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 3:10PM
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First off, contrary to the false classification which has been assigned to Social Security & Medicare, these are EARNED RETIREMENT BENEFITS and not entitlement programs. Those of us who are receiving Social Security and Medicare have worked for and earned these benefits through our contributions. This is where the mindset has to change, as the names given to these benefits by politicians and beaurocrats convey a sense of being on welfare and empowers people like Mitt Romney to speak so disparagingly about the citizens who have worked for them. Second, and lastly, there is NO WAY IN HELL that we, the beneficiaries of Social Security, will agree to the Congress, Senate or the President of the US use the Social Security program for their political wheeling and dealing. Seniors everywhere need to step up to the plate right now and send a clear and resound message to our legislators and government that they should KEEP THEIR STICKY FINGERS OFF OUR BENEFITS!
Dec 20, 2012 3:09PM
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OK I'm joining MILLIONS of others in saying "I AM TOTALLY DONE with the AZZWIPERMORONIC LIAR OBAMA and HIS BULL CRAP ILK"

ALL these MORONS can do is rob PETER--while they are playing with him--to SCREW PAUL !!

THE above is NOT a CUT in SPENDING it is a MANULIPATION --that's all it is--

A CUT would be REDUCING the MORONS SALARY to $1000.00 a MONTH and another CUT is REDUCING the MORONS in CONGRESS SPIFS to -0- ZERO DOLLARS--let them and the MORON in our WHITE HOUSE pay for HEALTHCARE,MAILINGS and FOOD---

Dec 20, 2012 3:09PM
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Why is it when "We, The People" need; social security, health care, food, etc. the powers that be want to take from the average Joe & Joanne?!!?  Why is it alright to take from the have nots and not ask for help from the haves?  Our country is always helping those in need here and abroad.  Now we "need" some help and that seems to be a problem!  Now it's a problem because government lets corporations leave this country, leave us holding the bag, and call us lazy because we don't want to accept jobs paying less than what will help us sustain our families.  Damn!  We can't send our kids to college! We can't have nutrient rich food!  We can't even go to the hospital without selling everything we own in order to get well!!  What the hell is a taxpayer to do???!!!
Dec 20, 2012 3:09PM
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The more things change, the more they stay the same. Elected officials should NOT have golden parachute benefits. Elected officials should be FORCED to have health care benefits under Obamacare (if you pass it, you must be obligated to use it). As for pensions, they should be tied to service time, not one time elected, life-time pensions. Money should be put in a 401K style plan with a 20 year vesting period (5% per year). Their pension money should have been invested in GM/Chrysler's bail out, instead of "our tax dollars". You'd sure as heck know that Congress would not allow a $12-$20 billion dollar loss if their pensions were tied to the bail out loan. Its time to make our congress-people accountable for what they do. At the time of retirement, based on years served, they get their pension dollars (not life-time payouts) and have to live the way the rest of us do with our IRA's/Roth IRA's/401K's. As for social security's solvency, if Congress hadn't raided Social Security/Medicare for other social programs, there would be issues right now. Social Security/Medicare payments should have to have been mandated to put in trust fund accounts; not to be touched by ANY social program other than for social security/medicare. The rest of us have to live by ERISA laws; don't you believe our elected officials should have to abide by them as well?
Dec 20, 2012 3:07PM
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What a bunch of Sh*t..let these **** Politian's go on SS and Medicare when they retiree. Take away their overpaid pensions. The communist party only switch country's..
Dec 20, 2012 3:07PM
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So i understand that cry baby Boehner is pouting again and wont stop until he gets his way..Of course another, broken Washington ploy to take take take, except for there pay and benefits. I think it's time to sprout cohoenies and stop the ridiculous wasting of time and money and do what these people, we voted for,  are suppose to do. 
Dec 20, 2012 3:06PM
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They should reduce the money that going to other countries. that is the problem.  They pass it out like it grows on trees to other countries.but when we need it here they look the other way.  And tell us there's no money.
Dec 20, 2012 3:04PM
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Really people?  535 x 169,300 + 400,000 = $90,975,500.  So cut the President's and all Congressional salaries to 0 and you have just under $91 million.  That's the suggestion to fix the $16 TRILLION debt and $1T+ deficit we have every year?
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They ought to places like Eygpt, Pakistan, and other countries and give it to the people who've earned it HERE IN THE USA. Screw Muslim countries and communist countries, Our money should be our money not some rice/oil  producing welfare country/
Dec 20, 2012 3:03PM
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and the BS just keeps on flowing.   liberal propaganda spun by the world's central bankers and presented by media outlets and govt personnel who don't live by the same rules they ever so softly jam down our throats.  Remember in 1933 FDR told all good americans to turn in your gold for the greater good.  It's all BS people.
Dec 20, 2012 3:03PM
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I think it a crock of ****  Congress and the prez should cut their pay in half and leave social security  alone.

