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Vol. 72/No. 3      January 21, 2008

Social Security raises don’t
keep pace with real inflation
(front page)
Starting this January, nearly 50 million recipients of Social Security benefits will get a 2.3 percent increase in their monthly checks, the smallest cost-of-living increase in four years.

The adjustment is based on the rise in the Consumer Price Index (CPI) from the July-September quarter of 2007 compared to the same period in 2006. It comes as working people in the United States are paying significantly more for food, energy, and medical care, outpacing increases in benefit payments and wages. Older people are particularly vulnerable, since they spend more on health care and energy than the overall population, and these costs have been rising faster than prices in general.

The cost-of-living adjustment will increase the average monthly Social Security payment by $24. The actual amount received, however, will be $21, since a $3 increase in Medicare premiums is automatically taken out of the Social Security check.

Since 1975, adjustments to payments of Social Security benefits have been tied to inflation, a gain made by working people as partial protection against rising prices. As the U.S. rulers have moved to shore up their falling rate of profit, Social Security has been one of their targets.

Workers are also being cheated by changes made during the administration of Democratic president William Clinton to the way the CPI is calculated.

As of January 1999, a new formula was introduced to calculate rises in the prices of nearly two-thirds of the consumer items tracked by the CPI. The Bureau of Labor Statistics argued in a 1998 report that consumers can “insulate themselves from the impact of higher prices by adjusting their spending to favor relatively lower-priced goods and services.” So, the argument goes, if steak becomes too expensive, workers will buy ground beef, or buy smaller quantities, so the price increase doesn’t really affect their cost of living. The new formula, they estimated, “will reduce the annual rate of increase in the CPI by approximately 0.2 percentage points per year.”

Food and beverages, apparel, gasoline, automobiles, transportation fares, and other goods and services fall under the CPI categories in which this new method is applied.

This manipulation of the inflation rate by the government has resulted in cutting billions of dollars in Social Security payments over the years, and the deterioration of the standard of living for millions of working people.

CPI figures are also important for the more than 4 million federal employees, whose pension increases match Social Security’s.

In the 1960s and 1970s the labor movement fought to include cost-of-living adjustments (COLA) in labor contracts. These adjustments, however, have fallen short of keeping up with rising prices. Moreover, the number of workers covered by COLA clauses has dropped to its lowest level in more than 25 years.

In a recently negotiated contract by Local 32BJ of the Service Employees International Union (SEIU) covering some 26,000 janitors, doormen, and other workers at more than 1,000 office buildings in New York, union officials agreed to building owners’ demands to limit wage increases to an average of nearly 4 percent a year. The national inflation rate has been 4.3 percent over the past 12 months, and has gone up 10 percent over the past three years.  
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