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 1:32PM

WTF would vote any GOP member to Congress or the Senate, other than the 2%?????


I'll tell you who, its the **** middle income ahole who buys the crap that Fox News is selling!


The ones who would put their family last and their guns first!

Dec 20, 2012 1:29PM
I heard that they want to put heavy taxes on asprin. The only reason I was given for this is that they are white and they work.
Dec 20, 2012 1:27PM

They are being overly generous to a lot of people with social security. The work credit requirement is a joke. People who have barely contributed at all get way more than they have earned and deserve.  How about all the fraudulent disability claims? A whole bunch of these folks have not earned a fraction of the benefits they will receive. They need to do away with the per child and spouse add on benefits for disability. Take away some of the motivation to defraud the system. Washington is giving away the store when it comes to social security!     People buy private life insurance and they can buy disability insurance as well!    People need to stop looking to the government for their total well being.


Plan and prepare folks! Don't live your life as if you may never get old or disabled

Dec 20, 2012 1:25PM
We need to storm Washington, the sooner the better. When is the American people going to wake up .never //////////////////
Dec 20, 2012 1:24PM
The Big Corporations' and the Rich have not paid their fair share for 100 years or more. False wars by the Bush administration wasted trillions . Make them all pay for the next 100 years and let the seniors retire with what little they get from social security. Any one in congress that's a millionaire should work for $1 where is their patriotism . They ask the military to sacrifice . Why not have elected officials work for they privilege of serving the public instead of filling their pockets at the expense of the public. They are paid to much and the benefits are to generous .
Dec 20, 2012 1:23PM

As I recall, years ago when SSI was just new to the nation, congress decided to take the funds that had accumulated an finance one of their fantacies.  they of course were gping to replace what they took.   LIES, LIES, LIES



Dec 20, 2012 1:23PM
Our government has taxed and spent us into a 16 trillion dollar deficit.  We all have to pay for their irresponsibility.
Dec 20, 2012 1:22PM

All the politicians should be working for room and board only!

Dec 20, 2012 1:20PM
Lets see, we pay into it all our lives, they take the money spend it on who knows what, put in their worthless ious, the mismanage and waste trillions, yet saddle us and do austerity to us? something is wrong with this picture, and if you cant see that they are intentionally turning us into a third world country, well your sadly mistaken, wake the hell up, the worst is yet to come, some people cant see the trees because of the forest, cut out entitlements to illegals, period, better yet well you figure it out.
Dec 20, 2012 1:18PM
Just our wonderful government ROBBING US again!!!  Just like reducing social security payments by workers the last couple of years  ROBBING US of BILLIONS in payments which should be in our social security fund !!!  Just like OUR PALS in congress ROBBING US since 1931 by ONLY paying us 1.72% interest when they STOLE OUR MONEY and gave us government IOU's !!!  SHAME ON THEM !!!  They don't care about us - just get themselves reelected !!!  They don't care if the social security fund runs out - that will be somebody elses problem !!!  SHAME SHAME SHAME  
Dec 20, 2012 1:17PM
we can barely live on what we get now we are not rich we live from pay check to pay check why don't you take from the rich that have the money and don't live from pay check to pay check sometimes we don't even have food to eat because by the time we pay our bills there is nothing left for food or anything eals
Dec 20, 2012 1:17PM

This is terrific, The Political Class is screwing all the citizens of this county.  The mentality of the Political Class is the true definition of entitlement.   There is not one elected official that has bet his career on getting cost out of government.  The cuts these bozos are talking about are not cuts at all, but reductions in the planned increases of spending.  If you have grandchildren,  they will be living in relative poverty because of the Political Class.  These people are uniquely unqualified to manage a checking account, not to mention a federal budget.  We need to freeze all federal spending now.  We need to cut all federal budgets by 10% now.  Even a midlevel manager at any commercial company could do that without meaningful changes in performance.  We need to establish priorities and budget to those.  Simpson Bowles did this years ago and no action has occurred.  The President appoints a new commission.  What a joke

