How much the January federal-military-Social Security COLA be depends on how much living costs rise (or not) this month and again in September. The COLA is based on the change in the Consumer Price Index from the third quarter of the current year (2008) over the CPI level for the third quarter of the previous year. In this case 2007. That means if the CPI holds steady for August and September the COLA payment will be 6.2%. If the CPI goes up either or both months the COLA will increase accordingly. If the CPI should decline the COLA will be adjusted according. Meaning it could, in theory, be less than 6.2%. But there would still be an increase. If you would like to run the numbers for yourself, check out this explanation from the National Active and Retired Federal Employees NARFE website www.narfe.org/departments/leg/guest/articles.cfm?ID=942 . It also gives the projected COLA increase for employees retired under the FECA program. [Source: Mike Causey’s Federal Report 15 Aug 08 ++]

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The report is a timely counter to the alarmism being peddled by Pete Peterson, a billionaire investment banker and Secretary of Commerce under President Nixon. The Peterson Foundation has bankrolled a new movie, I.O.U.S.A., billed as “An Inconvenient Truth for the U.S. economy,” to sell the message that the country is on the brink of a financial meltdown. In a 60 Minutes episode that preceded the film, Peterson Foundation President David Walker raised the specter of an entitlements crisis brought on by the boomer retirement: “When those boomers start retiring en masse, then that will be a tsunami of spending that could swamp our ship of state if we don’t get serious. Yet, according to the CBO projections, Social Security is in decent shape. Without any changes at all, the projected long-term Social Security shortfall equals a mere 1% of taxable payroll.

The big problem facing Social Security isn’t the boomer retirement—which was fully anticipated and is the reason there is a trust fund—but rather growing income inequality. Because the earnings of most workers have stagnated while those at the top have skyrocketed, the share of untaxed earnings above the taxable earnings cap (currently set at $102,000) has grown from 10% in 1983, when the system was last in balance, to around 17% today. So a better way to address the modest shortfall than an across-the-board tax increase would be to raise or eliminate the cap on taxable earnings. Even more importantly, we need to fix our national health care system, which, as the Peterson Foundation points out, spends twice as much as other developed countries with no appreciable difference in outcomes or longevity. Controlling costs through comprehensive health care reform would not only close the projected Medicare and Medicaid gaps (which, unlike Social Security’s, are genuinely large), but would also give a boost to Social Security, because money spent on health benefits gets excluded from Social Security’s tax base. [Source: Economic Policy Institute Monique Morrisey article 22 Aug 08 ++]

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The government does track a Consumer Price Index for Elderly Consumers (CPI-E), which takes into account the spending habits of senior citizens. That index would have increased seniors benefits by 2.6% vice 2/3% this year. While that difference sounds tiny, it means thousands of dollars in extra benefits over your retirement. The effect of a larger COLA is cumulative like compound interest. A person retiring with an average benefit of $1,055 in 2007 would receive $2,000 more in the first ten years of retirement using the CPI-E vice the CPI-W and $18,227 more over a 25-year retirement. A senior who retired with a benefit of $460 in 1984 would have received almost $11,200 more over the past 24 years if the COLA was based on the CPI-E. Legislation has been introduced by Rep. Charles Gonzalez (TX-20) that would base the Social Security COLA on the CPI-E. If signed into law the Consumer Price Index for Elderly Consumers Act (H.R.1953) would base the Social Security COLA on the CPI-E. To see if your Member of Congress is one of the 16 who so far have supported the CPI-E or request he/she do refer to http://capwiz.com/usdr/issues/alert/?alertid=11399626&queueid=[capwiz:queue_id]. Enter your zip code and complete your constitute data. If he/she is already sponsoring the bill you can send an automatic “Thank You” message. If he/she has not signed on to support the bill you can send an automatic message requesting to so. [Source: TSCL Action alert 20 May 08 ++]

