In recent testimony presented to the House Ways and Means Committee, economist Sylvester Schieber, who once held a high position at the Social Security Administration, explained it this way: “If the price of a Mercedes goes up
maybe you don’t buy the Mercedes, you switch and you buy an Audi or something.” Hiltzik wrote that may be how it works for Schieber, now
an exec retired from the consulting firm Watson Wyatt Worldwide Towers Watson, and others like him, but that’s not how it works for many seniors. He pointed out that Schieber was either wrong or “at least wildly misleading,” because goods such as new cars were already factored into the current formula and have been since 1999.
“A more accurate example,” Hiltzik reported, “might be that if the price of gas or medical care goes up, you cut back on food.” That point was driven home in the same Ways and Means hearing in testimony from Joan Entmacher, vice president of the National Women’s Law Center, who told the story of Jeannette O’Linger, an eighty-four-year-old widow in Oregon. O’Linger worked until she was seventy-three, but has no pension and lives on a monthly Social Security check of around $1600. Here’s how she makes do: “I can’t afford meat anymore, but every once in awhile if I see a great bargain, I’ll splurge on a small piece of meat. There’s a special discount cheese that I like. I make very thin slices .” Entmacher told the Committee this shows “that for some things, you just can’t substitute—like dental care you can’t afford. You just do without.”
Hiltzik translated what the proposed change means for seniors. For the average retiree reaching age eighty-five, the change would result in an annual benefit cut of nearly $1000; for a retiree who reaches age ninety-five, the cut is about $1400—hardly trivial when you consider that income declines as people age. The nonpartisan National Academy of Social Insurance estimates that the total cut in Social Security benefits would total some $112 billion over the next ten years. “As pensions are eroded by inflation, employment options end, and savings are depleted, even a minor erosion in the real value of benefits is a public policy concern,” the Academy pointed out.
Hiltzik argued that the proposal to change the COLA formula is not about making the adjustments more “accurate.” “The goal,” he wrote, “is to cut benefits and thereby cut government costs.” What’s more, he reported, the BLS has developed an experimental index recognizing that seniors are a special case, so this method over-weights medical care as a factor in seniors’ spending. The cost of medical care has risen nearly twice the rate of overall inflation in the last two decades. The press has not discussed the experimental index. But, gosh, that could provide a sixth way of covering the COLA dilemma, and maybe begin to change the national dialogue a bit. How refreshing!
For more from Trudy Lieberman on Social Security and entitlement reform, click here.
Correction: This article originally reported that Sylvester Schieber was a current exec at the consulting firm Watson Wyatt Worldwide. In fact, Schieber has been retired for the firm for several years. Furthermore, Watson Wyatt Worldwide merged with a company named Towers Perrin on January 1, 2010. The firm is now called Towers Watson. CJR regrets the errors.