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 4:25PM
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First they tried inflation vs. "core' inflation . Their claim was that food and fuel prices were too volatile to be included in calculating inflation (another cover up ) to keep from delivering on COLA increases . When that no longer flies , they now want to compare food prices vs. dog food , if that's what we're now eating . I guess the next thing will be based on package sizes , since they too have become as small as the incomes we receive.
Dec 20, 2012 4:25PM
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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.

Dec 20, 2012 4:24PM
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If they were concerned with fairness they'd calculate into the COLA the actual increase in medical seniors face each year. The yearly increases barely cover the increase in medical care much less cost of living increases.
Dec 20, 2012 4:24PM
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Social Security has already taken major hits in the past.  The COL formula was changed years ago to eliminate cost increases that were real, yet caused the COL numbers to be higher than the politicians cared for.  Then the government decided that the SSA funds were an asset that, by some law changes, might be "used" by borrowing against the funds, and changing the "obligation" to the government.  It's this that the politicians are screaming about, since the debts are coming due.
Dec 20, 2012 4:24PM
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I would strongly suggest that all senators and representatives take a page from a certain mayors book and try living on social security for at least 3 months and see just how well they can manage it.  If you are still paying mortage payments, electricity, gas, garbage service,insurance on a car, gas for that car{ which is paid for} and medical insurance it doesn't leave much for food.  And please don't tell me that you can have medicare for free. To begin with the monthly amount taken out of SS is over 100.00 every month, plus the amount for Senior advantage just so trhere is a place to go to the doctor if needed.  Most private doctors will no longer accept new medicare patients.  
Dec 20, 2012 4:24PM
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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.

Dec 20, 2012 4:24PM
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Everyone else has already said it well. Look to reducing government spending for congressional salaries, Obama vacations, white house decorations, government elitists benefits such as lifetime salaries after serving even one term, and on and on. Leave seniors and their social security and the tiny increases alone. People collecting social security have paid into the system for many years and the companies they worked for paid in an equal amount. Government needs to find other ways to pay for their spending sprees.
Dec 20, 2012 4:24PM
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Yeah when are the bully boys in Washington going to take a little hit? They want us to pay more give up more etc. but there is never any discussion of them cuttting some of the gravy off their train.
Dec 20, 2012 4:23PM
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Wow!  Let's see?  Hmmmm.......there's 76 million baby boomers who will eventually retire.....WOW!!  GUESS THAT FACT MUST HAVE SNUCK UP ON EVERYONE, and they will draw from the Social Security and Medicare funds.........but yet the tax rate has been unchanged from 1990 (6.2% SS and 1.45% Medicare), and they even lowered the social security tax for the last year to 4.2%.   You would have thought that someone would have completed an actuarial study, and just maybe, and HEAVEN FORBID, maybe adjusted the rates a little higher, to say 6.3% or 6.4% and 1.5% or 1.55%.   Guess that would have been for most, too much to pay.....Gee whiz....oh well.
Dec 20, 2012 4:22PM
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How about a cut in congressional salaries across the board? How about the government stop paying high prices for items that contractors over price on purpose just because they can? Instead of our government paying $450.00 for an extraction device (a hammer), how about paying what the actual price is at Home Depot or Sears? Give them the contracts for such hardware. Can you imagine how much their stock would rise if that took place? Also included should be Kmart, Lowes and the list goes on. The savings would be tremendous and this would aid in cutting the deficit even more and faster. Then that would mean that government employees could actually get a cost of living increase and a raise in salaries. Just one perspective that I have. Government should purchase products they need from American manufacturers so that American companies can not only prosper, but expand and then hire more employees and be able to pay for their employees health benefits and pensions as well. Just a thought.
Dec 20, 2012 4:21PM
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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.

Dec 20, 2012 4:20PM
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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:

Dec 20, 2012 4:20PM
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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"

Dec 20, 2012 4:19PM
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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.?

Dec 20, 2012 4:19PM
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I wrote the following compromise to my member of  congress yrs. ago when the debt bomb was just being lit.
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.

Dec 20, 2012 4:18PM
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another government gimmick to shift the cost of govt waste and overspending to those who could least afford it. next time you are in costco, talk to the old ladies who are giving out the free samples, and see how good social security is working for them. 70 and 80 year old women standing on their feet trying to supplement their pensions. shame on the government for even considering this chained cpi. let congress and the president serve without pay like in the forefather days. do away with the irs, go on a flat tax and save billions.
Dec 20, 2012 4:18PM
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Yet we keep voting these same people back into office!
Dec 20, 2012 4:17PM
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well here we go. Blame all the republicans. You just play with OUR money, OUR SAVINGS. If you're under 50, you're really screwed. THEY ALL NEED TO GO....
Dec 20, 2012 4:16PM
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i'll say this load and clear --  'KEEP YOUR F**KING HANDS OFF OF OUR SOCIAL SECURITY" you political morons!!!!!!!!
Dec 20, 2012 4:15PM
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stop the free loaders

 if you do not pay into social security you should not be able to collect anything from it

why do we pay people that never put in anything

 

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