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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Lets all remember that our federal government is growing at 101 new government employees PER DAY. Plus the federal government employees that we the tax payers support are making about 1.7 times as much as a privet sector employee doing comperable work. Then there is the federal pension... IF I WERE A GOVERNMENT EMPLOYEE I WOULD ALWAYS VOTE FOR THE PARTY THAT WAS GOING TO GIVE ME THE MOST.
WAKE UP PEOPLE...YOU CAN NOT CONTINUE TO SUPPORT BIGGER AND BIGGER GOVERNMENT. YOU CAN NOT PAY ENOUGH TAXES TO SUPPORT THIS WAY OF RUNNING A COUNTRY.
any time an illegal is caught in the us fine the company they work for and charge both employer and employee back taxes for any wages. then charge the country of origin for all expenses involved in dealing with this . increase taxes on all imports. develop and sell our own energy resources. increase taxes on all types of advertisements. don't mess with the retired. everybody below retirement age able to work works even if its public service or no welfare. remove one person from each government agency in washington and employ them in a new one that's mission is to find fraud, and waste in the federal government and its programs. the money they were being paid previously would go towards their salary with bonuses for monies saved.
I'll say this load and clear. Let's dump OUR SOCIAL SECURITY.
We can do better...it's nothing more that a PONZI SCHEME.
I see a lot of you say that , S.S. nothing to do with the budget but it does,because every the US. GOV.
wants to give someone a free ride they take the fund's out of social security, Thats why its going BROKE, They SAY!! Today there are a lot more people working than when SOCIAL SECURITY started
AND wages are a lot higher today which means that there is a lot more SS tax being paid into the fund
and if managed properly can make a lot of money,IF the goverment would keep their hands out of it!!!!!!
ALso when fuel cost goes up, so does everything else FOOD . CLOTHING ECT:
The question, what does Social Security have to do with the budget??? Well considering that is how the last 10 years the bill were paid, borrow from Social Security and write an IOU, then oh yeah, the IOU are forgiven as they cannot be paid.
Thank You House of Representives for your GOOD Work, They want to take the cost of living increases from those on Social Security, Oh Yeah, the average recipient recieves approximately $1100.00 and is taxed on this. Maybe it is time to cut the budget with the House of Representives Pay Checks and Health Insurance in the same way that is going on in "Real America"
Why should chained CPI only be applied only to SS recipients why not all workers to include elected officials. Most individuals who earning under $250K per year change their purchasing patterns change as well as SS recipients when there is a significant disparity between the primary item cost and it's closes substitute.?
1) Increase the amt. of income that is taxed from its current amt. to an inflation adjusted amt. every yr. so that higher wage earners would always be paying more into the system than folks barely scraping by.
2) Gradually increase the retirement age so that the current young with better health care and medical breakthroughs will know that soc. security will be around for them but is truly an old age pension.
3) Do a cost of living adjustment every 2-3 yrs using an avg. for the period or the new chained CPI formula.
4) Raise the actual tax rate for SS a small amt. and very gradually so as to not shock the economy. Mandate that everyone with wages pay into the system (no exceptions).
5) Take ancillary programs like disability, ssi, medicare and survivor benefits out of the program and fund those through the normal budgetary process in programs that would more clearly show their costs.
6)Truly crack down on waste,fraud an abuse with monetary penalties or loss of benefits for those duly convicted of such.
7)Increase the minimum amt. needed to qualify and the amt. of credits needed. Maybe from 40 to 44.
8)Maybe a bigger penalty for taking SS early (instead of 25% maybe 30%).
9)Get rid of the income tax on wages earned in early retirement but use a formula that simply reduces your ss payment to reflect that your continued work.
10) Allow for some personal flexibility in how to invest your ss payments, with a reduced floor under your award if you screw the pooch and invest in a horrible way. No recourse for recouping losses if you end up with less than if you stayed invested in govt. securities.
Lots to chew on here, the idea is to save the program and have all the different pressure groups accept some pain for the good of the country and their children. As we all know I've just wasted a few minutes of my time as nothing fair will be done.
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