The cost of living it up.

• Author: Hodges, Glenn
• Position: Cost of living adjustments

What Richard Nixon considered perhaps his biggest presidential mistake was hatched in a high stakes game of political chicken. And it had nothing to do with Watergate.

It was 1972, and Congress was poised to pass the fourth increase in Social Security benefits in five years. The first three had totaled over 40 percent, well outdistancing the cumulative 27 percent inflation rate. But the economy was strong, and it was an election year. Nixon signaled to Congress that he was willing to sign a 5 percent increase--but no more.

The Democratic-controlled Congress was moving towards a 10 percent increase, apparently believing Nixon would veto the bill and take the heat at the polls. Then, according to Eugene McCarthy, who had just left the Senate but was still in contact with his colleagues at the time, word got to Congress that Nixon would call their bluff and sign the bill.

Wilbur Mills, chairman of the House Ways and Means Committee, wasn't about to let him off that easily. Mills, a powerful Democrat in a highly partisan arena, was also a presidential candidate. He saw a golden opportunity: In one fell swoop, he could curry favor with the senior citizen vote and hold Nixon's feet to the fire. He pushed a 20 percent increase onto the bill extending the federal debt ceiling and effectively dared Nixon to veto it.

But Nixon didn't blink--he signed the bill and made sure he got his share of the credit for the fattened benefit checks. As expensive as the 20 percent raise was, though, the fiscal damage had just begun. Because attached to that bill was a provision that permanently indexed Social Security benefits to the Consumer Price Index (CPI), ensuring annual benefit increases and making future appropriation games unnecessary. Good-bye political chicken. Hello COLAs.

At the time, the annual Cost of Living Adjustments had broad bipartisan support. Federal civil service and military pensions had been indexed to the CPI in the early sixties, and many lawmakers saw COLAs as a way to compensate for rising inflation huge election-year benefit increases. But neither Nixon nor anybody else anticipated the coming decade's severe oil shocks and double-digit infla tion. No one knew that Social Security benefit would virtually double after just eight COLAs and that the average beneficiary would, by 1981, be receiving annual checks worth more than hal of his final working wage, compared to only 38 percent in 1974. Nb one realized how badly the CPI overstated...