Smart SpendingSmart Spending

How GOP offer would trim Social Security

Some say the cost-of-living adjustments to Social Security are too generous and should be reduced.

By MSN Money Partner Dec 17, 2012 2:50PM

This post comes from Matthew Heimer at partner site MarketWatch.


MarketWatch logoIn 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.


Elderly Woman Looking Out a Window © Keith Brofsky, Photodisc, Getty ImagesAnd 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:



Dec 18, 2012 2:09PM
Strictly speaking , Social Security and Medicare are not entitlements, but rather insurance programs, the premiums for which are deducted from the workforce's wages and salaries. The word 'entitlement" is often used as a pejorative and is meant to mislead the public that those receiving insurance benefits are somehow freeloading and placing a burden on society. Nothing could be further from the truth.  Since 1983 a combined 15% of a workers wages and salary have been deducted in order to fund Social Security and Medicare. Unfortunately, Congress and various presidents have raided Social Security and Medicare accounts and used the money taken to fund wars, tax reductions for the well-to-do, and various other programs having nothing to do with retirement security. Now that large numbers of Baby Boomers have begun to retire and claim that which they have paid for over decades of working, the government claims poverty and says the money isn't there.  So it intends to default on at least a portion of what it owes working people. It will do this by devising various mechanisms to reduce Social Security and Medicare payments to retirees. The chained CPI is one such mechanism.  Medicare vouchers which reduce overall benefits is another mechanism.  And of course raising eligibility ages further reduces benefits paid. 
Dec 18, 2012 2:09PM
You know we can bitch and moan on this until the end of time, but will it change anything NO !!!!!!!!!!You don't think those idiots in Washington actually read any of this do you . Of course they don't. They are to caught up trying to figure out how they are going to help themselves and their cronies. I would like to see the President and Mr.( Boner) sit down with an audience of about a hundred or more retirees and explain in plain english why they call SS an entitlement. I have been working for 55 yrs. and still work part time( because i love the job ) and add to our income. I retired early so i could enjoy some of my free time to do the things i like to do . A few years back one of the columnists wrote that anybody that retired early was and i quote, UN-AMERICAN !!!! Can you believe it , a person who spends over half of his or her life working for the day they can have some time to themselves ............. UN-AMERICAN !!!!!!!!! Excuse me . We can all piss and moan all we want and write into these columns and read them and watch while nothing is done. So be it !!!!!
Dec 18, 2012 2:06PM

I don't see why the government should punish the seniors of this country. We've all paid our dues into the social security system. Why doesn't the government consider deleting foreign aid. Don't see that on the table. How about deleting stupid study funding in all categories. Who cares why worms eat dirt, or what comes out of the south end of a northbound dung beetle. Really, my dear friends in congress, you can eliminate a huge part of the fiscal deficit by just eliminating stupid spending and "pork barreling". Do you really think our 1.3% COLA upgrade really keeps us in pace with the real cost of living? You obviously haven't bought gas, food, clothing or paid state and local taxes (which by the way are also a part of the cost of living). It is estimated that every penny we earn from January 1 to May 30th, goes exclusively to paying our taxes.... What a Country!

What most people don't realize is that Senators and Congressmen are exempt from Social Security. Let them join in and then let them talk about cutting my meager cost of living.
Dec 18, 2012 1:56PM
Eh...not always, i kinda have to agree with him but i do not condone violence on any scale.  There still are other ways to fix this.  We saw this coming long before it occurred and somehow there is still a deficit, every year we hear the same thing, this will fix the deficit, but it doesnt so it needs to be fixed and stay fixed without compromising the needs of many which are not the rich and powerful.  Take away their money and power and all you have is another american.
Dec 18, 2012 1:53PM
TRUE, The workers have paid into it throughout their working carreers & are entitled to it.  But I'm thinking about the people who never paid into it,  or padi very little, they worked odds jobs, under the table, & never had reported incomes. I grew up in northern Michigan, & it is a way of life there. Those people end up getting  supplimental Social Security, which is a hand out, cause they set a miniumum a person should receive for S.S.. And what it is, is a make up from they should actually get in S.S.  & the minimium allowed. Most those people raised their families on wlfare, frre school lunches & other subsidies. Now in their golden years, if you want to call them that, they get the supplimental S.S. I've seen alot of theses people through the years, they don't want for anything, all the while I busted my HINNIE working for what I've got. Sometimes just over the limit for lets say free school lunches, so I paid monies every week for my kids to recieve them, while they didn't. I had to forego, going to the local pub to have a beer, while they sat their every day, As I went off to work, they just laugh in our faces! Those are were the cuts should take place, hold people more accountable for themselves, crack down of the fraud & unenclosed incomes they make.
Dec 18, 2012 1:53PM
I think they should put an income limit on receiving Social Security benefits.  I don't know what the actual number should be, but I would say that anyone with retirement income over $100K per year does not need Social Security benefits.  Heck, I could live like a king on half of that.
Dec 18, 2012 1:52PM
If they want to classify Social Security as an "entitlement", then they need to stop making it mandatory.  The government is using Social Security money as their own personal ATM machine to use whatever way they see fit, and not for what it was intended for.
Dec 18, 2012 1:51PM




Dec 18, 2012 1:49PM

The recent increase of 1.7% in SS payments is more than offset by an increase in other premiums, i.e., Medicare.  Both of these programs have been called "entitlements" by Republicans and Democrats.  If either is an entitlement, then what have I been paying for over the past 45 years?  Were the deductions for SS not meant for me to collect when I reached the age where I could collect?  Were the Medicare premiums I paid in from each paycheck not meant to provide health care coverage as intended?  Is the government now in the business of back pedaling on the commitment made decades ago because they cannot manage their own affairs?


