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?
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...
OK, so I buy beef maybe twice a year, when it's on sale, only buy lettuce when the price is down, and have bought store brands of just about everything for the past 40 years. Medical care is costing more, and insurance is covering less, every day.
It's entirely possible that the CPI needs to be modified, but it should reflect reality, not some optimistic fantasy of the folks who want to eliminate Social Security.
II am 70 and have paid SS for 57 years, praise be to God I am still able to work. I paid taxes on the SS withheld, and now that I have started to draw my SS (not my Entitlement) since I am able to work I have to pay taxes on what I draw, plus I have to pay into the system each pay check, last year I did not get a cost of living increase, I did get $4 per month because I was paying into it and that increased my benefits. Which I again pay taxes on the $4 so I really don't get $4. If I recall didn't ObamaCare borrow $750 million from our SS.
Why don't we cut back on some of the entitlement for former congressman, plus some of the perks and entitlements they collect at present, free medical for life, free travel, free postal, free etc. Maybe we could cut back their pay schedule to reflect more the average of the nation instead of the outrageous pay the get now for working how many days? Plus taking off early for every break they can. What did our President sit in on was it 90 roll calls. The numbers slip my mind, the point being aren't they suppose to represent us and not their own aristocracy.
Don't get me wrong, I thank the good Lord for all this nation offers, and the freedoms it affords. But it's time to make some major cuts not just some more taxes. It just seems they always go after SS.
God bless! Thanks for letting me have my say. God bless and have mercy on the USA!
The politicians call it an entitlement because they took our SS money and flushed it down the toliet..Social Security is broke because of worthless politicians that we elected! Shame on us!
They all should take a 10 per cent cut in Washington and start paying for their Benefits.
They been stealing from the taxpayers their whole life in office.
Copyright © 2013 Microsoft. All rights reserved.
Quotes are real-time for NASDAQ, NYSE and AMEX. See delay times for other exchanges.
Fundamental company data and historical chart data provided by Thomson Reuters (click for restrictions). Real-time quotes provided by BATS Exchange. Real-time index quotes and delayed quotes supplied by Interactive Data Real-Time Services. 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 SIX Financial Information.
ABOUT SMART SPENDING
LATEST BLOG POSTS
Take an extra step before donating to a charity that claims to be helping tornado victims: Research them first.