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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 18, 2012 3:35PM
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Ah, the chained CPI has finally arrived! The hoax that waits to be manipulated is now becoming a useful tool. It will "let them eat cake" in their old age, that is for sure.

Meanwhile, where were both Parties when they intentionally underfunded Social Security with a bi-partisan "payroll tax reduction" ?

Dec 18, 2012 3:33PM
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Boehner...go GOP yourself.....S.S...is off the table as far as benefit cuts.......we paid for it.....as it was....Time to make those who got bailed out..the wallstreeters and banksters pay back what they stole......
Dec 18, 2012 3:30PM
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ANY DECREASES IN SOCIAL SECURITY BENEFITS MUST BE MATCHED BY DECREASES IN SALARY AND BENEFITS TO US SENATORS AND REPRESENTITVES AND ADMINISTRATIVE OFFICIALS. THAT GOES FOR COLA BENEFITS ALSO.

Dec 18, 2012 3:22PM
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if your social security means anything to you-----contact your congress men about this and pay close attention as to how they vote on it
Dec 18, 2012 3:18PM
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Cut the salaries and pensions of all congressmen, it is too easy for them to preach about spending cuts unless they are also affected.

That will be the right place to start the cuts. 

Dec 18, 2012 3:12PM
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Social security is NOT a freebie and it is hardly a "benefits" program.  People receiving social security have WORKED for it dealy!!! For those of you working and too young now for social security, maybe you should think about the fact that you continue to get older, never younger.  Maybe you should side with the elderly rather than the Bohner bunch.  Social security is only rising 1.7 percent and medicare premiums are increasing.  You are still taxed even if you draw social security.  Social securtiy payments are TAXED, contrary to what some think.  They say the average increase is 19 dollars.  Maybe so, but some get a lot less.  I thought inflation was about 3 percent now. And they say 1.7 percent is too much???? What morons!!!!
Dec 18, 2012 3:06PM
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Personally, I think any cuts to Social Security and Maedicare should be MATCHWED by equivalent cuts to the benefits Congress recieves with it's retirement plan! Otherwise, Congress, LEAVE IT ALONE!!!!

 

Dec 18, 2012 3:02PM
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Too generous?  Try living off social security?   Impossible.  Here's a great idea folks: eliminate the $90K limit on social security taxes.    If you did not know, social security taxes are only applied to the first $90K a person makes.   Since 98% of us make below $90K, its simply a tax cut for wealthy people.    Eliminate that overly generous tax cut.   Afterall, why should the rest of us subsidize millionaires?     Oh yea, I forgot, taxing rich fat cats is evil and against Jesus.     Time to move to Canada.  

Dec 18, 2012 2:51PM
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If Social Security was only used to pay benefits, the program would support itself. Social Security is not an entitlement. I have paid into this program all my life and now our leaders classify it as a hand out. Get real. A good percentage of the elder live with this being their only source of income. Why is it that our leaders want to attack the old and poor citizens? Why don't our leaders start by cutting their own salaries and medical benefits.
Dec 18, 2012 2:42PM
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How about if we take congress and the Presidents, past and present, off of their free ride and put them on Social Security and Obamacare instead of the salary for life, with raises, and all of the other perks they have voted for themselves?
Dec 18, 2012 2:38PM
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Congress keeps making MORE MONEY FOR SELFISH REASONS   That is to KEEP THEIR SALARY AND BENEFITS ABOVE THE COMMON PEOPLE. Those of you that say "TAKE A LOOK AT >> REDUCING THE CONGRESSES SALARY AND BENEFITS >> ARE RIGHT". 
Money did an Article " THE 19 RICHEST MEN IN CONGRESS" .. this is a great article !!!
Pocketbook issues

The personal wealth of members of Congress increased by more than 5% between 2007 and 2010, on a collective basis, even as median household net worth in the United States dropped by 39%.

The wealthiest lawmakers saw their net worth rise by more than 14%, according to The Washington Post, which recently examined politicians' finances.