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Now the Medicare Part A Trust Fund is in trouble all over again. Earlier this year, the Congressional Budget Office projected that the Medicare Part A Hospital Insurance Trust Fund ended 2007 with a $17 billion surplus, and would end 2008 with a $16 billion surplus. But if the government only counts the real cash revenues (excluding government bonds on interest earned), according to the 2008 Medicare and Social Security Trustees reports the Part A Trust Fund ended 2007 about $500 million in the red, and is projected to end 2008 with a $10 billion deficit. President Bush has proposed $178 billion in cuts over the next five years, which, if passed, would exceed the cuts in the 1997 Balanced Budget Act. The Senior Citizen’s League (TSCL) is highly concerned and recently submitted a statement to a hearing on The President’s Fiscal Year 2009 Budget to the House Ways and Means Committee supporting the passage of “The Social Security and Medicare Lock-Box Act,” in addition to recommending that the government do a better job of reducing waste, fraud, and abuse. Because the new President and Congress will surely be tasked with fixing Medicare’s financing, TSCL also urges seniors to carefully examine the records of candidates, and make sure your voter registration is up-to-date to be ready for the upcoming elections. [Source: Social Security and Medicare Advisor, Vol. 13, No. 5 dtd 27 May 08 ++]

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According to the Congressional Budget Office (CBO) neither the Medicare Trust Fund nor the Social Security Retirement and Disability Trust Funds operate like a “Trust Fund” as the average person would understand it. Instead of setting the money aside and protecting it in a special account, both the Medicare and Social Security Trust Funds exist only on paper as an accounting mechanism. Government accounting is hiding serious financing problems, making the trust funds appear to have more cash coming in than they actually do. The majority of Medicare Hospital Insurance (Part A) and Social Security costs are presently financed by the payroll taxes that workers pay and taxes that seniors pay on a portion of their Social Security benefits. When one of the trust funds receives more from these sources than it needs to pay benefits, the U.S. Treasury issues a government bond to the Trust fund and borrows the cash from the surplus to pay for other government expenses. The bonds earn interest, but are very different from the bonds sold to the public that can be redeemed for cash. The bonds placed in the trust funds are non-marketable, representing only an “I.O.U.” from the Treasury.

A big problem is that in recent years the so-called “interest” earned by the bonds in the government trust funds has become a growing source of funding for both programs, at least on the government’s books. But the interest funding, like the trust funds, exists only on paper and does not represent any real cash resources to pay benefits. GAO says for the trust funds to be paid, the Treasury will need to provide cash from general revenues in exchange for those trust fund securities and interest I.O.U. bonds. Such use of general revenue for Social Security would represent a major policy shift in how the government pays for expenditures. In the past Congress for the most part has rejected general revenue financing for Social Security. The GAO says payments to the trust funds in the future, should only come through “increased revenue, increased borrowing, and reduced spending (benefit cuts) or some combination.” The current state of denial is leading to a day of reckoning that could have serious long-term financial repercussions for both today’s and tomorrow’s retirees.

The Social Security Trustees further estimate that the program costs will begin to exceed cash revenues in 2017, or about nine years from now. According to the former U.S. Comptroller General, David Walker, the new president and Congress will have about 5 years to make changes, before we run out of cash revenues to pay full Social Security benefits. The Medicare Part A Hospital Insurance Trust Fund is in trouble today. The Social Security and Medicare Lock-Box Act” (H.R. 4338) that was recently introduced in the House by Representative Timothy Walberg (MI) and (S. 302) in the Senate by Senator David Vitter (LA) would establish new procedures to safeguard extra Social Security and Medicare taxes. Congress would be prevented from dipping into the Trust Fund surpluses to pay for other wasteful or pet projects. Instead the extra Social Security taxes would be “locked away” to pay future Social Security benefits [Source: TSCL, The Budget And Economic Outlook, CBO, Jan 08,. Social Security & Medicare Trustees Reports 23 Apr 07, and Social Security Reform GAO-07-213 Mar 07 ++]

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