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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:

 

 

570Comments
Dec 17, 2012 10:06PM
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Seriously?  Let's be clear...the USG has stolen this money from those who have provided the $$ in good faith, and now they want to pinch pennies after all of the years of ZERO interest?  We elect folks to make intelligent determinations - it has become painfully obvious to me that they ALL lie to their constituents.  The entire "CLIFF" fiasco is pure political bullsh/t - they will do nothing other than argue for the public and they know precisely what the outcome will be since they have already come to terms.  I am for starting over - vote every incumbent OUT in the next 2 elections and let's see what the results are...they could not possibly be worse than the current bunch of incompetent fools.
Dec 17, 2012 10:00PM
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I suggest that the Capitol Hill residents should be put out to pasture in the real world.
Of course they have no idea how the majority in this country lives.
How could they possibly while relaxing on long vacations, planning their next pay raise, collecting pay-backs from lobbyists. Those guys are too busy taking care of themselves.
No one has mentioned cutting their own benefits and pensions, or did I miss something?

Dec 17, 2012 9:58PM
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Taxman99

As a professional Tax Preparer I see a great disparity in the way our taxes are used.  I've, over several years, seen single mothers/fathers (at least they claim single) with multiple children, and earnings less than 8K file a tax return and with Child Tax Credits (CTC) & Earned Income Credit (EITC) get back a refund of 7K plus. Yet, they have paid little or nothing into the Federal Income Tax System. Yet, they received State benefits (Welfare/Health Care etc.) and don't have to report that as income! What the Hey? It's a "cash" benefit, therefore INCOME. But no paperwork or legal requirement to report this. Every State/the Fed needs a formula that takes this into account. Part of that enormous refund needs to be returned to the State/taxpayers of that State for supporting these people.  OUR Tax system is "supposed" to insure that all wage earners pay their fair share.  If I have a State card, worth CASH at the Grocery store, and HEALTH benefits for my children, is that not earnings??? Why aren't they required to pay some of it back??  When will we the people who pay into this system wake up?  Better yet when will the States & Fed wake up?

With a "fiscal cliff" looming, think about it. If your entitled to the benefits, so be it. But you should expect to have to repay a portion of those benefits to the people of that State that have supported you and your children. Especially if your Income Tax Refund is greater than the Income you "earned" and the "Benefits" you received!! Reality check time!!

Dec 17, 2012 9:56PM
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I can't believe the people in congress would lower increases, really I am not surprised. When the time comes there will be no thought about giving themselves a raise. I would like to see them step up and give themselves a pay cut. Including their health care and retirement plan. This would be one step of putting them in touch with reality.
Dec 17, 2012 9:55PM
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I think We need too cut their entitlements like Pension & Health Care which they paid into since they think nothing of cutting something We paid into RIGHT!
Dec 17, 2012 9:53PM
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Social Security is NOT an entitlement. We seniors paid into it our entire working lives. The return on  our investment is miniscule compared to what we would have received with a privatized investment program. And COLA increases are far less than our Congressional freeloaders are receiving.
Dec 17, 2012 9:51PM
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I got an $8.00 a month COLA raise for next year? And this is too much? Social Security is not the problem as the SS Trust Fund would last forever if Congress would stop taking the money out. If there's money available anywhere they just can't leave it alone. What they should do is cut the costs in our health care system. Pharma, doctors, hospitals, you name it; most of their charges are outrageous. And there should be some uniformity on the charges, which there is not. Medicare and Medicaid are ripped off by too many people that don't need it. We need more people checking on this.
Dec 17, 2012 9:50PM
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The people on social security are on a set income,yes when I was working and my overtime was cut back I cut back on steak and ate chicken true. Now on s.s. chicken is a luxury and bologna is the norm! We can't hope the overtime will pick back up,or a big income tax refund or a holiday bonus to look forward to! I was washing dishes at 14 and paid into s.s.then and for 45 years more until I retired. Now when gas spikes, or rent goes up, or I end up at the hospital with all those additional charges because I didn't have the money to get and take my medicine properly or else starve or freeze to get it. These people get their outrageous salaries from the taxpaying people and eat their steak and caviar and champaign regularly then sit around with brandy and Cuban cigars after dinner and discuss among their holier than though sorry arses how to screw the hard-working jerks that make it possible! Let's see an immediate 35% reduction in their pay across the board and see how loud they wail! Pitiful politicians!!!
Dec 17, 2012 9:50PM
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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. 
Dec 17, 2012 9:49PM
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1. you can not legislate the poor into prosperity by legislating the wealth out of prosperity.

