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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1118Comments
Dec 20, 2012 4:53PM
Dec 20, 2012 4:52PM
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Let's see.... when beef prices go up, consumers switch to chicken...

...and when chicken prices get too high, consumers will switch to peanut butter...

...and when peanut butter prices get too high, consumers will switch to dog food...

...and when dog food prices get too high, consumers will switch to eating.... dirt!

I see how this could work!

 

Dec 20, 2012 4:50PM
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Another way to take money from the elderly.  I would bet that those in office that are eligible take their share of social security including they exurbanite pay and already have more money they need and still want more.  Lets just screw the seniors even more then they already do.  Are they trying to eliminate us?
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This is total bull sh^$. When we paid into social security we paid a percentage of our check. Social security has nothing to do with the budget because it is completly seperate.If the government would stop stealing from social security and medicare they would be in good shape. Have Obama put back the 500 billion he took from medicare after all that is our money and not the governments and we did not sign a loan agreement so he must have stole it. All these officials in D.C. need to be fired and run out of the country. The more I listen to their S&^t the more I am willing to help do it and Ibelieve  the time is here. I might be old but I a tired of the BS thes people turn out. They are trashing the constitution and in my opinion that is treason and should be treated as so
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Why should Senior Citizens have to suffer the loss.. We have put into the SS fund  all of our working lives. just to be penalized  if this Bill passes!!!  Let the wealthier pay for the National debt, not the ones that are in the lower income bracket!!
Dec 20, 2012 4:50PM
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Our law makers get a pension for life the day the set down in office.

Their health plan is the best our money can buy.

 

We the people have to stand united and injure that our elected officials do what we want, if not remove them from office.

Dec 20, 2012 4:49PM
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It's simple, cut all federal pensions and medical benifits to equal civilian Social Security benifits.  You will balance the budget over night.  No double dipping benifits.  Combine pensions and Social Security into one payout benifit level per person.  Civilians don't get multiple Social Security payouts based on job changes.   To get Social Security we have to work no matter where till we are 65 to 70 to earn our pension benifit.  If we want more then we have to save.
Dec 20, 2012 4:49PM
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My SS is NOT an entitlement !! I've paid into it for 55 years and am still paying into it. BUT, SSI is the new welfare. Perhaps the "gov" should look into SSI and see how many young folks are collecting it instead of out looking for an honest job. Yes, TAX WELFARE, and let those folks pay on their non-taxable income. Well folks, let's be honest, most of you keep voting for the same congress & senator people, over and over again. NOT smart voting. What have they done for you lately???
Dec 20, 2012 4:48PM
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I'm a social security recipient and non Republican supporter , however, on what basis can the National Committee to Preserve Social Security and Medicare state that this idea will terribly hurt older Americans?  When you take an absolute stance, you become not different than the Republications!
Dec 20, 2012 4:48PM
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REMEMBER come the 2014 mid elections GOOD BYE REPUBLIC0NS these congressional thugs who refuse to tax their millionaire buddies, and live off the backs of the low income recipients  There is no more room for these low life do nothing Treasonous Obstructionists who are only out for their own pockets!!!!  Republic0ns have finally shown how very Ugly and Evil they are. 
Dec 20, 2012 4:47PM
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The CPI was zero for the last two years before 2013 b/c of virtually no inflation. So, it's no gaurantee now of a Social Security check going up every year. Whilethe new calculation will reduce the total amount of the increase over many years, it's not that big of a deal compared to getting a zero increase. I'd add a minimum percentage increase to the new CPI calculation to prevent zero increases in the future..
Dec 20, 2012 4:47PM
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Let's see now. The Government gives BILLIONS to other countries, some of which hate us. They give money to organizations that undermine American values. They support sending our factories overseas. They support NAFTA and similar programs that import products which reduce American jobs. They allow illegal aliens to stay here with no fear for breaking our laws since they only broke them "a little bit" I could go on and on but I'm sure you get my meaning. And the idea they come up with to help balance their budget is to cut my Social Security? Have you ever hear of the "Totalization Agreement"? All of those illegals that were given a free ride are now able to draw SS even if they didn't work. My only crime is paying into an insurance plan and then thinking I would actually get my money back when I got old.  
Dec 20, 2012 4:46PM
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I'm telling ya again don't **** with my SS ! Thats MY ****in money !! It's not easy living on that pitifull amount of money ,and if you start taking it ..I will be FORCED to take MY money back in any way I can !!!!
Dec 20, 2012 4:46PM
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The Republican Party is going to go out of business if they continue to screw the middle class and the poor.
Dec 20, 2012 4:44PM
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Why not tie their pay to the CPI

 

Dec 20, 2012 4:44PM
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NO NEW TAXES-NO CHANGE IN SOCIAL SECURITY- REMEMBER THESE PROMISES BEFORE THE ELECTION FROM OBAMA---THAT OLD POLITICAL AXIOM  --TELL THEM WHAT THEY WANT  TO HEAR, GET ELECTED, AND THEN DO WHAT EVER YOU WANT-- JUST ANOTHER POLITICAL JOKE PLAYED ON THE MIDDLE CLASS TO GET A VOTE. REDUCE THE POLITICIANS INCOME DRASTICALLY AND YOU WILL SEE A CHANGE FASTER THAN THE GROWTH OF BUNNIES IN SPRING.
Dec 20, 2012 4:42PM
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First congress raids and rapes social security and then they want our seniors to take the hit on their monthyly benefits.
Dec 20, 2012 4:41PM
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Whatever, , , , , who the hell cares anymore!

Dec 20, 2012 4:39PM
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1).  Put Social Security back into a trust fund, where it originally was, a number of years ago, Congress decided to move SS from trust into the General Fund so they could borrow from it.....and we all know, what congress borrows NEVER gets repaid.

 

2).  Remove all those who have not paid into Social Security (except those who draw survivor's benefits).  There are many programs that use the SS interest to provide for those who DID NOT PAY INTO THE SYSTEM...That interest belongs to the people who paid into SS, and no one else.

 

3).  Stop the foreign aid payments to ALL countries, we should be using the money spent on foreign aid to take care of our own.

 

4).  Cut congressional pay and benefits, stop the congresssional health plan, and make them use the same plans they force on the people.

 

5).  Remove the ability for congress to set and vote on it's own pay and benefits, put that power back with the voting public.....We can't go to our bosses and tell themwe are taking a raise, why should congress tell us (after all they are supposed to work for us) they are taking a raise.

 

6).   Cut the BS pork barrel spending, who cares about the effects of bovine **** gas on the environment, we can't stop cows from farting, so why spend millions to study cow farts?  Too many stupid "research" projects like this get funded every year, to the tune of billions of dollars.

Dec 20, 2012 4:39PM
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Once again our goverment run amuck! what jerks we have in our goverment! cant they find money by other means??? instead of tocuhing Social Security?   
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