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."


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1119Comments
Dec 20, 2012 6:35PM
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If we're going to trim this fat pig called the Federal Government we need to start on the outside and work our way in. Why do we spend hundreds of billions in foreign aid every year? Why do we have over 400 active military bases around the world? Why is the NSA's budget seven time larger than the CIA's? Why do we continue to invest money into the United Nations, what's the ROI? My guess is that if we stopped spending our money in other countries we could probably just about pay for healthcare, social security, and medicare. We're going bankrupt because we are supporting the entire world.
Dec 20, 2012 6:35PM
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More Republican sly ****' If you cut a 65 year old mans So,Sec by 130.00 per year and he lives to be 95 that is 2600 dollars is reduced benefits while all the time prices will go up up over a period of 25 years. If Democrats fall for that i will never vote again.
Dec 20, 2012 6:35PM
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The "self righteous" left can afford to be that way until we go BROKE
Dec 20, 2012 6:34PM
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Write your congressman/woman, senator and demand otherwise..
Dec 20, 2012 6:34PM
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How typical to attack social security but pay for millions of immigrunts to get welfare and reap the benefits of free medical, free food, free housing, free education, etc. It's time the elected politicians quit skirting the immigration issue and/or the American people stand up and say enough.  Most immigrants receive more on welfare than people on living on social security...what's wrong with that picture!
Dec 20, 2012 6:33PM
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    This was a good article on the Social Security so called Trust Fund = 

Dec 20, 2012 6:32PM
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If the Democrats let this happen then it will be clear that both parties do not have our best interest at heart.  Time for a real 3rd party.  This society should never accept going backwards.  Don't fall for the living longer crap...that means we are staying the same.  What about moving forward?  Eligible at age 60.  We should demand not to move backward...where are those occupy people now?  
Dec 20, 2012 6:32PM
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the average american receives all the money that they put into social security thru taxes within the first few years of receiving there portion of s.s.after informing this to retirees who were receiving benefits', and who were wealthy enough  that they didn't need benefits, if they would be willing to give up there benefits for the continued success of s.s. all, that's right, all the respondents said that they had put there money into the program and they wanted there money back. again it was explained to them that they had already received all the money that they had put into the program in a few short years. they still insisted the wanted there money, even if it meant there children wouldn't receive benefits, because the system would go bust. interesting, don't you think? in the beginning social security, under Hoover, was designed to help our seniors and the handicapped to be able to survive, but through the years we've made it into a retirement program. when i asked my own father these questions. his response was the same even though he doesn't need it ether. think about it america! what is the answer? because i sure don't know! 
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First of all, any change in the COLA, whether it be the new CPI or anything else, will not increase revenues to the government.  It will only decrease social security benefits and leave more money in social security's checking account, which is the Treasury.  Second of all, since that increased revenue will simply add to social security's checking account, it won't help the Treasury one bit.  The less benefits social security pays out, the more money it has in its checking account; but that's social security's money - not the government's.
Dec 20, 2012 6:31PM
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I FIND IT AMAZING THAT THE PEOPLE WE SEND TO WASHINGTON WANT TO CUT THE BENEFITS TO THE PEOPLE WHO PAY THERE SALARIES .TYPICAL POLITICIANS TIME TO MOVE OUT OF THIS COUNTRY CANADA CANT BE ANY WORSE
Dec 20, 2012 6:30PM
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Long story short...

CONGRESS,  start by leading by example !  Cut your pay, pensions, perks and take the poison pill first.  Otherwise,  you all owe US a Refund for the last 2 years of doing Nothing, and yes, we will take it with Interest.  After all, fair should be Fair. 

Dec 20, 2012 6:28PM
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So now we're going to let the same people fool around with our social security that have gotten us into this financial mess?  Doesn't sound and look good. 
Dec 20, 2012 6:28PM
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The government already uses "substitutions" when calculating CPI, I guess that isn't enough manipulation to produce a number as low as what they want.
Dec 20, 2012 6:28PM
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And when pork rises in price, they can switch to dog food.  Any way about it, the "regular" CPI is cheating retiree's.  Now this bogus new CPI simply assures you'll be eating cardboard by the time you hit 80.
Dec 20, 2012 6:27PM
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Perhaps Social Security Benefits  should be what the name implies.  Receipt of benefits should be predicated on the income of the retiree.  Granted some will scream not fair but the original concept seemed to be a payout for those who never made enough to save for retirement or those who lost all their savings. 