2. what one person receives without working for another person must work for without receiving.

3.the govermentcant give to anybody anything that the goverment does not first take from somebody else.

 

 

Dec 17, 2012 9:44PM
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Social security was solvent until Ronny and the boys taped into it. It is not a slush fund for the feds and us old farts want our money back. The GOP needs to pull their heads out of their as5 and stop trying to turn the average American into the villain. Oh one more thing I'm a moderate Republican who's ready to jump ship
Dec 17, 2012 9:40PM
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When these people seeking a change to SS can live on 14,000 dollars a year..then ok...Why must we give up more then the rich...remove income caps on what is paid in, claim a million dollar salary then pay ss tax on it but don't change pay-out cap...quit borrowing from ss to fight wars or any other programs..use it only for what it was intended....

 

Dec 17, 2012 9:38PM
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Mon. 12/17/12  Well now didn't that idea really Piss Off some People !

Ya say the word ENTITLEMENT & People immediately think FREE STUFF

 

Now Hear This all of You AzzHoles in Washington DC.

SOCIAL SECURITY IS NOT A ENTITLEMENT, SOCIAL SECURITY IS EARNED RETIREMENT INCOME & BENEFITS !

 

I worked My Azz Off for 50 long Bust Azz Years & Not Once Not Ever did I receive One Damned Dime in Social Security Income or Benefits.

 

Social Security & MediCare was deducted from My Pay Check each & every month for over 50 years without receiving a Dime in Income or Benefits.

 

WE EARNED ths INCOME & BENEFITS from a damned LIFETIME OF BLOOD SWEAT & TEARS

 

Now Kiss My Tired Old Azz ! SPW in Alaska

 

 

Dec 17, 2012 9:33PM
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I thought Obamacare was going cut the cost of medical care.

Dec 17, 2012 9:28PM
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First cut the useless congress's perks, like their retirement and medical entitlements. You bunch off useless hypocrites.
Dec 17, 2012 9:18PM
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For 2012, the maximum taxable earnings amount for Social Security (OASDI) taxes is $110,100. 

If the GOP is serious about Social Security, then all wages, including bonuses, should be subject to Social Security taxes.

Dec 17, 2012 9:18PM
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If WE were really intent on reducing entitlement programs then WE would start with our own city, county, state and federal government entitlement programs.They certainly waste more tax dollars than the rest of US Americans combined!
Dec 17, 2012 9:13PM
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we could save a lot by cutting the pay of the gop in half.......    they would still have way more than their worth!!!
Dec 17, 2012 9:12PM
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Once a person is vested (has paid into SS for more than ten years or so, or the person is within 10 years of retirement), congress shouldn't be able to change the amount of their final benefit. Congress should only be able to change benefits for new workers. Most retirement plans operate this way by law. Also, cost of living increases should be calculated by a neutral third party, not the government, which has a great conflict of interest in finding inflation to lower than it is. A person's original SS benefit is degraded over time by lowball inflation calculations as well as the federal reserve's present policy to weaken the dollar.
Dec 17, 2012 9:10PM
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Politicians being guided by behavioral scientists with respect to the theory of "chained CPI" as a worthwhile change to Social Security is astonishing in that some politicians really think we'll let them get away with it.  I assure you it won't be that easy and in fact the debate will be a quagmire of behavioral pseudo-science so large that there will not be enough time to decide the change on the combined House and Senate agenda.
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