The Social Security proposal you need to know about

Lawmakers have suggested a switch to 'chained CPI' to reduce deficits. That could affect how the government calculates Social Security benefits in the future.

By Bruce Kennedy Dec 20, 2012 9:21AM

Image: Social Security cards on clothes line -- Mike Kemp/Tetra images/Getty ImagesIt sounds about as exciting as skim milk, but the phrase "chained CPI" could play a role in fiscal cliff negotiations -- and it could impact your Social Security payments.


Republicans are reportedly suggesting a shift to chained CPI as one way of dealing with the deficit, and President Obama appears open to the move. That could impact the way Social Security benefits are calculated in the future.

To understand chained CPI, it's important to get a refresher on the standard CPI, or the Consumer Price Index. This index tracks price changes of goods and services in some 200 categories. The Bureau of Labor Statistics defines the index as "a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services."

 

The government uses the CPI as one basis for adjusting dollar values on Social Security payments. During times of inflation, for example, the index rises and Social Security payments get cost-of-living adjustments, or COLAs.

 

"Chained CPI" doesn't just look at the prices of goods and services. It goes deeper into consumer choices and relative price changes. For an example, says the BLS, consider differences in the costs of pork and beef.

If the price of pork goes up while the price of beef doesn't, shoppers might shift away from pork to beef, the Bureau notes. Chained CPI accounts for this type of consumer substitution, while the standard CPI does not.


And here's the important part: In this example, chained CPI would rise, but not by as much as the standard CPI. In fact, the Congressional Budget Office says the chained CPI has grown at a slower rate than the traditional CPI, by an average of 0.3 percentage points annually over the past 10 years.

 

So what does that mean to you, the taxpaying consumer? Switching to a chained CPI will reduce spending on Social Security and federal pensions while increasing revenue for the government. The differences between the CPI and chained CPI may seem small, but they can add up. As the Columbia Journalism Review points out, the chained CPI "cuts spending and raises revenue, the twin strategies for reducing the federal deficit."

 

There are estimates the chained CPI could bring in hundreds of billions of dollars in savings for the government while generating billions more in revenue.  The unanswered question, though, is at what cost.

 

In a recent letter to Congress, the National Committee to Preserve Social Security and Medicare urged lawmakers to oppose any deficit reductions plans that would involve the chained CPI.

 

"This cut would reduce projected benefits for the oldest and most vulnerable Americans who would be least able to afford it," says the letter, which also notes that Social Security Administration officials estimate the chained CPI would bring about a 0.3 percentage drop compared to current cost-of-living adjustments.

 

"This reduced COLA would result in a decrease of about $130 per year (0.9%) in Social Security benefits for a typical 65 year old," The letter continues. "By the time that senior reaches age 95, the annual benefit cut will be almost $1,400, a 9.2% reduction from currently scheduled benefits. Remarkably, this is a benefit reduction that slightly exceeds the one month’s benefit for the average retiree."

 

The Christian Science Monitor says supporters of the chained CPI believe it’s a better way to measure inflation and reduce the deficit -- especially as a growing number of Baby Boomers retire and go on Social Security. 

 

But there's also a middle ground in the debate, according to the Monitor: those who argue that the change "should be cushioned by supplementing benefits for older retirees."


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1118Comments
Dec 20, 2012 6:53PM
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Just leave social security and medicare alone. If congress whats to cut something, cut everyone in both the house and the senates's pay checks, down to mnimum wage: what is that about $7.50 per hour, nowadays? Then we'd have lots of money around here to balance any budgets. These "clowns are getting paid "way to much" as it stands now, ncluding the president of the United States; well he can get paid $8.00 per hour. Leave my social security and medicares alone, "PERIOD" !!!!!!!!!!!!!
Dec 20, 2012 6:53PM
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Have you guys noticed how these pricks have picked on all the minorities of this country, just to save the fortunate some  money.  Pay YOUR FAIR SHARE. 
 Cut your own wages and benefits or we will downsize your jobs in 2014.
 Get rid of the money in politics. Nothing changes... nothing changes.













Dec 20, 2012 6:52PM
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If this is how Congress is going to treat seniors then Congressional pay raises need to be stopped, no more salaries for Congressional members when they leave office, and Congress needs to be subject to Social Security when they are old enough, which most are now.  If they do it to one, they better be doing it to themselves.  How sad that we have 4 more years to suffer through this political cog that can seem to go nowhere.
Dec 20, 2012 6:52PM
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no big news to SOME of you, but if you spend $1.00 a SECOND for 31,600 years....you will pay off 1 (ONE) trillion.  We are 19 trillion (and Growing) in debt.  I guess all you idiots agree that taxing a few wealthy peop;le will fix it right up....idiots

 

Dec 20, 2012 6:51PM
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So!!!! WHAT'S NEW. I is the same old CRAP, congress, the president,vp, none of them care

about 'THE OLD GOATES'.

