Seniors for Sale? The Obama Adminstration's $250 Social-Security Giveaway

Last week, President Obama called for a second “one-time” payment of $250 to each of more than 50 million seniors receiving Social Security benefits. Some 7 million recipients of other government entitlements — veterans, the disabled, and retirees from railroad jobs and public employment — are also included in this gift package. “Even as we seek to bring about recovery, we must act on behalf of those hardest hit by this recession,” the President said.

“Hardest hit?”

Over-60’s in America have the highest net worth of any age group in the entire world. In addition, seniors can’t be fired because they’ve already retired. It’s people in younger demographics who have lost their jobs and suffer as earned income has been reduced all the way down to zero. The more you have, of course, the more you can lose; perhaps President Obama was thinking about total financial losses, not relative loss and absolute suffering, when he continued, “This additional assistance will be especially important in the coming months, as countless seniors and others have seen their retirement accounts and home values decline as a result of this economic crisis.” This kind of thinking does not comport well with progressive values.

The subsidy for seniors is likely to be regressive for other reasons as well. As a group, seniors tend to follow investment rules that urge them to hold a smaller percentage of their portfolios in stocks the older they get. Seniors with relatively large holdings of T-bills, bonds and other fixed income did not suffer the huge losses of younger cohorts with portfolios more heavily weighted in stocks and new-fangled instruments like derivatives.. In any event, the stock market has already recovered an almost absurd percentage of its losses. Yes, housing values have fallen dramatically pretty much across the board, but seniors, at least, tend to have old mortgages, still worth substantially less than the market value of their homes. Among seniors, in other words, net worth in this asset is likely to remain positive.

The case for the $250 giveaway is less weak when the conversation shifts from assets to income. The fall in interest rates has also been dramatic. To the degree that seniors have owned bonds that were called or came due, they have suffered from significant declines in income. But America’s expansionary monetary policy will soon raise interest rates back to or above the old rates to compensate for expected inflation, and financing so much additional debt will force real interest rates to new highs as well. Runaway debt will help seniors recoup their losses sooner than other groups.

If hardship is the real criterion here, government gifts should be handed to the poor. There’s nothing “needs based” with the current proposal. It’s simple age discrimination in a positive direction for our seniors. Surely increasing the bank accounts of the elderly is not the best use of additional government funds.

Obama’s proposal and pitch for the second stimulus spending package for seniors occurred the day before the government announced that there would be no increase in individuals’ Social Security monthly checks next year. The reason for no raises is not fiscal constraint and stinginess but formula. And the asymmetric way the formula works – automatic compensation for inflation, no charge for deflation – has already guaranteed recipients increased real benefits in 2010.

2010 is the first year Social Security benefits have not increased since 1975, when Congress passed Cost of Living Adjustment (COLA) provisions for Social Security. Some have argued that the index Congress chose overcompensates elders because its weighted basket of goods was designed to reflect the spending patterns of the urban employed, not the urban and rural retired. Whatever. Last January, following this formula, Social Security payments increased by 5.8%. Not since 1982 had so substantial an adjustment occurred, and the spike in energy costs was the driving factor. As we all know, one of the few benefits of this recession has been the fall in energy prices – 30% in gasoline alone and 23% in energy as a whole. Accordingly, the index for 2010 payments showed a decline of 4%. Holding monthly payments steady actually represents a significant increase in real benefits and purchasing powers. The American Enterprise Institute calculates this gain at $725 per person.

Are all seniors grateful for the asymmetric application of COLA that precludes any decline in nominal benefits even though the COLA turned negative? No, they are not. Is their discomfort assuaged by Obama’s $250? No, it is not. At least some seniors fail to understand or refuse to accept the formula for their benefits and the fact that 2010 benefits do increase their welfare. The Senior Citizens League (TSCL) reports rather angrily that people retiring in 2009 (maybe the first of the baby boomers, taking slightly early retirement) will each lose $10,134 over 20 years. TSCL, a soi-disant “nonpartisan” group of 1.2 million seniors, sources this sum in its projection of the compounding effects of 3% average annual benefits over two decades. Few of us know where that 3% figure came from, but we all know that $250 is chump change compared to $10,134.
Okay. Seniors are probably less hard hit by the recession than other worthy subsets of the population, and they’ve already been promised a reward in 2010 by experiencing no decline in their monthly checks from Social Security.

The ethics of additional $250 gifts are dubious. Maybe the lump-sum payment still has some economic justification as a delayed addition to the stimulus package? Perhaps. But this motivation is also shaky. People tend to save some of the relatively small lump-sum payments they’re doled out on a non-recurring basis from the government. A program like this doesn’t provide a large stimulus bang for the buck. It doesn’t increase consumption and investment as much as direct government spending or reductions of current and future taxes on marginal income. Has anyone actually studied the stimulus effects of the first $250?

Any other explanations for this gift? How about politics? Obama needs more support for healthcare reform. Elders are not lining up to sing the praises of any Democratic plan, nor are they promising votes and sending money. Rather, they worry about what happens to their Medicare and Medicare Advantage benefits when $500,000,000 in “waste” moves from these programs to expanded healthcare for the previously uninsured.

$250 given to 57 million people costs $14,250,000,000. But don’t worry: it won’t add to the record federal fiscal-year deficit of $1,420,000,000,000. That budget year is already over, and only the first $14,250,000,000, doled out starting last February, made it into the record books. September, usually a surplus month, ended the fiscal year by adding $46,000,000,000 to the mind-boggling total.

One can only conclude that the proposed $250 handout to the elderly is designed to win their political support for Obama’s extensive agenda. Everyone knows that seniors vote in disproportionately large numbers. But perhaps they’re not so easily bought. To imagine that checks for a mere $250 will assuage the fears surrounding proposed Medicare and Medicaid cuts assumes a high degree of senility among American seniors. Wisdom comes with age, and often people nearing the end of their lives are more likely to choose principles over expediency.