration did – they cut the revenue (taxes), and increased spending – War, Part D (49 Billion in 2008), federal employees, etc. Spending increased under Bush at record levels – http://www.independent.org/newsroom/news_detail.asp?newsID=31
so, do not try to say that the R’s can get all this spending under control – the R’s need to take at least *some* blame for our economy this time. Yeah, Reagan inherited Carter’s recession, and Bush inherited Clinton’s, and Obama – well, according to Michael Steele, Obama even owns the war in Afghanistan, and the recession, and the economy, and the R’s had nothing to do with any of it.
We need tough decisions to be made – there should be no Sacred Cows – We need to reform – SS, Medicare, DOD, all departments – we need to invest in Infrastructure, education, our future. And if we do not start making the tough decisions soon, China will drive the the world’s economy, and we will become their dependent, and they will set our wages and living conditions.
@Cato the Elder
Well that might be easier than you think Cato–In June of this year, Ezral Klein published an article in the WaPo on the effects of eliminating the income cap as to Social Security Tax. The article is here:
http://voices.washingtonpost.com/ezra-klein/2010/06/research_desk_responds_could_r.html
His article is based on a Congressional Research Service report published in 2008, which is here:
http://aging.senate.gov/crs/ss9.pdf
I don’t know what numbers you plugged into your “cocktail napkin” calculations, but according to the authors of the CRS report, it is possible to create a Social Security SURPLUS by eliminating the cap and capping benefits. I don’t know what the latter entails since I have not read the full report. But if the authors are correct, then the problem can be fixed without impacting too many people–perhaps 3% of the working force would see a tax increase.
Klein, and perhaps the authors of the report, note that we need to think of Socfial Security as social insurance, not just a safety net for the poor.
So it may not be all doom and gloom if we can get some folks in Congress with the necessary testicles or ovaries to step on this third rail. 😉
Pat,
The GOP does deserve part of the blame. That’s why the conservatives stayed home during the last couple of elections and the Tea Party’s primary focus is changing the GOP. However, since Obama is now 18+ months into HIS term, he does own it. Everything that is going on is due to HIS planning. And Congress has been Democratic since 2006. 4 years of Democrat control.
Obama does own the war in Afghanistan now. Its his policies that we are following. Unlike Iraq, where he just continued Bush’s timetable for withdrawal, Obama instituted these policies in Afghanistan. So, when we arbitrarily leave next year and it all goes to hell, we know who decided that an exit strategy was more important than winning.
Coming from someone as brilliant as you, that’s no comfort whatsoever.
Mo Davis conveniently leaves out all the tax increases that come with Obamacare, as well as the sunset of the massive tax cut Obama gave us (what will I do without that extra $5 per month!). Facts…what would a liberal know about facts.
But let me admit that no, this won’t be the biggest tax increase in history. What is it liberals like to say? “I misspoke.” Ah, the Clinton prosperity years, brought to you by a Republican congress led by Newt (man, they hate it when you bring that up!)
On the upside (and yes I’m being tongue-in-cheek) is that a portion of the 50% of this country that doesn’t pay taxes will be hit with a 50% increase in their tax burden. That’s change I can believe in!!! 🙂
We really need to get out of this idea of taxing income and go towards a consumption tax model. If I had more of my money available to me I’d spend more and this 9.6% unemployment rate would be toast in a few months.
Anyone wanna play with the numbers? http://www.mytaxburden.org/
It’s worth mentioning that the tax burden stands at about 14.8% of GDP (which is lower than at any point since 1945 due to recession induced GDP deflation). It’s also worth mentioning that the very high 91% marginal rates were applied to people making 300,000 (using 1960 as an example) and that amount of money in 2010 would equate to 2.15 million (adjusted for inflation).
Looking at the current rates (and again using 1960 as the comparable) the 36% rate was applied to people making 12,000 – 14,000 which would equate to approximately 86,000 2010 dollars. The 39% rate was applied to those making 14-16K which would work out to approximately 100K in 2010.
So, just looking at this objectively Moe is indeed correct that the income tax burden is lower today than in say, 1960.
