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?
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" ?
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.
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.
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!!!!
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.
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:
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.
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.
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.
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.
While entitlement reform is needed, I don't see the current Congress having enough political courage to go through with it.
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.