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 3:44PM
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Ask yourselves this;  Why is Capitol gains income taxed at 15% but a 100K salary at 28%.  Why do Romney and Buffet pay 14% tax and Buffets secretary 28%

I am a middle class American and I will never vote for a Republican or a Democrat because I have come to the realization that no matter if a Repubican or a Democrat wins, I LOSE.

Dec 20, 2012 3:44PM
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We ALL know that any solution will hurt the PEOPLE and protect the politicians. Here's a fix...stop ALL payments to Federal level politicians and give them minimum wage until they get this mess cleaned up. They don't have ANY worries. They NEVER truly feel the psin of the people....Actually there are VER FEW of them that even know who the PEOPLE are.
Dec 20, 2012 3:44PM
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Republicans have wanted to destroy Social Security for some time - Bush tried to privatize it. Search Google for the video  "Noam Chomsky and George Carlin on Republicans and Social Security".


Dec 20, 2012 3:44PM
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I understand that millionares have paid all of their life also into social security, but do they still really need to get the $1400 a month check that the same middle class person does?

Dec 20, 2012 3:43PM
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I have paid into this system all of my life as has many many more of you. I would like to see our congressmen and senators live on what we nobody's get per month. Their COLA raises measure into the thousands of dollars per month and they don't do anything to deserve it. Please Please Please, someone with the know how start a petition or something to force these idiots and fat cats to live by the laws that they so contently set for us nobody's. Many of the laws passed by them, just so happens, does not pertain to them. Many of them were maybe close to being millionaires when elected and now are multi-millionaires. There should also be a term limit of no more than 6 to 8 yrs. Some of these guys have  been in office when George Washington was elected president. PLEASE   Someone in the know do something to stop this insane behavior.
Dec 20, 2012 3:43PM
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If getting $130 less a year is going to destroy you life style, something is wrong with the way you live.  I certainly could not argue with premise if there is anyway get our economy back on track.
Dec 20, 2012 3:40PM
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The vast majority of these fools in government have absolutely no interest in solving the economic problems of this country.   The government is too GD big.  Entire government departments  need to be eliminated.  Education, Energy, Homeland Security and others do nothing but employ lots of workers who receive big benefits and show little justification for their existence.  These departments, and others, were all created out of some crisis and the governments response was, "look what we're doing to solve the problem, we've created a government department".  Have our energy problems been remedied because of an Energy department? Have the public schools improved greatly?  If national security needed it,  just beef up the CIA and FBI;  Homeland Security was only a reaction to 9-11.  Add to the incompetent and worthless politicians far too many uninformed or even idiotic people in the electorate and you have a country that is done.
Dec 20, 2012 3:40PM
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Social Security is NOT part of the debt! Obama was reelected on his promise NOT to cut SS, Medicare and Medicaid. I've been a Democrat for more than 40 years, but if Obama caves into the Republican bastards, I know I'm going to change to being an Independent. I've had the utmost respect for the man, but if he does what he shouldn't be doing, the Democratic Party is going to lose members in droves. I'll be one of them.
Dec 20, 2012 3:39PM
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This useless Congress drove us to this mess and they should pay for it with their own pockets. Reduce their benefits and perks.
Dec 20, 2012 3:39PM
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--YOU DON'T PAY INTO SS

--YOU DON'T PAY YOUR FAIR AMOUNT OF TAXES

--YOU DON'T WORK FOR A LIVING

-- YOU HAVE NOT BEEN A US CITIZEN FOR 10 YEARS OR MORE

---YOU DO NOT HAVE A HIGH SCHOOL DIPLOMA OR GED

---YOU DO NOT HAVE HEALTH INSURANCE AND RELY ON OUR LOCAL EM. ROOM

---YOU HAVE NOT BEEN IN ANY BRANCH OF  MIL. SERVICE

---YOU HAVE BEEN TO JAIL ONE OR MORE TIMES

---YOU ARE A FULL TIME STATE OR FEDERAL CONGRESSMAN/WOMAN

      This where a large portion of our money goes and is a total waste, but let's

      continue to rape and tax the middle class worker  in order to pay for the above.

Dec 20, 2012 3:37PM
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gosh.....always cuts to "we the people". Wonder why we NEVER hear of cutting wages to Government workers, they perks they get, like paid health insurance (make them pay 50% of it out of pocket) Them getting paid till they die once they retire, must be nice. How many millions of dollars will we give up while they just get more and more perks. The mishandled money alone would help if they would just STOP that. Mr Obama needs to start cutting out the BullSh** and take care of "we the people" not handing a DIME to parties, other countries that hate us and so on.

