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."

More from Money Now

Dec 20, 2012 10:33PM
Just leave SS alone.
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.

Dec 20, 2012 10:31PM
way to go lets decrease the elderly, and disabled, thats payed in..heck we barely get by now.but think about these women that  have all these kids getting 500 up to 1600 a month on food stamps, getting a goverment check..damn i should have thought of that should be temp, and yes tax food on food stamps..also they selling their food stamps, they just take the person with them...make these people go to work,and allowing them to have all these kids, and living off the goverment...but you noticed most have nice cars, hair& nails all done up..where's this money coming from if they have no income????? ohh and they also living in goverment housing..and get a tax break for every child..damn isnt goverment housing and food stamps enough????.we could save alot of money..
Dec 20, 2012 10:30PM
We keep bitching about how the politicians in DC keep stealing from us and then re elect them all over again. Why is this? Maybe when Obamacare wrecks havoc on America we will learn at least the 49% who didn't vote Obama back in.
Dec 20, 2012 10:30PM
How about politicians keep their campaign promises not to touch Social Security or Medicare, and the government pay S.S. the trillions that they have "borrowed"  from the money taken from our checks every week?  Cut congressional benefits and limit them to one six year term and stop throwing our money away on every foreign country that has a civil war. 
Dec 20, 2012 10:27PM
Next will be the confiscation of IRA's and 401k's. We must further the welfare state.
Dec 20, 2012 10:22PM
why do they always want to cut ss, when they waste billions on things that will never matter anyway.

Dec 20, 2012 10:20PM

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....

Dec 20, 2012 10:19PM
Social Security should only be going to the ones who have paid into it, not all these people who seem to think they are disabled and have never worked a day in their life and think they are entitled to social security.  Get rid of the "entitlements"  get people back to working for themselves and not depending on everyone else.
Dec 20, 2012 10:18PM
Time to vote out the incumbents, all those senators and congressmen who have been there for years and years and only sitting there getting richer and richer.  None of those so called politicians are really working for the little people and seem to want to kill off the elderly.   What happened to all their campaign promises and what about the one Obama gave when he said he would increase the earnings of seniors from $25,000 a year to $50,000.  And they want to give breaks to those who make a million a year.
Dec 20, 2012 10:17PM

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.

Dec 20, 2012 10:16PM
I think that the biggest problem is that the people who vote, really believe that there is a difference between a Republican or a Democrat.
Dec 20, 2012 10:01PM
How about all the SOB's  in congress and the WH  pay back all they took from SS to take care of their little projects in there states and screw all the rest of the USA.  I payed into it for over 45 years and they tell me its a goverement benifit, BS, I worked for it and 21+ yrs in the Military protecting it.  They are all BS'ers and will screw us all !!!!!!!
Dec 20, 2012 9:50PM

Put the morons in congress on social security and see how fast they are willing to cut it then!

Dec 20, 2012 9:34PM
"ONE" of a few reasons that I did NOT vote for Obama OR Romney.They "BOTH" are Republicans in a different Political Party.However--the most important reason is---They "BOTH" have taken positions contrary to GODS Holy word.Lastly.Obama, along with Boehner, is doing exactly what Republicans have WANTED ever since FDR created the SS Administration."DESTROY" SS.
Dec 20, 2012 9:23PM

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!!

Dec 20, 2012 9:14PM
I'm tired of having ss taken out of my check and hearing that it won't be there when I retire, not because the baby boomers are starting to retire, but because our government keep's borrowing from ss. New report's say people are living longer, has anyone thought about how much in taxes we pay for retirees of federal, state, county and city civil servants, and if they are living longer,we will be paying longer. If are so called leaders want to cut spending they should start a transition over to a 401k or IRA or something other than our tax dollars. Just think of all the money they could save, our leaders could vote them selves  a raise.
Dec 20, 2012 9:09PM
First of all Congress members, the president and the rest of that lot should get the same or similar health plans as the rest of us working types. They get treated like royalty. They aren't subject to the mess they pass for the rest of us. I'm not going to go into detail. Look it up. 
Dec 20, 2012 9:03PM
With all our government borrowing and virtually wasting money we are due for double digit inflation. The Dollar has been seriuosly devalued. Jimmy Carter all over again.
Dec 20, 2012 9:02PM
Again, us hard working poor folks are going to take it up the wazoo. Never mind the wealthy don't get touched. Take mine so that the greedy mother f...... can get more. Shame on all of you.
Dec 20, 2012 9:01PM
the job of the congress is what can i do for the people so they will   reelect  me.   that is why they spend and spend.
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

Trending NOW

What’s this?


[BRIEFING.COM] The stock market ended the holiday-shortened week on a mixed note as the Dow Jones Industrial Average shed 0.1%, while the S&P 500 added 0.1% with seven sectors posting gains.

Equity indices faced an uphill climb from the opening bell after disappointing quarterly results from Google (GOOG 536.10, -20.44) and IBM (IBM 190.04, -6.36) weighed on the early sentiment. Google reported earnings $0.15 below the Capital IQ consensus estimate on revenue of $15.42 ... More