Key findings from The Post:

The number of millionaires in Congress dropped in the wake of the Great Recession; the 253 who have served during the current session represent the fewest since 2004. But the total population of millionaires is likely to be underestimated because lawmakers are not required to list their homes among their assets.
Between 2004 and 2010, 72 lawmakers appeared to have doubled their estimated wealth.
At least 150 lawmakers reported receiving more income from outside jobs and investments than from their congressional salaries of $174,000 for rank-and-file members.
Representatives in 2010 had a median estimated wealth of $746,000; for senators, it was $2.6 million.
Since 2004, lawmakers reported more than 3,500 outside jobs paying their spouses more than $1,000 a year. Members of Congress are not required to report how much the spouses are paid or how they earned the money.

Lawmakers' wealth is held in a variety of ways: 127 legislators have their money primarily in real estate, 117 in institutional funds, 75 in their spouses' names, 51 in essentially cash, 36 in specific stocks and bonds, 32 in high-turnover trading, 30 in business ownership and 20 in agriculture.

More than 40 lawmakers reported assets of $25,000 or less.

Dec 18, 2012 2:37PM
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I agree with Britt. If one more politician calls SSI an entitlement,I'm gonna scream.
I have a 6 point solution that will partly  alleviate the issue:
1)ALL politicians will henceforth pay for their own benefits
2)Only NON-ELECTED government officials will be eligible for a federal pension
3)Offices/Staffs shall be limited to Washington only. Elected officials feel the need to have a local office as well,they can pay for it themselves.
4)Travel to and from Washington shall be at their expense. No one else gets to charge their employer(us) for their commute.
5)If the need for emergency or hospital services arises,they will go to their local health care center. Walter Reed ect. shall be reserved for VETERANS,not every Tom,Dick and Harry elected official.
6)Pay for elected officials shall be capped at $100,000($120,000 for senators). That's double what they themselves consider a 'good' salary($60,000) Hey,times are tough. All increases will be subject to employer(us)review through Initiative & Referendum.
If they don't like it,just like in the rest of the world,they can seek employment elsewhere.
Dec 18, 2012 2:36PM
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I paid into s/s for 45 years I resent the sobs in congress that want to punish me for having worked all my life. Stop paying welfare to 3rd 4th 5th generation welfare people who play the system and have never worked and won't work. Those who have never worked in their lives , dopers, criminals, do not deserve welfare period, no ifs ands or buts.

Dec 18, 2012 2:33PM
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Although some might shift buying habitats from beef to chicken, if you are depending on SS for most of your existence the decision may be chicken to dogfood.
Dec 18, 2012 2:32PM
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Suggestion-freeze benefits for 5 years starting 2014-raise retirement to 68 beginning 2014 at quarterly increments ending in 2017-have 50% of the benefit s eligible for taxation at the individuals tax rate,-get tougher on the disability portion of social security as it has morphed into a real scheme for certain parts of the non  work force-AND MOST IMPORTAN-SHOOT ANY SENIOR WHO COMPLAINS!!
Dec 18, 2012 2:25PM
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The chained CPI is nothing but a fancified piece of crap.  It's built on two concepts:  cheaper substitution and hedonics.  Hedonics is based on the argument that a price increase is not really a price increase if the product you're buying has more bells and whistles; these products also tend to be products that people don't buy very often.  An easy way to illustrate the absurdity of hedonics:  if the price of a can of beans increases by 50% and it produces twice as many farts, you get twice the flatulation with zero inflation. 

 

If you really want to curb the growth in entitlements, allow anyone who is fully vested with a minimum of 40 social security credits to opt out and be refunded 100% of the premiums paid in to their name.

Dec 18, 2012 2:20PM
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I haven't heard yet what the congress and senate are going to do to their salaries and benefits.  Have they proposed any CUTS to either of these?  Maybe I missed that article.
Dec 18, 2012 2:20PM
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Entitlement = What the Robber Barons get on top of their billions in profits, it's called a SUBSIDY..

Social Security is NOT an entitlement by any stretch of the imagination unless you are a Congress Person.  Anything and everything THEY get is an entitlement which they feel 'entitled' to because they work so damn hard for K Street.

Dec 18, 2012 2:15PM
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What I don't understand is why this is even talked about in the deficit. S.S. is self supporting, yes it needs twiking, but it is it's own entity. Has nothing to do with other spending in Washington, except they rob from it to pay other debts. Same goes for Medicare, self supporting through payroll taxes. I just don't get it!
Dec 18, 2012 2:12PM
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While entitlement reform is needed, I don't see the current Congress having enough political courage to go through with it.

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