And they want to run our healthcare system and promise efficiency and savings over the years to come?  I really fear for the future of our children and grandchildren. 

Dec 18, 2012 1:45PM

We would save more money by limiting state workers, federal workers and elected officials pensions and health care. Make them live with the same rules they make us live by. If we can't do that then we really are a two class system.


With what we see coming out of Washington they don't earn a dime!


Dec 18, 2012 1:44PM
Okay, all RETIREEs time to contact the whitehouse and protest/.  IF AARP $$$ isn't going to lobby against this, WE NEED TO STOP enrolling in AARP too
Dec 18, 2012 1:43PM
Her's a thought...VOTE THEM ALL OUT...MAKE THEM PARTAKE IN WHAT WE THE TAXPAYERS ARE FORCED TO...NO MORE VOTING THEMSELVES A PAYRAISE..THEY PAY THEIR OWN MEDICAL AND RETIREMENT LIKE THE REST OF US.AND THEY PAY INTO SOCIAL SECURITY LIKE THE REST OF US....the average working American is nothing more than a tax slave.  It is time for a change in the government...and not the Obuma change that will never come about anyway.  This country is going to hell in a hand basket due solely to the idiots that we have in office.  VOTE THEM ALL OUT!!!!
Dec 18, 2012 1:40PM

They (politicians) have forgotten who they work for.  They need a wake up call next election and the following election in 4 years.  This, YOUR FIRED they can relate to.  Put them on our program and the problem would be fixed, until then business as usual.  As for further comments everyone has pretty much covered it, no need to comment further.  Happy hollidays to all..

Dec 18, 2012 1:40PM
You Republican seniors voted for these Republicans... so don't complain when they destroy your SS. YOU voted for them.
Dec 18, 2012 1:35PM

Dammit, my Social Security IS NOT an "entitlement." I paid into the fund for 50 years! It is already our [Seniors] money! All government employees get a hefty cost of living increase every year. Why are they any more deserving than us Seniors?? I say put them on the SAME COLA as us. Hell, they work for us.


Obama: Put the half-billion dollars back into OUR SS fund. You stole it from us. It belongs to me and my fellow retirees! You will just shove it down a rat-hole, like you have the rest of Americans' money.


For next year we got a whopping 1.7% raise. My net raise is $26 dollars! The basterds added $10 dollars to our SS premium. And Obamacare is going to cost us more in co-pays, etc. A .03% COLA raise will actually cost us more! We will actually get a smaller check every year! Good grief!

Dec 18, 2012 1:35PM
The Repub's are at it again. Wake up people!  This party is not the friend of the mid-class now, and never has been.  Social Security is NOT an entitlement!  The recipients have paid for and have earned it.  Repukes.... leave S.S. and the elderly alone!
Dec 18, 2012 1:33PM
Social Security has nothing to do with entitlements.  The money taken from our paycheck for SS is supposed to be placed in a trust account.  We as beneficiary of that account  is supposed to be available at age 62 or older whichever age you retire.  The US Government has evidently been dipping their grimmy hands into that account and that should be a reason to PROTEST this Budget the Republicans have sent to the President.   I am mad and I can't do a damn thing about it....
Dec 18, 2012 1:30PM

Is the dude drunk again,does he not have the intellengence to understand,that SOCIAL SECURITY is NOT the problem and NO CUT'S are gonna be made! The ONLY thing that needs to be done to SOCIAL SECURITY is the cap needs to be raised to $1,000,000.00 and it will be solvent FOREVER!

The only ENTITLEMENT programs that need to be CUT are the ones that congress enjoy's on my dime,free healthcare,one hell of a retirement program,their salray needs to be cut and brought inline with the amount of work the lazy suckers do!Medicare,Medicaid, Affordable Healthcare Act, all need to be combined into one Agency,takes care of that problem! Now Bonehead,use your head for something other than a hat rack! The American People Have Spoken,if you and your republican counterparts didn't hear the message then you need to purchase a hearing aid,with your own money,not mine!

Dec 18, 2012 1:28PM
Just received my news from SS.  Medicare payment  $105.  Cost of living increase 1.2%.  My utilities are higher, gas is higher, food much higher.  Total increase in SS benefits $14..  Total SS benefit $1042.  I am 77 yrs old and began working at age 15. holding two jobs.  Retired at age 65/  Paid into SS all my life.  Would have been better of to put into savings.  Where is AARP NOW
Please help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease use this form to notify the moderators. They will investigate your report and take appropriate action. If necessary, they report all illegal activity to the proper authorities.
100 character limit
Are you sure you want to delete this comment?


Copyright © 2014 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.


Smart Spending brings you the best money-saving tips from MSN Money and the rest of the Web. Join the conversation on Facebook and follow us on Twitter.