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 11:29PM
Sure.  They all getover 160,000.00 a year for Retirement.  What do they care.
Dec 20, 2012 11:28PM

We need to get all the people off SSI who abuse it.  Start with anyone diagnosed with a learning disorder.  They qualify from birth to death for SSI.  Someone needs to explain how that's even possible???


And oh yea, why is that the railroad employee's DO NOT pay into social security???  I know the answer I just think it's funny they are exempt.

Dec 20, 2012 11:25PM
Social Security has NOTHING, yes I said NOTHING, to do with the deficit! It should not even be a subject of discussion, nor should Medicare, because both are seperately funded What is wrong with the American public? We let people steal those funds and then replace them with IOU'S and then we let the talking heads indulge us with their political agendas! Are we crazy? Object to this, and, object to it strongly! Social Security is insurance and it is also earned income. It is your earned income that you gave the government for safe keeping. If it was not earned income they would have a lot of difficulty taxing it. Everyone and I mean everyone should tell every Congressman and every Senator, "hands off" or put the money back that you deceitfully appropriated..
Dec 20, 2012 11:17PM
How about each person in congress & each President be held responsible for putting in 0.3% of each of their pay checks to PAY BACK the social security money they pilfered for other things, to cover the Chained CPI losses to the elderly? That money was paid into the system by all hard working Americans with the expectation it would be there for us when we retired. I totally detest the word "entitlement" when it comes to our SS earnings - we were entitled to pay it, like it or not, and now we are entitled to get it when we need it. It was supposed to be an earning for our retirement, not an "entitlement" that was used for anything and everything the congress could dip into it for. So, what do you say, congress and Prez, how about you make up that Chained CPI difference with your paychecks and stop dipping into our hard earned savings that you are not even paying us interest on?
Dec 20, 2012 11:15PM
We need to form a citizen group as a watchdog over congress and stop it from wasting our taxpayer dollars. Empower it to change and manage any wastefull spending it sees. Also to reduce members of congress not needed and reduce spending on rogue countries who hate us. Until we get such a group in place, the Government body will do what ever it wants to spend us into destruction through waste management. Too much Government and Tax is like a cancer that cannot be stopped.
Dec 20, 2012 11:06PM

i must be stupid,, i just don't understand why  folks collecting ss beni" s, are expected to bail out our national debt. lord knows we can barely pay our rent,  and medical, then buy our  food,, average income of 12,000, pr yr.. is not a lot of money, but i know how hard it is on those who make 100,000. a year,, they can hardly aford that staek.



Dec 20, 2012 11:03PM

Here is the most simple solution to the budget as can be had.

Simply cut every program 10 Percent across the board, including every member of Congress, from the President down.  No matter who is affected, cut 10 percent and it must show on their Income sheets at the end of each year. If everyone is involved, the problem gets lower. Bet you would hear members of the congress scream that we are exempt.  We have a system that is so unfair to tax payer it is no even funny. They want the middle class who work to pay everything out of their earnings and wlhile the poor cannot pay it, the Rich won't pay. The middle class pays everything and gets screwed for doing it.

Dec 20, 2012 11:03PM
Dummies. You Dont Have To Shortchange Any Thing. What We Need Is Another Way To Correct The 17 Trillion Def icet. This Can Be Done With A National Lottery. Twice A Week. Easy To Install. Across The Country The NYT. Ran A Three Page Spread On This 40 Years Ago. When The De fecitWas Only 9 Trillion. It Coul Have Been Paid Off In 3 Years. Now It Would Take Longer. Maybe 10 Years.  But We Would Not Have To Take Money From Anythig Else. Great. Eh .
Maybe the President and Congress should get paid using the same formula.
Dec 20, 2012 10:54PM

Sounds like it is high time for the 2nd Great American REVOLUTION and throw out the crooks who run the gov't. Make them work for a living like everyone else and stop scamming the system.  Their pay should be frozen or reduced like everyone else--Once they leave they have to earn a fair living like everyone else. No free medical for them either! These so-called leaders make the mafia look like church people.


We have illegal's who get free benefits-free college benefits-free  SS- free medical; yet we have native born people here struggling to survive and can not even afford to send their kids to school.  Welfare people who get free money for medical/food stamps who drive nice cars! There are welfare moms who pop out babies so they can make more money off you and me  the us tax payer. Quit  F**king over the elderly who Have paid into the system---they have earned it. I hate to see what it will be like when I retire in 20 years or so.---I guess we can has class warfare; the middle class and the lower class knocking off the rich class

Dec 20, 2012 10:52PM
Ridiculous!!  It's apparent politicians have never been to the grocery store, paid for medical insurance, or really paid any attention to what those on Social Security need.  The cost of living continue to go up, while Social Security continues to go down.  It doesn't make any sense!!
Dec 20, 2012 10:42PM
spendthrift2010   wrote...
"Any deficit reduction deal should include a reduction in the pay and benefits of Congress and the President.
Until then, they are just taking from the people and giving to themselves."
I are exactly right !!
Dec 20, 2012 10:42PM

Seniors who have paid in the ss system do not deserve any cuts in benefits.

There is a surplus in ss, let us make sure it remains that way, and a reduction

in the taxes on the benefits certainly would not hurt either.

Dec 20, 2012 10:40PM

I dont understand how Government can ask to reduce Social Security Benefits, when most people

I know, who are on S.S., cant afford heat or air conditioning, and have to choose whether to

eat or take medication......As Americans, we should raise our voices to the sky in out rage,

as they keep taking our money and giving it away, or spending on things not needed, and

why should we pay them a salary forever, after they retire, as I dare you to find a company

willing to do that for their employees.........Whether you are Democrat or Republican....

You must not allow Government to take away our Social Security and Medicare...

By the way....We were given a 2.2 raise this year for inflation and will be taxed a 4.2 increase for

2013...!!!!!!.....What sense does that make......I think that Government thinks we are

all ignorant...and by the way.........our Obama care kicks in with higher prices..

How far do they think a paycheck will stretch.?? Everything keeps going up, except the

paycheck and most are minimum wage earners, if they have a job at all....

Please tell me what these people in Washington are thinking..??...or do they all have

so much money, they cant comprehend what we are going through, with no relief in

site...??  I, being almost 70, will not be around much longer...but I worry for the younger

people out there.....oh and by the way......Talking about raising the age for S.S.and

Medicare..........Just because you turn 60,,,,,doesnt mean you are healthy....We are not

all that fortunate....

Dec 20, 2012 10:40PM
I wish Congress and the President would read each of these comments and realize that many of us will still be here to vote next election. I know the President is a lame duck but his party is not. Go to to email the president before it is to late. The site also shows has mailing address and phone numbers.
Dec 20, 2012 10:39PM
there is just so much stupidity and lack of respect going around..John Boehner needs to lose his position as speaker since he has already lost his control there.I wish we could get rid of those d...Republ tea party bullies who have ruinend our govt. The smart people can see that Obama is trying to help those at the poor endand be fair to all.I can'tt stand this and it has made me sick...Selfish/ greedy/ stupid , GOP  who care more about what THEY WANT than the good of our whole country.amen..
Dec 20, 2012 10:35PM
It looks like we pay for their screw-ups
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.
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