Recipients of Social Security get automatic cost of living adjustments pegged to the rate of inflation. That makes sense. If there’s a lot of inflation, a retired person might need a lot more money. If there’s a little inflation, then a retired person might need a little more money. And what if there’s no inflation? Well, the logic here is easy enough to follow—no inflation = no COLA. And right now we have no inflation, so the formula that determines the Social Security COLA indicates that there should be no COLA. Well, can’t have that, so instead the Obama administration is proposing a $13 billion one-time bonus payment to seniors.
As public policy this reeks of opportunism. That said, you should read the Center on Budget and Policy Priorities’ detailed case against a 2010 Social Security COLA. They make the point that if congress is determined to do a COLA anyway, it’s much more fiscally responsible to do it as a one-off payment than to make a permanent upward adjustment. If you accept that political reality wasn’t going to allow the no-COLA scenario to happen, having the administration get out in front of a one-time payment may help preempt congressional pressure for a worse idea.
What’s more, the saving grace of this is that if Obama said “we need $13 billion in additional stimulus” then every Republican and the bulk of moderate Democrats would say “no way.” But if Obama says “we need a $13 billion giveaway to Social Security recipients” then the vast majority of Republicans and moderate Democrats are going to say “you betcha.” And judged as economic stimulus, what the administration is proposing isn’t a totally ideal use of $13 billion but it works pretty well.