Dec 20, 2012 1:14PM

Why is it that when we how have worked to get what we paid in to is the first thing that gets the cuts? It's a shame that the people in this world can afford most anything they want can't pay their fair share of taxes. If this country could get some training for people to get good paying jobs maybe those people would pay taxes. If there are NO JOBS there is no taxes PAID. I am very ashamed of how this country does not give any incentives for people to work. Why does the middle class have to carry most of the load. Just keep privitizing and sending companies out of this country. Could that be why we are falling apart. I pray for our country everyday because when you took God and prayer out of everything this is what we get.

I'm so sorry for you people who don't believe in Our Lord Jesus. You all should get on your knees and pray for what we have become.

Dec 20, 2012 1:13PM
Go ahead steal everything you can from those who EARNED IT and paid for it just so you in goverment can have more money to spend and get more for your pockets. THE WHOLE dam elected pigs need to be RECALLED and replaced with real people not lawyers and so-called professional (?) politicians.
Dec 20, 2012 1:11PM
I figure they will cut back on medical payments so we will all die early and this will solve it all.They want you DEAD.
Dec 20, 2012 1:10PM
I don't mind the pay, as long as they earn it and do their JOB!!!!
Dec 20, 2012 1:08PM

They should all be locked into a room, forget Christmas , and New Years! It's time they all become accountable, and find a way of reaching a mutual agreement (solution) that will benefit the country! Not their individual Party!!!

Dec 20, 2012 1:05PM
Lets put Soc Sec back to what it is suppose to be and do. Remove all those on disabilty and medicaid coverage. This was created by the dems and people were forced to pay into it. Then the dems added the others without govt funding of any kind. You want all these people to be covered, then create and fund a program. The congress has borrowed from Soc Sec for decades and left IOU's. This is an entitlement only for those that congress has allowed to be added and never paid one fricken dime into. If you do your math with the funds and with a safe investment over the decades, people would have been able to draw in excess of $70,000 a yr at retirement. Millions can be made by each member of congress in office, but keep the american public down and fighting among themselves and no one will pay attention, right Pelosi !!!!!!! 
Dec 20, 2012 1:04PM

RETURN OUR MONEY : THE $ 1,5 TRILLON TAKEN OUT OF the SOCIAL SECURITY "Surplus" in 2004  and used for the BAIL-ouT of AIG and the banks..WE SENIOR Want and NEED our MONEY Back plus we spend it in our City/State ..we donot send iT out of the country!

WE Seniorplayed/waited at Congress gameplan for our 8-years...NO more VOLUNTEER, and tighted out belts , no more vanned beans, we have lost our, etcetc...

The Colalast year DIDNOT bring us Senior UP .IT brought us Down (the landlord increased the rent) etcetc,And The DHS CUT out Foodstamps/Snap by $30.00 //And the SS raise this 2013 of 1,6% also is taken OUt of the FOODSTAMPS/ we Senior have not gain anything JUST COST TO TAXPAYER of PRINTING,MAILING and COST of employee (State/Fedreal).CUT the Printing  in washintgon and in your STATE, save more then Millions. PLUS WE SENIOR WORKED for over 30-40 yearsTO EAN our RETIREMENT...with Interest. 

Dec 20, 2012 12:59PM
Same old S--t just a different day, they continue beating around the bush not really solving the problem. The problem is the ones making over $250,000.00 and not paying their fair share because most of the Gov't. officials making these decisions are making that much or more every year in income so they choose not to pay, instead they will screw over the social security recipients. I have 3 more years till I can say retirement, but I will still have to work with benefits decreasing, charging more for Medicare. Why charge more for that, why not get the cost of health care under control  or do the congress and senate have too much invested in drug companies??? Think about this!!! For all who have not retired yet you better watch these thieves in DC they are surely going to F--k us over for sure!!!
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