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.
It 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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Stop the stupid foreign wars and the free hand out billions to undeserving foreign countries that don't like us anyway.
We would be OK if the government wasn't spending billions a day on the Iraq and Afgan fronts.
What ever they take from Social Security and Medicare in cuts, cut Congress & President the same. Why just give the cuts to the people who need it the most, our SENIORS. This is disgraceful to hang out the elderly to dry. Whats happen to our Country????
Its time the Congress & President start paying their own Medical Benefits, no more raises until the debt is cleared up. Get rid of the lifetime benefits they get, cut their pensions, most of them are millionaires so it should not effect them to much. They won't like that, but they are doing it to our seniors without a blink of the eye.
Everytime our Country needs to make cuts, they always threaten the seniors, find someplace else to get the money. Cut Congress costs. You'd be surpise of the savings.
We all need to stand up for our Seniors, we all have them in our families. Our Country is a disgrace to pick-on the elderly. DISGUSTING....
How does this actually help the deficit??? If retirees or people lose money in there SSI benefits they are just going to get an increase in other federal aid such as food stamps so your just taking money from one pot and shifting to another.
Put the morons in congress on social security and see how fast they are willing to cut it then!
One Congress needs to cut out benefits for those who have not worked a day in their lives! That's how you earn social security!
second those on Disability do not need to get their pay cut whcih is happening now. Escpecially if they or their parents worked for a living!!
Thirdly Congress and the President should not get insurance provided too them they should pay just like we pay part of our insurance coverage.
last but most importantly cut Governement spending!!!! Congress should be paid half what they are getting now because all they do is sit and argue with each other then pad their pockets!!
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