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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Why doesn't the government just make a levy of ten prercent of all earnings for revenue cross the board including investments and restore Social Security back to 6.2% and 2.9% for Medicare Tax. Or allowing Social Security to up to 6.4% and rounding Medicare Tax to 3%. This way every taxpayer will contribute to paying taxes and no one will be left out. Then the government can tax all businesses in American or that does business in America at 15% gross earnings. This way you get Corporations, S-Corporations, LLC's, and just regular companies. Then when income tax time comes there won't be much of a refund for anyone and fraud would be cut way back.
Since there won't be much refunds, the government should prosper better. And instead of putting the funds into a cafeteria plan or a big bank, they should just put into a community bank and let it draw interest in savings.
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.
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.
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.
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
Until then, they are just taking from the people and giving to themselves."
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.
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....
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.
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