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 21, 2012 1:25PM
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why lawmaker protecting the rich, why the poor have to pay for the rich, why the rich don't want to pay highter tax,why lawmaker don't protect the middle class on the poor, why only the rich, could it been that they getting benefit from the rich, www,wehookup.com
Dec 21, 2012 1:25PM
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Anytime the gov. wants to change S.S. you can bet you going to get Sc%#$D !!! .WE THE PEOPLE in our constitution means WE THE POLITICIANS can screw you if we so please! Hears an IDEA washington, leave it alone except no cut-off on how much you pay on if you make $200,000. you pay in on $200,000. If you make $50,000. and get stocks in lue off cash @ $150,000. you steal pay on income of $200,000. and if you make a million bucks a year you pay on a million bucks not $106,000.To many millionaires don't pay ANY S.S. that has to STOP!!!. take away the tax deduction on ALL DINNER dates. Eating is not doing business, getting FREE tickets is not doing business, it's the same as prostitution. stop all the millionaires loop holes in the tax returns. John Doe don't get that kind of write off's so why should the millionaires? you don't have to increase taxes on anybody to get more money just make the playing field even for everybody. Stock options, cash, payed dinners,what have you are all income so you should have to pay taxes on it when you receive it!!! and the poor man or the middle class don't have to pay for it all.
Dec 21, 2012 1:06PM
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remove thoes that didnt pay into social security from the roles
Dec 21, 2012 1:05PM
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These fools in the government need to start paying into Social Security themselves and have to live off it, instead of getting a full salary for life when they "retire"   The old saying is "Throw the Bums Out"  This government needs to get their "stuff" together, this petty bickering is getting real old real quick.
Dec 21, 2012 1:04PM
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The best way to preserve Social Security for those who need it the most is to means test the recipients. There is no reason for people with significant income from other sources to continue to receive full benefits from a system that will go bankrupt in its current form. (By the way, means testing would automatically eliminate most of Congress and the President from this system without taking any other actions because they will all have other earnings that would exceed any reasonable limit set by the means test). Another step that will most likely have to take place will be to increase or eliminate the earnings cap for the tax.

Dec 21, 2012 1:03PM
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To all the senior citizens out there....if you would have showed up in great numbers at the voting polls this would never even been discussed.....Since you sat on your wrinkled **** and didn't vote you have no clout with your votes now and the Dems and Repubs will do zip for any group that doesn't represent at least 10% of the voting block....So don't in your milk or beer you are the cause of being overlooked as "Important".   From a 77 yr. old senior who damn well voted while you sat home watching your favorite TV shows....Hope you have learned a lesson !!!
Dec 21, 2012 1:00PM
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For many seniors the change is meaningless. Many of these seniors will end up signing their Social Security checks over to nursing homes whose additional costs will be covered by Medicare and Medicaid.
Dec 21, 2012 12:59PM
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   In my Opinion , and in all logic , no one making over fifty thousand a year from other retirement income should be allowed to draw social checks even if they paid into it all their lives , it should just be considered a tax to support the disadvantaged retirees . Many people draw it who don't need it just because thay paid into it , well I pay property tax to educate kids though I haven't had one in school for over twenty years , the fairness level would be the same .  
Dec 21, 2012 12:58PM
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A lot of good ideas out there folks.

1 Stop ALL foreign aid

2 Stop ALL cuts to Social Security

3 Stop ALL frivolous legislation, ( The American people are not STUPID )

4 Knock off all partisanship ( there is always compromise )

5 WORK for the GOOD of AMERICA ( NOT your political party )

6 REMEMBER who YOU, the House and Senate WORK for

I AM PROUD TO BE AN AMERICAN

THANK YOU

Dec 21, 2012 12:44PM
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The Govt is cutting benefits to the people that have paid into Soc Sec  their entire life.  If they had not ROBBED the Social  Security fund every year since it's inception, The Social security fund would be the greatest  Trust in American History.  They are basically putting Social Security recipients on less than poverty level. Then expecting them to pay more and more for health benefits.  Our Govt does not worry about Social Security because they have their OWN Retirement plan. Not to include 90 % of the politicians retire as Millionaires. On a Salary of less than 200k a year.  It tells me our Govt is either doing something illegal or they are robbing the American People to line their own pockets.
Dec 21, 2012 12:43PM
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What about the billions that were stole fron the SS  by politicians and not put back?????
Dec 21, 2012 12:37PM
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Stop the Ponzi Scheme.

 

Give me a National 401K....... 6.2% from me & 6.2% from my employer.

 

And make dam sure the Federal Government CAN'T TOUCH IT.

 

Dec 21, 2012 12:37PM
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who the hell can afford meat on social security!!!
Dec 21, 2012 12:37PM
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bring the troops home and stop paying billions to countries that hate us but will gladly accept our money start thinking about America and it's people.Also isn't it strange a congressman will spend millions to get elected to a post that pays about  $200.000
Dec 21, 2012 12:29PM
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People making more than $1m/year should be taxed around $60%
Dec 21, 2012 12:29PM
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No way on social security cuts. Off the cliff and lets lock in the military cuts then work back and fix taxes.
Dec 21, 2012 12:26PM
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 you know, the spending junkies that we have in washington are no different than druggies or alkies. they have to hit rock bottom before they get help. wellllll, we are just about there. a serious intervention is in need for these crackhead like politicians. i don't see a whole lot of spending cuts being tossed around as much as i see a run for more revenue. yep, give them one more fix and tomorrow they will straighten up. one more fix, one more fix .......
Dec 21, 2012 12:21PM
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Would anyone be interested in starting a petition at White House.gov?

The petition would be for a reduction of salaries and benefits for our friends in DC? Many of them are already rich, they do not need to be paid by the we the people. They could live on their investments or live like the rest of us have been living for the last 4-5 years.

Their pay cut should be in their budget. I think the average pay is $175,000 per year, therefore, if we cut their pay in half it would go towards our deficit. Many of them are millionaires, based on inside trading. Which really needs to be investigated.    

If it is too late for a petition please call your senator, governor, or white house and demand that their pay is cut in half until further notice. There is too much greed in the White House. 

Dec 21, 2012 12:13PM
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This is just plain ****ed up just like any new legislation passed by our corporate wiener licking congress.
Dec 21, 2012 12:11PM
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Maybe just maybe our so called Government should stop sending Billions of our monies to foreign countries, which most of them hate our guts anyway no matter how much they get, by the way, foreign Governments get the money, not the their people.................
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