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?
what idiots, the repubs get the money they are bchin about, nobody eats cash , they spend it and the rich people own the business that the money gets spent at.
Fire all the thieves that are running us into the ground.
Plan and invest in our future, make tomorrow brighter than today. not hard as horrible as today is....We pay congressmen and senators to plan for us, they are planning for themselves and we get the bone. without incentive , no one is going to work here in America and Pride? forget about it. Greed and selfishness. this is why the shooters too, no hope for a better tomorrow, why try?????
When the federal employees pension and retirement plan is revamped and the one for Congress, they can talk about cutting the citizens benefits. Congress will find we will rise up and fight them if they try and cut pormised benefits to of the public without doing something about the millions of past employess and Congressmen.
Don't touch Social security.Remove social secirity tax which was given by GOP
under President Busch.Most sensebily remove Social security Max taxable
income to all income taxable.All problem with Social security will be gone
If reducing Social Security will give the government an additional 1 trillion dollars in the next 10 years, guess what the government will decide.
the biggest entitlement is the government pensions. Serve 1 term and get benefits for life. Work as little as 10 rears get state benefits for life. Work 20 25 or 30 years and retire at full pay with cost of living increases.
Pay into social security and you may get 1/3 the amount for retirement after 46 years. If they want to cut the cost of government they always talk about social security and never government pensions. WHY?
For all of you that gave me thumbs down before, google "Social security is bankrupt", and you'll see the TRUTH about how DECADES of mis-management thanks to BOTH sides of the political aisle has led to a shortfall of money into this "entitlement" program, that in 20 years, UNLESS MAJOR DEPOSITS ARE MADE NOW, NOT LATER, seniors will be going to cash a check that there will NOT be enough money in the account to cover it.
If you still think that I am wrong, then I feel sorry for you. Waiting 20 years, until we are at the brink is TOO late...
A dis-satisfied customer and voter...
SINCE WHEN IS SOCIAL SECURITY AN ENTITLEMENT? I've paid into this all my working life for over 50 yrs. and was told when I first started working is this would be my form of pension when I RETIRED.
There were no COMPANY PENSIONS or 401K PLANS back then, we relied on this to sustain us in our retirement years. Who ever thought that OUR GOVERNMENT would INAPPROPRIATELY use this money for there benefit, meanwhile SCREWING the hard workers that contributed into it then and now taking it apart to better serve everyone but the ones that are ENTITLED for paying into this program.
REMEMBER, WE HAD NO CHOICE IT WAS TAKEN OUT OF OUR PAYCHECKS. It was our way of helping those who retired while we still worked.
You don't hear about the politicians giving up there self imposed raises and benefits, and most are MILLIONAIRES that don't even need the salaries that they vote themselves.
All politicians should be ashamed for letting the workers of this country down, they should be in office no more than two terms and receive no special benefits or retirement package. They should retire like the rest of the people that work and pay taxes to support this GOVERNMENT.
NO SPECIAL TREATMENT
SAVE OUR SOCIAL SECURITY and MEDICARE
Social Security was set up with the main intention of eliminating poverty among seniors. If there is a problem with it now, then it seems they are only doing what's logical.
why is it that everytime the politicians think they have a plan it always involves cutting Social Security. I mean we put the money in the plan therefore we should be allowed to remove the money from the plan. It is NOT an entitlement, it is our money to begin with. I tell you what, someone should propose cutting the salary of every politician (senators and reps) by 50% for each year they do not agree and fix the budget, the deficiet and medicare. I would be the first in line to vote for this amendment.
Chained CPI? Ummmm....
We already switched from arugula to iceberg, among many other things, years ago to shore up our budget and plan for retirement.By the time we're actually IN retirement, that would mean switching from iceberg to lawn clippings...
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.
ABOUT SMART SPENDING
LATEST BLOG POSTS
VIDEO ON MSN MONEY
BLOGS WE LIKE
MUST-SEE ON MSN
- Video: Easy DIY smoked meats at home
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'