How GOP offer would trim Social Security
Some say the cost-of-living adjustments to Social Security are too generous and should be reduced.
This post comes from Matthew Heimer at partner site MarketWatch.
In the latest round of fiscal cliff give and take, House Speaker John Boehner has made the most recent big move -- agreeing to accept an increase in tax rates on millionaires. In return, he's looking for a commitment to at least $1 trillion in spending cuts, including reductions in big entitlement programs.
And to help get there, according to The Wall Street Journal, he and other Republican leaders are putting a new emphasis on "a proposal to slow the growth of Social Security benefits by deploying a new formula for cost-of-living increases."
That formula is known among economists as the "chained consumer price index," or chained CPI, and it actually isn't especially new: Boehner and President Barack Obama were kicking it around during the 2011 budget talks as well, and it has support on both sides of the aisle.
Advocates of using chained CPI argue that the measures the government currently uses to measure inflation, and to set Social Security cost-of-living adjustments or COLAs, are actually too generous.
As Ed O'Keefe explains in The Washington Post today, "Policymakers generally make the assumption that when prices rise, people will turn to a less expensive product. They'll buy chicken instead of more expensive beef, iceberg lettuce instead of arugula, store-brand instead of name-brand cereal."
Traditional inflation measures don't catch this change in behavior, some economists think, but a chained CPI would. And using that measure, COLAs would be smaller by what the Congressional Budget Office estimates to be 0.3% each year.
Over time, that would add up: O'Keefe calculates that the average person who retired in 2000 at age 65 would be getting about 5% less than he's currently receiving if chained CPI had been in effect the entire time. But the sting of those cuts would be lessened, advocates say, because they'd be so gradual -- and, of course, because the current formula is too generous anyway.
To this line of thinking, the retort of most retiree advocacy groups (including AARP) is: Our raises are already too small. The average Social Security recipient just got a benefit increase of $19 a month for 2013 -- a "diet COLA," to use a favorite pejorative -- so retirees aren't exactly feeling flush.
But the real problem is that no inflation measure is keeping up with the biggest cost pressure that most retirees face -- rising health care costs. Medicare premiums are rising far faster than Social Security benefits, and they now eat up twice as big a share of the average retiree's benefits as they did in 2000, according to the Kaiser Family Foundation.
As Encore's Catey Hill reported when chained CPI first started making the rounds last summer, some advocacy group lobbied for the government to use a special "CPI-E" --where "E" stands for elderly -- that takes soaring medical bills into account.
Bottom line: Just about nobody reacts to medical inflation by saying, "That's OK, I'll just shop for a cheaper angioplasty." Until some kind of reform starts to flatten out that medical cost curve, changes to Social Security COLAs will probably remain a tough sell.
More on MarketWatch and MSN Money:
- How to protect your retirement in 2013
- 10 things your houseguest won't tell you
- 5 office don'ts during the holidays
- Smart Spending on the go: Get our app for Android or iPhone
- A bigger Social Security check?
- When should you tap your IRAs?
those a _ _ _ _ _. They don't need Social Security - so how very very easy it is for them to sit up there and say oh!!! your getting too much- , cut back on cost of living amount, back on dollars paid out, cut back on anything they can think of... They think that because we are older and retired that we all of sudden became dumb too.. How dare they!! I say, take away ALL, ALL, ALL of THEIR PERKS, and see what they would have to say about that!!!! Make them pay for their HEALTH Insurance, gas, cars, postage- no raise or better yet give THEM the $19.00 a month and see what would happen..
Sick of it!!! I think everyone of them should be fired.
Since when did Social Security become the issue. I thought we got in this fiscal mess by unfunded, undeclared and prolonged wars that have gained us nothing but the loss of life and national treasure. While we need to tighten our belts everywhere...why do we lead off with social security....How about we quit being the aggressor in the world and change our posture to one of defense. Bet we could defend our selves for a fraction of what we spend now. So as soon as we cut the bloated defense budget...then let' entertain what we should do to keep social security solvent ( which it currently is it is not contributing to the deficit).
On Medicare, yes it must be reformed but just continuing to raise the premiums for seniors and chopping benefits is not the answer. How about we tackle the out of control costs. If the free market drove medical costs I do not believe we would have a problem. Government and Insurance companies have removed medical care in the U.S. as far as possible from the free market.
Finally, how about we do a little chopping at the bloated government...maybe a few less chefs on the whitehouse staff. few less trips in Air Force one...maybe a few less senior level bureaucrats in each department...It adds up.
So lets not lead the discussion with how to cut Social Security
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