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?
Who do these guys think they are anyway? Social Security should be declared off limits to Congress and finalize that position once and for all. We paid for it. Done deal.
If Congress needs to finance Medicare and Social Security I would suggest doing two things: raise the amount of corporate taxes actually paid by the top Corporations(approximately 9% for 2011) and remove the cap for SS contributions. Problems solved. Over $800 billion dollars was avoided in corporate taxes by the major companies last year which would more than solve the Medicare problem and Social Security would be totally financed if the cap were removed. As it should be.
When the Republican party needs money, they always target Social Security. Why???
BECAUSE THATS WHERE THE MONEY IS!!!!
Hundreds of billions of dollars gets paid into S.S. every year.
Soon they will start talking again about privatizing S.S. so that they can enrich their buddies on wall street, and fill their own pockets as well.
Btw, privatization of S.S. is not a good option. There are so many crooks on wall street that will steal that money and leave millions of people with nothing during their retirement years.
Both parties are crooks, but the Republican party is nothing but a modern day bank robber.
Just remember...... BECAUSE THATS WHERE THE MONEY IS!!!
Why don't they fix the problem rather than causing additional headaches.
None of this takes into account the cost of gas over the past ten years. We are finally seeing gas come down recently. This is due 100% to the oil companies opening up some spare refineries they had laying around.(from past closings for profit gain). Now all we need are the Pharmaceuticals to surrender their profits for the benefits of the elderly. Jeez, just take the money that Mitt & Obama spent on this last campaign, and that would have put a huge dent in the cost.
well there at it again I just don't get it they act like school yard bullies if you take my expensive toy from my stockpile of expensive toys ill take your only stick toy, so there, I wonder if any of the people holding public office anywhere in the vicinity of Washington have a brain among them. Talk about greed and selfishness. They are so convinced of their own intelligence that they are not aware they have absolutely no common sense. In this pool of baffling brilliance
none of them have come up with a solution to clean up there own mess. How dare they say we can eat chicken, who can afford chicken? Lets just start by cutting some of the wasteful spending in the whitehouse , Congress, and Senate. Oh and when a trip to Hawaii is in order don't spend our tax dollars on high priced fuel for Air Force One or use our military personal
for personal drivers. And that generous $19. dollars a month WOW I challenge Mr. President
to take that same $19. to the grocery store ( while his cupboards are bare, and without his army of overpaid secret service men) and try to plan a weeks worth of food on that.
Why don't you try to come up with a tax that works for everyone including the civil servants
and by the way, it is an honor and a priviledge to serve this country and you should be paying us for the right to do so, not bilking it for every penny.
you don't seem to remember the seniors are the ones that paid the money in to SS in the first
place, what gives you the right now to take it away?
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.
ABOUT SMART SPENDING
LATEST BLOG POSTS
Preteens, rejoice. The grown-ups have a compelling reason to consider getting you a tablet this year. Adults, listen up.