The 121,000 people who receive Social Security benefits in Snohomish County will be getting a rude non-surprise on Jan. 1.
That’s because they will not see any COLA increase in their Social Security checks. Why not? The COLA, the annual cost-of-living adjustment, accounts for inflation through the consumer price index. That index has shown no increase in the past twelve months, so no COLA. But senior citizens purchase different proportions of services than younger people. Consider medical expenses: inflation for medical care has gone up 2.5 percent. But that extra expense for the elderly is not factored into the consumer price index to determine the COLA.
In 2010, when inflation was zero, Social Security recipients received an emergency payment of $250 as part of the American Recovery and Reinvestment Act stimulus bill. So here we are with 2016 around the corner, and again, no COLA. That doesn’t mean that elderly citizens are any better off. The average Social Security payment is $1,335 a month. Two-thirds of seniors rely on Social Security for the majority of their income. For one quarter of seniors, Social Security is their sole source of income. So it makes sense to figure out how to increase Social Security checks.
There is a way to measure the price changes the seniors face. It’s called the CPI-E — the E is for elderly. If the Social Security Administration were to use that measure to calculate COLAs, Social Security checks would increase to keep pace with the price changes that the elderly face.
If seniors are getting the short end of the stick, who is running away with the long end? According to data from the top 350 corporations in the U.S., average CEO pay rose 3.9 percent in 2014, to $16.3 million — a $612,000 increase in one year. How about if we also increase the average Social Security payment by 3.9 percent? That would be a $580 one-time emergency benefit. And since every dollar of Social Security benefits generates about $2 of economic output, that increase would be worth about $300 million in new economic activity in Snohomish County alone. Washington state would see benefits totaling more than $3.1 billion!
How would we pay for it? From a policy point-of-view, that’s a relatively easy problem to solve. Buried in the federal tax code is a provision that enables corporations to fully deduct components of executive compensation that are “performance-based.” So corporations can pay their executives tens of millions of dollars, and at the same time write off those costs from their taxable income — with billions in lost tax revenue in the process. Closing this loophole would generate would generate about $51 billion a year. That’s $10 billion more than needed to pay for the one-time $580 emergency benefit for all Social Security recipients.
Sen. Elizabeth Warren, D-Massachusetts, is proposing just this trade-off. She is introducing a bill this week to give all Social Security recipients and Supplemental Security Income recipients a $580 one-time payment in 2016. She’ll close the corporate executive performance loophole to pay for this. Sen. Patty Murray, D-Washington, also is a sponsor of the legislation.
Sen. Warren’s proposal, the Seniors Before CEOs Act, has another benefit: Since the loophole closure is permanent, future revenue will go into the Social Security Trust Fund. That would help make increased Social Security payments possible in the future, such as switching to the CPI-Elderly, which takes into account what older people purchase. That is the CPI-E proposal that Sen. Maria Cantwell, D-Washington, introduced in 2005 in the U.S. Senate.
It made sense then, and it makes sense now. So one step at a time: first Sen. Warren’s legislation and then Sen. Cantwell’s CPI-E bill. Two-thirds of seniors rely on Social Security for the majority of their income. After decades of work, they should be able to stay out of poverty, and gain a bit more, not having to worry about running out of money at the end of each month.
John Burbank is the executive director of the Economic Opportunity Institute, www.eoionline.org. Email him at firstname.lastname@example.org.