Dec 20, 2012 6:51PM
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I am willing to go along with a Social Security cut in my check, if the politicians are willing to take an equal percentage cut to their income.
Dec 20, 2012 6:49PM
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Taking away Americans' rites' and taking security from people who are elderly and disabled!

is Just plain Cruel!, and robbery! all American Government Employees' get Holliday's off with pay! count the Government Holiday's! and then count the federal employee's that get a day off with pay! and add up how much money the Government gives' to its' employee's!, and also Rebuilding war zones'? Giving aid to Countries' that we feel sorry for! STOP! and Give it Back to the AMERICAN PEOPLE!

Dec 20, 2012 6:49PM
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Seniors are not exempt from being affected by any inflation! Don't make a change. If congress takes a pay cut then they should, but they need to adjust their salaries by a large margin (10%) as well.
Dec 20, 2012 6:45PM
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Why not put Congress raises on chained CPI and let the middle class retirees live a little without constant worry that these asses or going to put all of us middle class workers/retirees in the poor house.  Hell we won't even be able to afford a nursing  home....Tell Obamma and congress to live with Medicare, Social Security and Obamma healthcare and I bet things would change.   My husband's social security went up less than his cost for Medicare (which is a joke).  The house, the senate and the White House has a theme song and it should be played at every meeting.
"SEND IN THE CLOWNS".


Dec 20, 2012 6:44PM
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Where is AARP.  They take my money every year, but we hear nothing about what they are doing to prevent us from being screwed.   I paid in for 38 years

The Congress pay raises should be calculated the same way and they should drop their elite medical plan AND BE ON MEDICARE PLAN LIKE THE REST OF US.  THEN I WILL AGREE WITH THIS.....DUH!!!!!!!!!!!!!!!!

Dec 20, 2012 6:43PM
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As a non-ideologue Democrat (and I hope non-ideologue Republicans agree with me) I think a deal requires sacrifice from EVERYBODY - so, we keep Social Security, but we get rid of COLAs, and raise elgibilty age on those of us below Age 50 -

we do the same with Medicare -

we cut the Defense budget -

AND we raise the income tax rate to a reasonable level as we had during Clinton - we're not talking about becoming France, or even returning to the high top tax rates we had under Eisenhower, we're talking 3% - grow up and realize that the Bush Tax cuts, which everyone knew were a bad idea at the time (and that were made worse upon fighting two wars on China's dime) need to go away!

Dec 20, 2012 6:43PM
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all this talk about congress not cutting their pay or insurance is only talk. most congressmen were reelected and not voted out of office and know that they can do as they damn well please and still keep their job. if you want change you have to vote out those that don't listen to us, or stop complaining, you get what you ask for.
Dec 20, 2012 6:43PM
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How about reducing Social Security benefits to the 1%?  Those people who are millionares several times over, get between $200,000 & $300,000 per year from pensions, investments, rental income,etc.  Why should they get the same benefits as people who have nothing but Social Security to live on?
Dec 20, 2012 6:41PM
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LET CONGRESS GIVE UP ANY RETIREMENT PLAN OTHER THAN SOCIAL SECURITY AND WATCH HOW MUCH MORE THEY CARE ABOUT THE REST OF THE RETIRED CITIZENS
Dec 20, 2012 6:41PM
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Just some more of the fascists in Washington making sure that they, wall street and corporate america advance their wealth at the expense of the rest of us.

 

Dec 20, 2012 6:39PM
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Social Security always come up in any comment in other words...,lets steal from the folks who worked for it and made it ---the rich get richer and the poor get poorer in other words. All those rich people who many times stole from the poor in the first place.
Dec 20, 2012 6:38PM
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Yes spend a few trillion on wars but cut social security . Just try it!!!!
Dec 20, 2012 6:38PM
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The Republicans are determined to make seniors pay to balance a budget that they created and blamed on everybody but themselves.
Dec 20, 2012 6:36PM
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Right now, if it wasn't for the RETIREES, our economy would be in BIGGER SHAMBLES than it already is! The golf courses would be bankrupting, the restaurants would be closing, the poor Republican OIL & FINANCIAL corporate MONARCHY with their  3x's too high priced gasoline prices would see a SHARP FALL IN USAGE BY THE RETIREES!

Political puppets have a way of forgetting the VERY PEOPLE THAT WORKED TO MAKE THEIR CORPORATE MONARCHY successful in the first place! Don't you think the RETIREES deserve to enjoy the REMAINDER of their lives after DONATING 20 PLUS YEARS to the corporate MONARCHY????????????? 

Dec 20, 2012 6:35PM
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If we're going to trim this fat pig called the Federal Government we need to start on the outside and work our way in. Why do we spend hundreds of billions in foreign aid every year? Why do we have over 400 active military bases around the world? Why is the NSA's budget seven time larger than the CIA's? Why do we continue to invest money into the United Nations, what's the ROI? My guess is that if we stopped spending our money in other countries we could probably just about pay for healthcare, social security, and medicare. We're going bankrupt because we are supporting the entire world.
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