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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1119Comments
Dec 20, 2012 3:33PM
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What I do not get about all of this is that during our budget crisis, nothing changes for the Federal government. Local governments and companies stop giving raises, had days off with no pay, and cut benefits. The federal government goes on like nothing has happened. What would happen if the following occurred.
1. No raises when local government cannot.
2. All federal employees (including Congress and President) went on Obamacare.
3. Federal government employees retired when we can. Age 65.
4. All federal government employees who are behind on their taxes actually paid them.

We struggle and cut where ever we can just to keep our companies alive. Why is the federal government different?

Dec 20, 2012 3:33PM
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Aww quit your bitchen!  These crooks can do as they please with impunity because you've shown them that you will not vote them out of office no matter what they pull!!

 

Lokk what you morons did in the last election...  Unhappy with the government and congress' performance or lack thereof....you put everything back in the "same proportions as before the election!!!

 

Thats the definition of insanity!  Ya made your bed, now shut up and sleep in it you ignorant jerks!!

Dec 20, 2012 3:32PM
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ANYTHING TO SCREW US SENIORS OUT OF MONEY WHILE GIVING THEMSELVES AND ALIENS MORE MONEY AND BENEFITS.  MUSLIMS THAT HAVE COME HERE GET OVER $ 1730.00 PER MONTH PER PERSON AND THESE CROOKED POLITICIANS WORRY ABOUT HOW TO SCREW US. ITS TIME WE TAKE MATTERS INTO OUR OWN HANDS .....
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I am on my dads social sercurity because of my disability so this does not affect me at al!! Unless if I make alot of money which I don't. We can work part time and still keep our benefits. I am not on food stamps because I make to money they say but yet I see other people who make more than I do they get more food stamps so what is going on here. Where are the part time jobs? Next year social security is going to have an increase because cost of living has gone up Dah.
Dec 20, 2012 3:32PM
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Maybe tomorrow should be the end..


Really why do people think they will last another 5 10 15 100 1000 years... At the rate we are going the world will puke.

Dec 20, 2012 3:32PM
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Social security is a direct transfer of wealth from young to old. I could be wrong but I think that lowering benefits for seniors is a way to siphon  those funds (earmarked for social security) to help reduce the federal deficit, or a slick way to increase taxes.  If the government wants to reduce expenses why don't they consider a revamp of medicare? Why on earth would we make medicare the mandatory first payor of medical expenses for seniors when many have better private insurance? Does anyone smell an insurance lobbyist slash special interest group in this scenario?
Dec 20, 2012 3:31PM
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Take the deductions from the Congress' pay and benefits.  Not from the poor or working class.  They deserve more pay and benefits!  I'm tired of the congress trying to run this country on the backs of those who can least afford it.  TAX the rich and TAX them hard!  Then don't vote in ANY of the tea party people and ultraconservatives.....send them back to where they came from...they are ruining this country!
Dec 20, 2012 3:30PM
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Why is it they never discuss cutting pay and benefits for the President, Congress, Senate, etc.  They're always attacking the pay and benefits for the elderly and the needy.  Get it right people.

It's always the poor, disabled and elderly that suffer.  Many of those people can't afford their medication and food now.

Look deeper.
Dec 20, 2012 3:30PM
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This is just the beginning. They still have to find a way to get ahold of our IRA's and 401K's. They have already raised taxes on the poor. They have done away with the 10% tax bracket and made the 15% bracket the lowest. They have been coming up with ways to get money from baby boomers all our lives. Don't think their done because we are retiring.

