Bloomberg News

Social Security Beneficiaries to Receive 3.6% Increase

October 19, 2011

(Adds cost estimate in sixth paragraph.)

Oct. 19 (Bloomberg) -- Fifty-five million Social Security beneficiaries will receive a 3.6 percent cost-of-living adjustment next year, the U.S. government said today.

The COLA increase, the first since 2009, takes effect in January. Eight million Americans participating in the Supplemental Security Income program, which provides cash assistance to the blind and disabled poor, will receive the same 3.6 percent boost.

Benefits in both programs are automatically adjusted for inflation so that recipients don’t fall behind as prices rise. For the last two years, inflation has been too low to trigger an increase.

“Today’s announcement is welcome news for millions of Americans who rely on Social Security to pay their bills,” said Nancy LeaMond, executive vice president of AARP, a Washington- based advocacy group for older Americans. “This COLA will help to ease the financial hardship many older Americans face today.”

The increase will mean $43 more each month for the typical retired worker, according to the Social Security Administration, bringing average monthly benefits to $1,229. The maximum federal payment available to Supplemental Security Income recipients will increase to $698 per month, from $674.

The adjustments will cost the government $28 billion next year.

About 10 million Americans will pay more into Social Security next year, the agency also said, because the cap on the amount of income subject to the program’s payroll tax will increase to $110,100 from the current $106,800.

Payroll Tax Rate

Nariman Behravesh, chief economist at the forecasting firm IHS Inc., said the cost-of-living boost will have a modest impact on the economy.

“It’s small potatoes,” he said. “We’ll take it -- don’t get me wrong -- but it’s not going to do big and bold and great things for the economy. It’s better than doing nothing.”

Lawmakers are debating whether to cut the payroll tax rate as well as the COLAs for Social Security recipients, veterans and federal retirees.

President Barack Obama has called for extending and expanding a payroll tax break that is scheduled to expire at the end of this year. The tax was temporarily reduced this year in a bid to jog consumer spending. If Congress doesn’t act, the rate paid by workers next year will return to the usual 6.2 percent from the current 4.2 percent.

Obama wants to reduce that further to 3.1 percent while also halving the 6.2 percent paid by employers on the first $5 million of payroll. The proposal has run into skepticism from lawmakers from both parties who question its effectiveness as well as its impact on Social Security’s finances.

Inflation Measure

At the same time, some lawmakers are calling for changing the way the government measures inflation. They say the current formula exaggerates the rate at which prices rise, which means that the government pays too much in cost-of-living adjustments.

Advocates for the elderly reject that idea, saying the government’s inflation gauge actually understates the price increases older Americans face because they spend a larger-than- average share of their budgets on medical care.

“With the decline in housing values, deep losses in retirement and savings accounts and skyrocketing health and prescription drug costs, millions of older Americans continue to struggle to make ends meet,” LeaMond said. “AARP will continue to fight with the strength of our millions of members to protect Social Security against benefit cuts.”

Social Security recipients received a larger-than-usual 5.8 percent cost-of-living increase in 2009 that was triggered in part by a jump in energy prices. Since then, beneficiaries have gone without additional increases for the only the first and second times since automated COLAs began being provided in 1975.

--Editors: Justin Blum, Robin Meszoly

To contact the reporter on this story: Brian Faler in Washington at bfaler@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net


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