COLA Letter to Senate Regarding Middle Class Relief

*A copy of this letter was also sent to the House of Representatives

February 4, 2010

United States Senate
Washington , DC 20510

Dear Senator:

On behalf of the National Committee to Preserve Social and Medicare's millions of members and supporters, I applaud President Obama's call to work with Members of Congress to address the needs of middle-income Americans.

In his Fiscal Year 2011 budget, President Obama proposes assistance for both workers and retirees. He would extend for one additional year the Making Work Pay tax credit that was provided in 2009 and 2010 under the American Recovery and Reinvestment Act (ARRA). Through this refundable tax credit working single taxpayers can receive a maximum of $400 and working married taxpayers filing a joint return can receive up to a maximum of $800. To help retirees, the President would also provide in 2010 an additional year's Economic Recovery Payment of $250 for individuals and $500 for couples who are eligible for Social Security, railroad retirement, veteran's compensation or pension, or Supplemental Security Income. The budget proposal would also provide a $250 refundable tax credit to federal, state, and local government retirees who are not eligible for Social Security.

As you develop proposals to help individuals and families who have been hurt by our economic recession, I urge you to respond to the particular needs of older adults. An important first step would be for Congress to include the President's proposed Economic Recovery Payment for seniors in any legislation assisting the middle class. As you know, seniors did not receive a Social Security cost-of-living (COLA) increase this year, yet rising health care costs, lower than expected retirement income and the loss of retirement savings during the recession have all taken their toll on America 's retirees.

Despite a relatively low rate of general inflation, health care costs continue to rise rapidly. In addition, the elderly on fixed incomes spend a significantly larger share of their income on these health costs. According to the 2009 report of the Medicare Trustees, about one-third of the average Social Security check in 2010 will be consumed by Medicare out-of pocket health care costs. Unless Congress takes action now, the lack of a COLA in 2010 will reduce many Social Security checks due to rising Part D prescription drug premiums and other health care costs. This reduction comes at the same time non-Social Security retirement income has plummeted.

Seniors have been especially hard hit by the 20 to 30 percent decline in the value of employer pensions, IRAs and 401(k)s as well as the steep drop in housing values. And unlike younger Americans, the elderly are much less likely to recover from their savings losses due to their shorter economic horizon.

Finally, it is important to acknowledge that many seniors are suffering the collateral damage of the government's efforts to stabilize the banking system. The Federal Reserve has lowered short-term interest rates to virtually zero, thus allowing banks to borrow cheaply. While helping stabilize the banking system, these lower interest rates are devastating to retirees who rely on bank account savings, certificates of deposit and money market accounts to supplement their Social Security benefits. In fact, once taxes and inflation are factored in, today's extremely low yields have caused many retirees to lose money on these investments. It would simply be unfair for these Americans to be left out of Congress's initiative to assist the middle class.

The National Committee strongly urges you to pass legislation to provide a $250 payment to our nation's seniors who did not receive a Social Security COLA this year. It is vitally important that we provide help for seniors of modest means who have been adversely affected by the economic recession and rapidly rising health care costs.

Thank you for your attention to the particular needs of older Americans as Congress and the Administration work to create jobs and improve the lives of all Americans.

Cordially,

Barbara B. Kennelly
President & CEO