 

Dec 20, 2012 3:02PM
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A lot of commentators seem to be forgetting that the chained CPI was not part of the original Democratic party proposal. It was floated by the Republicans and is being considered as a negotiating chip by the Democrats.
Dec 20, 2012 3:02PM
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If, as the GOP is saying we are facing the biggest tax increase in history wasn't the Bush tax cuts the biggest give back in history? When the GOP pushed through those tax decreases they said it was to spend down the surplus and that they would sunset after 10 years. Well if they have not noticed there is no longer any surplus so why not let them expire for everyone?
Dec 20, 2012 3:02PM
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It all comes down to money , for them our elected officials
Dec 20, 2012 2:58PM
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Until they actually cut their bloated Government expenses by a real, substancial amount, those bustards have NO business wanting to cut or curb anyone with a income below 100k. They want to ban your guns BEFORE the people get tired of BOTH partys' B.S. and we start ELIMINATING their ability to steal our air.

The Government needs to fear its' people NOT the people fear its Government. It's time to take our country back from the thieves more commonly called Democrats AND Republicans.

Dec 20, 2012 2:58PM
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This is BS !!  They have raided SS for years with IOUs and now are trying to pull this . How SHAME FULL bunch of disgusting jerks represent this country . They are elitists who have NO idea how people on SS live . And if thats not BAD enough they have NO idea how most Americans live in this country . And I'm referring to true middle class . Not people making over 60K a year . The day will come when these so called representatives get run out of this country . The sooner the better .

Dec 20, 2012 2:57PM
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Lay off of Social Security,We get picked on morek here lately. Start dealing with Congress and the Senate ,and yes the President.Cut your own wages first and the deal with others.But most definitly lieve Social Security out of it.

Dec 20, 2012 2:57PM
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A phony plan at best.  Put the blame for this BS where it belongs, Boner and the obstructionist repuke party.  If Obama goes along with this, he is no better than the obstructionist repukes.  I would rather see an impasse, and just let things go over the so-called cliff, which is actually more like a shallow trench that we would fall in, and not a cliff.  Lets get this thing settled now, and stop the circus!
Dec 20, 2012 2:57PM
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Before Congres**** seniors and SS they shld cut their cost of lovong raises and their benefit package regarding travel and business expenses......Start at the top those WE pay to coveren our country let them eat PBJs and Mac and Cheeze hot dogs and beans well maybe just beans ha ha
Dec 20, 2012 2:56PM
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The founding fathers suggested that no one in governemnt get paid enough to make their government job a career choice. So the first problem is that we have allowed government to vote for their own paychecks. Because of the mentality in government if they are allowed to make adjustments that give the government more money to play with then the expenses will increase to greater than the incoming money. Millions of people have discovered the same things in their own lives. You make more money, your expenses increase to match it, or exceed your income. The only cure is for government to cut back on what they spend or take in wages, not take it away from the people.
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