 

All our retirement money went to pay medical bills and prescription drugs, without social security I have zero income.  My sister's entire 401K was lost by the assigned financial manager (of a STATE employees fund) who invested in risky investments.  People working their entire work lives making less that $50K a year have difficulty saving for retirement.  The government even LIMITS the amount that can be saved tax free in an IRA.

 

How about limiting Social Security pay outs to people that receive less than $50K from every other source?  People with incomes over $200K should pay the entire Medicare premium, not just the subsidized amount.

 

The system was never intended to be a bonus for those with enough income, but it is supposed to be a safety net to keep the elderly/disabled/helpless out of a life of destitution.

 

Dec 20, 2012 6:26PM
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why would old people get bigger benefits when disabled people dont, yea so helpless with all their goddamn money
Dec 20, 2012 6:25PM
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How they voted:

Posted on by

Below are the actual voting records of various Arabic/Islamic States which are recorded in both the US State Department and United Nations records:

* Kuwait votes against the United States 67% of the time
* Qatar votes against the United States 67% of the time
* Morocco votes against the United States 70% of the time
* United Arab Emirates votes against the U. S. 70% of the time.
* Jordan votes against the United States 71% of the time.
* Tunisia votes against the United States 71% of the time.
* Saudi Arabia votes against the United States 73% of the time.
* Yemen votes against the United States 74% of the time.
* Algeria votes against the United States 74% of the time.
* Oman votes against the United States 74% of the time.
* Sudan votes against the United States 75% of the time.
* Pakistan votes against the United States 75% of the time.
* Libya votes against the United States 76% of the time.
* Egypt votes against the United States 79% of the time.
* Lebanon votes against the United States 80% of the time.
* India votes against the United States 81% of the time.
* Syria votes against the United States 84% of the time.
* Mauritania votes against the United States 87% of the time.

US Foreign Aid to those that hate us:

* Egypt, for example, after voting 79% of the time against the United States, still receives $2 billion annually in US Foreign Aid.
* Jordan votes 71% against the United States and receives $192,814,000 annually in US Foreign Aid.
* Pakistan votes 75% against the United States and receives $6,721,000 annually in US Foreign Aid.
* India votes 81% against the United States and receives $143,699,000 annually.

WHY IN HELL ARE WE SUPPORTING OUR ENEMIES ???

WHO IN THE HELL STARTED THIS WELFARE PROGRAM AND WHY ???

WITH THESE COUNTRIES AS “FRIENDS”, WE DON’T NEED MORE ENEMIES !!!!

It definitely is time to get out of the UN and give the tax savings back to the American workers who are having to skimp and sacrifice to pay taxes (and to buy food and gasoline).

Are we THAT Stupid?

YES, FOR LETTING THOSE IN THE U.S. CONGRESS GET AWAY WITH LETTING THIS HAPPENING YEAR AFTER YEAR!!!!!

Disgusting isn’t it?

Verify all this outrage at

 

 
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Dec 20, 2012 6:25PM
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We should have taken Social Security out of congressional control and turned it over to Warren Buffet years ago. It would not only be solvent but we could all look forward to a great retirement.

When will we learn that our elected officials are not in the least bit financially capable?

They are only interested in what is good for them, and keep blaming anyone but themselves for the mess we are in that they have created.

If the Federal Government were a private corporation, they would all be given pink slips.  

Dec 20, 2012 6:24PM
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I have an idea, why doesn't  big brother just use the same calculation for all government workers and elected officials? If chained CPI is so great then our washington politicians and all other federal employees should love it as well.
Dec 20, 2012 6:23PM
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More double talk from the govt.....just cut spending 10% acrosss the board and raise taxes for incomers of more than 500k.
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