The “COLA” Wars

April 01, 2011

A long time ago the politicians in Washington made a promise to us, not one backed up by laws but one that has been understood from the very beginning of Social Security. They promised that when we retired, the money we received from Social Security would be protected from losing its purchasing power. They knew then, just like we know now, that a fixed amount would purchase less and less each year, due mainly to inflation. The same miracle of compound interest that works for us as we save and invest our money would work against us if the fixed amount of our Social Security check was not corrected each year to account for the almost constant increase in the cost of living. This yearly correction is called a Cost Of Living Adjustment or COLA.

The COLA’s only job was to keep the purchasing power of the Social Security check constant; no more, no less. It wasn’t a gift, it wasn’t a political football – it was a way to keep a promise. It was a simple goal that has become more and more complicated.

As people retired and each year collected their promised Social Security checks, they began to notice that their check didn’t seem to buy as much as it had in the past. For older Americans it became almost a universal understanding that the buying power of their checks, even with the yearly COLA, went down. Maybe they didn’t understand the intricacies of the underlying Consumer Price Index (CPI) that was used to calculate the COLA, or the reason that Medicare Part B premiums went up and robbed some or all of the increase each year. They just knew, all too well, that they couldn’t buy as much this year as they did last year. I can attest to this universal understanding among seniors. It is evident in the surveys we have taken, in the petitions we receive, in the emails and letters I get, and with the seniors I talk to face-to-face. Their voice has grown steadily stronger as we enter the second year of zero COLA and face a third year projected to yield a zero net increase.

A recent Associated Press article outlined some good news and some bad news concerning next year’s COLA. The good news is that the government estimates a small COLA increase for next year, the bad news is that about ¾ of seniors will see the entire increase gobbled up by the projected increase in Medicare premiums. For the third year in a row most seniors will see no increase in their Social Security checks.

A simple tool to keep an important promise has been turned into a political smokescreen, a tool of war between political parties, a convenient way to mask the truth and effectively keep money from seniors that was promised many years ago. The current fiscal discussion concerning the amount of the COLA has been framed by its future effect on the financial stability of Social Security, rather than focused on the unrestrained Social Security Trust Fund spending that has occurred over the years. These political discussions are seemingly without regard to the obligation this important promise has always represented, and not at all concerned with the accuracy we know is lacking

There are soon to be many discussions concerning the continued financial viability of Social Security. We have spoken many times in the past about the inaccuracies of the current method for calculating the COLA. We strongly support the recently re-submitted legislation, HR 1086, the CPI for Seniors Act which seeks to calculate an accurate Consumer Price Index for seniors, from which an accurate annual Social Security COLA would be determined. We cannot conceive that anyone would want to begin discussing solutions concerning Social Security using faulty information. The final two sentences in a study concerning the current method of calculating the COLA authored by University of Tennessee economist Don Bruce, Ph. D., are accurate and succinct and reflect our longstanding stance on this important issue. “There are many responsible policy options for extending the fiscal life of the Social Security and Medicare programs. The use of an incorrect COLA procedure, which might allow the real value of benefits to erode over time, is not one of them.”

We don’t need more COLA “wars”; we just need an accurate and fair COLA to keep the promise.