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 do they go after the people that paid into these things. I put into Social Security for 50 years, now I am a target. Why not tax welfare? When I was in the Army I had to pay income taxes. So why do the welfare people keep getting a free ride. The average package costs us about $65,000 a year. I don't make that much, even when I was working, and I had to pay all sorts of taxes.
yep we are going to have straving seniors in the streets soon and millions of elderly dying at the doors of hospitals as they are refused service under the new Obama care.
We are headed towards a social meltdown as the super rich grab all the monies in the world.
Led by the Republicans and backed by Obama the middle class are going to soon become the porr class.
The reason either Obama nor Boehner are coming to a solution to the fiscal cliff it's because they both want the cut increases for everyone knowing that Congress will vote themselves (e.g. the rich) a tax cut.
We are in for a total meltdown of the economic system folks.
Europe is going under , Japan is going under the USA is going under. Right on schedule for the New World Order to trash your hard earned and saved monies and issue you like $2 in the new monies. Just like Russia did they twice only allowed people to keep 80,000 rubies but they were traded in for only 800 of the new rubies then they allowed people to keep 80,000 rubies and trade in the old for only 800 new rubies --- only people had only been able to keep 800 rubies so after to reductions some with 10,000,000 rubies only had 8 rubies.
This is what they have planned for your retirement funds people.
Why not start in the midterm elections in 2014, not to let the sitting people be unable to campaign for votes but run on their records and in 2016 do the same thing.( Put out a report card on the sitting officials) I'm sure that there would be a complete change in government attitudes. Let the new candidate campaign as usual, Not only would this save millions of dollars, but would make the government very transparent as to what they have done. ( Cut the election process down to 90 days).
Also make any laws passed in the last 12 years be retroactive on enforcing all elected officials be bound to live under the laws they passed, if you go back 12 years this should take the politics out of the equations. This would include cost of living increases, elimination of retirement benefits, medical care, and all would draw social security in lieu of the standing benefit programs in place.
I think this would eliminate only those who can outspend the next man.
Just a thought
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You don't have to sign up for Medicare. The catch? If you don't enroll when you're first eligible, you could pay some serious financial penalties later in life.
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