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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WELL THANK ALL THE ELDER PEOPLE WHO VOTED PRESIDENT OBAMA FOR ANOTHER 4 YEARS OF HEARTBREAK FOR US. YOU THINK THE FIRST 4 YEARS WERE BAD ON US, WHAT DO YOU THINK HE IS GOING TO DO FOR US THE NEXT 4 YEARS? MAYBE GIVE THE YOUNGER PEOPLE ON S.S. MORE MONEY, THEY CAN GET A JOB, BUT WHY WHEN THEY CAN GET S.S. AND FOOD STAMPS, MORE THAN THE ELDER GET. SO BLAME IT ON THE ELDER PEOPLE WHO VOTED FOR HIM FOR 4 MORE YEARS, DON'T YOU ELDERLY
PEOPLE CRY, WHEN YOUR PAY STARTS GOING DOWN, YOU HELPED PUT HIM THERE!!!!
HELPED PUT HIM THERE FOR 4 MOE YEARS.
Why not come up with a plan that affects individuals that don't need Social Security but receive it anyway. What about an income limit? How about individuals who are on medicare but are currently employed, why not make it mandatory to no longer be employed in order to receive medicare? At least subsidize the cost to the employee but not completely free.
Why not stop paying benefits to retired members of Congress/Senate? What about their healthcare? Shouldn't we all have to "plan" for our retirement regardless of the job we hold. If you want to provide lifetime benefits for anyone do it for the soliders who protect our freedom and our country. Not the ones who have run us in the ground financially.
Do not touch Social Security. It has nothing to do with the deficit.
Why give money to wifes that never paid a nicket into Social Security. If they did not pay into the program then they get no Social Security. I worked almost all my life since I was 11 years old and it always bother me to see ladies who paid NOTHING still get checks every month. I can see widows but not wifes who have not worked a single day all their lives outside their home.
You,re right Orecreek-We ARE broke!! ALL federal agencies need to be reduced! You only have to do a few web searches to discover how bloated we really are .Starting with congress: Congress starting salary is $174K( more if you're party leaders or speaker) and they are automaticly enrolled in the Federal Employee's retirement system after 5 years of service. The FER is composed of 3 elements. 1.SS 2.FER's annuity. 3. 401K which they can deposit up to 17k a year and which the agency matches contributions up to 5%. YES 5%!! They can tax deduct up to 3K for living expenses a year. They are eligible to participate in the Federal Employee's Health Benefit Program and Life insurance program. House members are eligible for MRA's which ranges from 1.3Mil-1.6 Mil for Personal expenses a year and can hire up to 18 permanent employee's whose wages are capped at 168,411K. Each member and one staffer is paid one round trip home.There are 435 Reps and 100 senators. In addition:the White House has a staff of 454. There are 3 kitchens in the WH. which has 4 sous-chefs 1exec.chef and 1 chef usher.WH not require to release salary,but NY Times reported between 80K-100K. Obama reportedly has aprox. 32 Czars most of their salaries not reported. How about ALL the gov. agencies:FCC, education, homeland sec, agriculture, etc, etc. LOOK IT UP!!!!Just to much to list. It goes on and on. And they want to cut SS. REALLY!!! I personally would not mind IF and ONLY IF they cut ALL OTHERS!!!
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