However, it’s also important to examine other factors which affect the total tax burden to get an understanding of why it feels “heavier” today than it did in 1960. Back then, payroll taxes (FICA, etc.) accounted for .16 of every revenue dollar. Today, they constitute about .35 of a revenue dollar. In 1960, only the first 4,800 of income was taxed (making the SS cap roughly 35K in 2010 dollars) at a rate of 3%. Today, the cap is roughly 107K at a rate of more than double that of 1960 (6.2%). Workers also didn’t have to pay Medicare at 1.45% in 1960 as the program hadn’t yet arrived (and Medicare applies to all earned income).
So, while I’m too lazy to do the quantitative analysis on whether or not there’s any validity to the claim that this is the “biggest” tax increase ever a cursory look tells me that without an extension it would shave about a full percentage point off 2011 GDP growth, which drops to -.4 if you just allow the top bracket increases to stand. It would be prudent to just extend every bracket by one year and then revisit the issue because the 2012 economy is far more likely to be able to absorb the shock of a rise than the economy of 2011.
That Medicare tax was also just sneaked (snuck?) onto us. I never noticed it, just that I had less money. Everyone I have ever talked to just said, where did that come from.
We are taxed on more things nowadays. Many of the things are not called taxes. For example, the local car assessment that used to be your sticker that no longer is anything. That is just a darn tax. nothing else. At least its a flat tax.
I resent it being called an income tax. A lot more is taxed federally than just income. All sorts of things are taxed like unemployment, social security, capital gains. GRRRRRRRRR
marinm, there is some merit in what you say. Not sure how it would work but someone sits up at night thinking of things to tax that aren’t really income. An output tax might work better than an input tax. At least you might have a little more control.
@George S. Harris
Thanks for linking that .pdf. I used the individual income numbers reported during the last census. The linked document has the same flaw that my own analysis has, which is to say that we know how many people are above the cap but we don’t really know how far above the cap they are, if that makes sense. I mean, if 80% of those people are making between 110-120K and only say 2.5% are making 1 million it really doesn’t buy us very much.
I suspect that the savings have a lot more to do with capping benefits than raising the cap. I’d like to see a more comprehensive breakout of personal income though – it’s an interesting question.
@George S. Harris
One other point that I’ll agree to disagree with Mr. Klein on, I’m not a proponent of recasting SS into some kind of social insurance program nor am I one of those people who would like to see SS go the way of the dinosaur. My position is that we should provide for the destitute and truely disadvantaged where practical, but I’m quite against the entitlement for all comers mentality.
Cato, I don’t think we should ask people to put in what? 6.5% of their income and their employees to match them and then get nothing out of it. If you are in business for yourself you are paying over 12% of your income into a program you don’t get jack from. That’s just dead wrong.
If wealthy people want to decline for a tax benefit, that’s fine. But 12% of income is a lot of money to not be able to collect on.
I also don’t know the answer. But I want my cut…if I am selfish, so be it. For many of us, it will make the difference in marginal and comfortable.
Making a brilliant argument would be a lot easier if I just followed your lead and concocted “facts” to bolster my biases and then hid behind a cartoon character so I’m not accountable. Of course, what would a closeted conservative know about integrity?
Howler, I’m not saying that people who paid in for 40+ years be told to pound sand. What’s done is done. What I am saying, however, is that maybe we should think about fractional benefits for people who have a very high net worth.
I’ve been paying in for 20 years. If someone came to me tomorrow with the proposition that I could leave the SS system and never have to pay another dime as long as I forfeited all future benefits I’d make that deal in a heartbeat because SS is basically dead money and I’m fairly certain that having access to the next 30 years of 6.5% immediately to redeploy into other investment strategies would exceed the max benefit that I’d get from future SS payments.
Cato, And with that kind of deal, I would take it, depending on my location on the timeline of life/career. I don’t have those options. You make plans and don’t expect a major shift, although I always kept the old SS threat in the back of my mind.
I don’t even want to zap the people who didn’t pay in. There are all sorts of widows out there who never worked a day in their life who depend on it.