Dec 20, 2012 3:29PM
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These idiots in the federal government don't contribute to nor do they receive SSI so why should they care if they take money for there for their own use.  Those of us who have worked hard all of our lives and contributed to SSI shouldn't be the scape goats just because the politicians decide to.
Dec 20, 2012 3:28PM
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This kind of thinking is so crazy! My step daughter was brain damaged at birth. She is 28 years old and lives on SSI. She works but, only makes between $15 and $25 a week due to her reduced capacity in intelligence. Even though she works hard, it is not possible for her to work a "regular" job.  For the first time she lives in her own place and is doing very well. She lives in an apartment complex where other disabled people live and they have a great support system there to help each other out. She LOVES being independent and having her own home. My husband and I take up the slack of her bills. What she cannot pay for we cover. Despite the fact that our income is more the 50% reduced in the last few years as we both work in economy sensitive professions. We are both in out mid 50's and have worked in these fields all of our lives and we never did make a whole lot, out best year ever was maybe $70,000 combined. As it is we and our step daughter spend the lowest possible amount to live. Chicken for dinner????? that is a splurge! If only it WERE affordable! I normally make the groceries last by cooking larger amounts and we eat the same dinner multiple nights or freeze leftovers for later.  Just one of the many ways we try to save money and keep our expenses in check. We do not go out for dinner, we do not go to movies, we do not buy new things, we even shop at thrift stores for things we need. So my question to the congress, to Speaker of the House and to Obama (Shame on you Mr. President for even thinking this might be okay!)  is where do we cut? When you can't afford pork, beef, or chicken already where do you make the cuts in your budget? Do we rip my step daughter out of her apartment? And bring her back here? The one thing in her life that she is happy and excited about? the one thing that she can call her own? The one thing that has brought about the most growth and  progress in her since high school? WE will not be here forever. she must learn to live on her own. She has no one else. Would it be better to throw her in her own place AFTER we die? Or better to have us here to support her and help her learn to be independent while we are still here? Geesh! She lives on  $600 a month as it is! This is a real example of a person who would be affected by this type of change in the SS system! You are looking at the wrong end of the spectrum to make cuts! Get more from the multi millionaires! THEY can afford it! Mr. President, I have supported you and stood up for you since before you were first elected. I hope you are paying attention! People who live on Social Security are not just retirees who did not plan well enough for their futures. Oh, and her last raise in SSI meant that her rent went up $40 a month and her food stamps went from $100 a month down to $60 a month. So, that $40 raise cost her double the amount in living expenses. THAT  does not make a lot of sense. And yes, she could just live with us, and we could just support her until we are gone. But then what? Where does this girl go? Who takes care of her? Or what, should we just have her put to sleep???? so TAX payers do not have to bothered with her? People who rant about entitlements make me sick! they have no idea. Every time I use her as an example they say "that is different." NO, it is the same! THIS is what "entitlements" are about! I could write a book on this subject!   
Dec 20, 2012 3:28PM
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to cut cola from ss would be asin with our low cola this year does not even compare to idaho power's increase ...so people sone senoir's wiil be on food stamp's or engery assintance come on folk's help the senoir's out or u will end up paying for what we lose. think about it !!!!!!!
Dec 20, 2012 3:28PM
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The cpi increases now do not cover the increases in living costs.  Beef, Pork; huh??  How about no meat at all.  Just another government scam.  I live on SS only and cannot afford to buy basic food most of the time.  If, (a big IF) I had all of the money I paid into SS over the years I would do fine
Dec 20, 2012 3:28PM
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I believe that all of our congressmen and women, including the Senators should be limited to

2 year terms. And someone needs to make that a referendum to be voted on by all of us common folks.

 And they all should have to pay their own health insurance and all of their travel expenses!!!

   It is pretty obvious that our current President and all of the congress people have no clue of

what is in the constitution, all they want to do is , re-write it to suit their personal needs.

   Shame on all of us citizens for just keeping on putting up with this shameful mess that these

people keep shoving down our throats. Maybe we need to have another revolution, as our forefathers did

to have our freedom from British rule!!!!

    I am another very frustrated retired senior citizen who is very sick of this country's situation!!!!

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Republicans, making gramma and grampa eat dogfood, and forego prescriptions, to keep rich folks happy and buying foreign luxury cars.  This smells so bad, I swear the republican party is rotting from the inside out.
Dec 20, 2012 3:27PM
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How does "Switching to a chained CPI will reduce spending on Social Security and federal pensions while increasing revenue for the government." this actually work? How does less money going out become equal to more money coming in?

Since our COLA is now computed on only 1 quarter of the year, while prices change 4 quarters a year, we are already being cheated. I guess that since we've already done our part, we're not important any more.
Dec 20, 2012 3:26PM
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president makes about 300,000 per year get a life
Dec 20, 2012 3:25PM
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Cut entitlements of those who never contributed a dime to them.  Illegals should get no free education, food, housing or medical care over citizens who earned the right to the benefits they paid for all their working life.  You politicians are out of touch crooked bast^%$&*ds
Dec 20, 2012 3:25PM
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Why does our politicians keep on hammeringaat ways to hurt our seniors.  We have worked and paid into the Social Security system along with our employers and have it coming.  I agree with a lot of other people - if they want to cut seniors, cut  their ownb enefits.  They don't deserve what they are getting now.  We need someone in Washington that looks out for the common person s- Not the Millionaires that lurk there.
Dec 20, 2012 3:25PM
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People...we have to cut spending.....Hello. Everyone says.hea don't cut my spending in SS, don't cut the military....don't cut welfare...yada, yada, yada.

 

We can't keep spending money we don't have......PERIOD. 

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