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."
More from Money Now
We can all go back and forth on this issue as well as many others. But is this where our voice is heard or where we are all spouting off. Change won't happen until we decide to actually DO SOMETHING about it!!!
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.
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?
--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.
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!
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.
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.
Thanks to all the retirees who voted in Florida for Obama...hope you're all happy!!
Copyright © 2013 Microsoft. All rights reserved.
Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.
A single winner could take home the largest prize on record in the drawing Tuesday.
- 5 things that won't affect your credit scores
- Chinese investors are buying up Detroit
- The 7 deadly sins of winter driving
- 8 questions to ask before Mom and Dad move in
- High deductibles fuel new worries of Obamacare sticker shock
- How to use your credit card to donate to charity
- Try this instead of raising the minimum wage
- People left $500,000 in coins at airports last year
- How your driving can affect your credit
[BRIEFING.COM] The stock market is down today, but for the most part continues to exhibit a good bit of resilience to selling efforts. Just when it seems as if sellers are going to take control of the action, their efforts get thwarted with renewed buying interest.
One area of the market, though, that has proven to be less resilient in recent weeks is the small-cap universe. Including today's 0.7% decline, which leads all major indices, the Russell 2000 is down 1.8% this month ... More
More Market News
Dropping channels you never watch from your cable service could actually cost you more money.