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:
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- 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?
I'M so tired of hearing the republicans bitch about how the unions are destroying companys. . They want us to work in unsafe conditions pay you minimim wage and survive.Most guys I worked with just wanted a decent wage and be able to support their families.Maybe buy a new car and a house and put food on the table.Try doing that on minimim wage.I to have worked over 42 years payed into social security.I became sick a couple of years ago and still worked.Then in 2011 got laid off.But I consider myself lucky.I was already 61 and applied for disabilty and got it.Let some of these politicians pay what I pay in medication each month,pay for insurance for health care since they get their insurance for free.They get their big pensions while the working guy they wannt to take his pension away.GOD forbid he might want to have a little comfort when he retires.
If the cost of living formula is so good, lets put all of the government on minimum wages with
cost of living increases for them acccording to their way of thinking and their formula as is or
the new one they want to shove down our throats.
You mean the whopping 1.7 % increase is too much? Oh yeah, that's gonna break the bank!
THOSE DAMN GUNS MIGHT JUMP UP BY THEMSELVES AND HURT SOMEBODY.
I'm from the government. I'm here to help you. --- NAIVE ! - LOL
All Washington politicians should be pushed over the Fiscal Cliff.
BAN THE AUTO'S AND SEMI AUTO MR. PRESIDENT. INCLUDING SEMI AUTO PISTOLS.
This from a life long gun owner, avid outdoorsman, and licensed concealed carrier.
Social security was never meant to be anything but supplemental. PERIOD. If you are relying on it, that's your problem for not educating yourself and saving your pennies as a young adult. I'm 24, and every 2 weeks see hard-earned dollars go to SS Tax. I will never see a penny of that money again, and can only rely on myself to save for my retirement. So I'm good with trimming SS. And you are all VERY welcome for the tens of thousands of dollars of support I've given you for over the past decade.
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