Social Security cost-of-living boost likely to be smaller because of lower inflation

<br>WASHINGTON (AP) _ Millions of Americans can look forward to receiving a slightly bigger Social Security check in January, thanks to a cost-of-living adjustment system that Congress set up more than

Friday, October 18th 2002, 12:00 am

By: News On 6

WASHINGTON (AP) _ Millions of Americans can look forward to receiving a slightly bigger Social Security check in January, thanks to a cost-of-living adjustment system that Congress set up more than a quarter-century ago.

But they shouldn't expect lawmakers to fix the program's looming financing problems anytime soon.

While Social Security has been a hot topic in many congressional races this fall, Republicans and Democrats remain far apart on the best way to address the financing shortfall that is expected to occur after the baby boom generation begins retiring in a few years.

But that debate won't affect the annual adjustment in benefit checks that more than 50 million Americans will receive in their checks starting in January.

The increase is designed to offset the impact inflation has on retirees' purchasing power. It is tied to the government's most widely watched inflation gauge, the Consumer Price Index, with the actual figure based on the increase in the level of prices in the July-September period of this year compared with the same period a year ago.

In advance of the government's announcement, many economists were looking for the increase to be a full percentage point below the advance announced a year ago of 2.6 percent, which had been sharply lower than the 3.5 percent boost in checks that took effect in January 2001.

This time around, economists were predicting the increase would be around 1.5 percent, reflecting a modest rise in inflation as prices have been held in check by last year's recession, the country's first downturn in a decade, and this year's anemic recovery as well as a break on energy prices.

``Inflation has come down to the point that some people have begun to worry about deflation,'' said Lynn Reaser, chief economist at Banc of America Capitol Management Inc., referring to the problem currently plaguing Japan after more than a decade of sluggish growth.

The cost of living adjustment will cover 43 million recipients of Social Security benefits and another 7 million people receiving Supplemental Security Income, the federal government's cash assistance program for the needy.

In this fall's midterm election campaign, Democratic congressional candidates have attacked their Republican opponents over the issue of how best to bolster the program's finances to cover the retirement of baby boomers.

President Bush campaigned for office in 2000 on a program to partially privatize Social Security by allowing younger workers to divert part of their Social Security taxes into personal investment accounts on the belief that these accounts would earn higher returns than the same money invested in government bonds.

However, Democrats have used the stock market's steep plunge to attack the idea of privatizing any part of Social Security and have run campaign ads against Republicans accusing them of pushing risky schemes that will put retirees' Social Security benefits at risk.

Many analysts believe the bitter campaign debate and the government's rapidly worsening budget outlook will make it far harder in the next Congress to come up with a solution to the Social Security problem.

``There is no real prospect that we are going to make any changes in the way Social Security is handled in the near future,'' said Mark Zandi, an economist at Economy.com. ``We lost a golden opportunity when the government's fiscal situation was strong and the stock market was healthy to deal with Social Security.''

Peter Orszag, a Brookings Institution economist who served as an economic adviser in the Clinton White House, said one of the problems was that the campaign debate over Social Security could lock candidates into taking positions that will make reforming Social Security that much harder.

``Broadly speaking the elements of Social Security reform are pretty clear _ you need some adjustments to benefits and some adjustments on the revenue side,'' he said. ``If you sign on now to saying I will never raise taxes or cut benefits, then you don't leave much room later for getting reform done.''

Michael Tanner of the Cato Institute, a Washington think tank that is promoting creation of the individual investment accounts as a way to bolster Social Security, said the outcome of the Nov. 5 elections will play a big role in determining whether the idea can win approval in the next Congress.

``Depending on the outcome of the elections, we could see action in Congress next year,'' Tanner said. ``The president remains committed to doing this.''