It can be done without hurting so bad. BUT he and his house (Governers, Congress, Senate, House members) ect... need to take a hit as well

My Grandma got a letter saying she would get a 14 DOLLAR increase in her Social Security in January, but then a few days later she gets another saying her food allowance would be cut 80 Dollars...She will be able to spend 20 Dollars a week for food. That sure seems fair NOT!

Dec 20, 2012 3:36PM
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I feel SS needs to be treated as insurance, insurance against poverty. Everyone pays into it thus it is called a tax (like Obamacare). If you are a working American, having paid into it, you are entitled to benefits if for whatever reason you don't have other savings (401K, IRA, Pension Plans, Savings(wealth). If you have adequate other sources of money you will get less or none from SS until such time as your funds run down to a point that will kick in the supplemental "SS Insurance" benefits. I know this is a drastic idea, but SS is a Ponzi Scheme where the top layers (retirees) on average take out more money than they put in. The government has made it even more of a Ponzi Scheme by not investing the contributions. Unfortunately that is water over the dam. There are not enough working Americans (bottom layers) to keep the Ponzi Scheme working. Something has to be done. Public (Government) workers need to pay in also. The SS would be for everyone. The current retirees and some cutoff of others (50 or 55) should receive benefits as promised, but the future structure needs reworked. Perhaps under this system the SS tax could even be reduced. If you are sucessful with other retirement funds then the insurance of SS isn't needed. 
Dec 20, 2012 3:36PM
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Using the Chained CPI logic.  All our government officials should get decreases in pay and their standard of living will not suffer because they can use public transporation instead of government limos, they can have lunch at a local McDonalds instead of expensive restaurants that surround Capitol Hill, etc. etc.  Just sayin....
Dec 20, 2012 3:36PM
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to the speacker of the house you leave my social security a lone if you want to take money from some one then start at the white house all those people setting up there screamming they need more money, i have worked my butt off for what little i get and i dont need some rich guy standing up there takeing my money. make congress and the house and all the senetors pay there way then you would have more then enough money to fix this country, but please get your DAMN HAND OUT OF MY POCKET
Dec 20, 2012 3:36PM
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Just another way for greedy criminal politicians to keep spending America into oblivion and make the retired citizen pay for their greed and tomfoolary.

IF America ever gets to vote again, I hope the idiots who wanted a cell phone wake up and vote for a constitutional conservitive and save the country, unless the current idiot has not already sold it to the chinese.

What a dreadful mistake to have re-elect obozo. 

Dec 20, 2012 3:36PM
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Hea....I have a great Idea.....Let's do away with the Great Pozi scheme they call Social Security. Privatize it into a 401K system.

 

What the hell....at least with a 401K you can name beneficiaries.

 

With the current Ponzi Scheme if you die @ 64, you & your family are S_it out of luck.

Dec 20, 2012 3:35PM
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Thanks to all the retirees who voted in Florida for Obama...hope you're all happy!!

Dec 20, 2012 3:34PM
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I really do not understand the economics of Congress. They lower the amount of money workers pay into S.S. by 2% and call it a tax reduction, then to pay for it they want to lower the colas the disabled, retirees and others get, at the same time screaming Medicare and Social Security is running out of money. Want to get more revenue without raising taxes? BRING BACK AMERICAN GOOD PAYING JOBS FROM CHINA, VIETNAM, ETC!!! Politicians brag about new jobs created without telling how many are part time or low paying fast food type jobs. Big business wake up for every decent job you send overseas, that is 3 people who can no longer afford to buy your product. You have now reached a point where soon you will have saved your company right out of business but you will still have your millions but nowhere to spend it!!
Dec 20, 2012 3:33PM
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What I do not get about all of this is that during our budget crisis, nothing changes for the Federal government. Local governments and companies stop giving raises, had days off with no pay, and cut benefits. The federal government goes on like nothing has happened. What would happen if the following occurred.
1. No raises when local government cannot.
2. All federal employees (including Congress and President) went on Obamacare.
3. Federal government employees retired when we can. Age 65.
4. All federal government employees who are behind on their taxes actually paid them.

We struggle and cut where ever we can just to keep our companies alive. Why is the federal government different?

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