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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 7:22PM
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Some entitlement! I am to receive about 1.50% increase and then they will deduct for Medicare. Boehner and his pals cannot  give up on protecting the rich and major corporations. Make congress take social security like the rest of the country and eliminate their present  generous pensions.
Dec 17, 2012 7:22PM
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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. 

 

 

                                                                                                                                                                       

Dec 17, 2012 7:20PM
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it would be great if we looked at all the foreign aid first  !!!! oh and you know about  dc's auto  pay raise jan 1  lets give them all pink slips !!!!!!
Dec 17, 2012 7:16PM
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I wonder just how much of an automatic raise each Congressman is getting this year.
Dec 17, 2012 7:15PM
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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.

Dec 17, 2012 7:14PM
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You mean the whopping 1.7 % increase is too much?  Oh yeah, that's gonna break the bank!

Dec 17, 2012 7:12PM
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OK -- Now that the Federal government was so successful in taking care of senior programs, let's follow the crocodile tears of the POTUS and turn over our guns.
THOSE DAMN GUNS MIGHT JUMP UP BY THEMSELVES AND HURT SOMEBODY.

Dec 17, 2012 7:10PM
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Since we're commenting of SS, my question would be; I wonder what the book they send out every year, that I can't read very well, plus it's a half inch thick and as big as a calendar, written by lawyers; etc ; how much does that cost and do the costs come out of SS? Not that it matters where the cost is paid out from, just seems to me there has to be a better or easier way. KISS
Dec 17, 2012 7:08PM
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Social Security ?    You fell for it ?

I'm from the government.  I'm here to help you.   --- NAIVE ! - LOL
Dec 17, 2012 7:07PM
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All Washington politicians should be pushed over the Fiscal Cliff.

 

Dec 17, 2012 7:06PM
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I can see it now....in 15 years the Koch Boys decendents send a container ship to get a load of bread-fruit plants in the Pacific and things are right with the world.
Dec 17, 2012 7:02PM
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Politicians are what's wrong with this country!!! THEY are the WELFARE SYSTEM, and we keep giving them more. They can ALL go to Hell....Never mind, Hell would not want them either.
Dec 17, 2012 7:00PM
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We received notice of the new SS increase of  $20 per month today received notice of insurance cost increase of $70+ per month I can't save $50 a month on lettuce and chicken.  
Dec 17, 2012 6:53PM
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The employee pays into social security along with the employer. It is not a freebee. The government manages it. What about swearing allegiance to one nation under god every day as a school kid. The majority rule and most believe in god in different denominations. Who exactly does the supreme court represent in a democracy where the majority rule? This country needs to stand for something like being honest with their citizens. What is the free hospital the illegal immigrants talk about? The free medical , dental , rent, money, no work habits the entitled welfare get for not working. Moving to a high unemployment area with kids. Last 90 days and your in the system?  Being an honest working person has been hard. What about vacations for the working class other than not going to work. What about equal rights? I had to pay child support on two kids and raise one alone. 8 long years working overtime to pay for first two and raising the other alone. Welcome aboard equal citizens.
Dec 17, 2012 6:45PM
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BAN ALL AUTO AND SEMI AUTO FIREARMS. IF YOU CANT TARGET SHOOT AND PROTECT YOURSELF WITH A 6 SHOT REVOLVER OR TARGET SHOOT AND HUNT WITH A 3-4 SHOT BOLT OR LEVER ACTION RIFLE THAN YOU SHOULDN'T OWN A GUN ANYWAY!

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.


Dec 17, 2012 6:44PM
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How about the Federal Government paying back the money that it has borrowed over the many years from the Social Security Trust Fund?  They owe the trust fund something like $4.7 trillion dollars, so if they paid that amount back and then cracked down on fraud within Social Security and Medicare, then maybe our "entitlements" will have to be cut.  As for Congress and other members moving their accounts to Social Security, that will never happen and when they finish serving their terms (however short) they still want to be paid their entire salary for the rest of their life!!
Dec 17, 2012 6:39PM
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OK think about it this way. The average Black male lives to 63.5 years. This is due to a number of factor, what they did for a living, diet, etc. So they pay all the money in and end up with zip.
Dec 17, 2012 6:34PM
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OK think about it this way. The average Black male lives to 63.5 years. This is due to a number of factor, what they did for a living, diet, etc. So they pay all the money in and end up with zip.
Dec 17, 2012 6:33PM
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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.

Dec 17, 2012 6:28PM
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Obama is one of the worst negotiators we've ever had as POTUS - this is mostly due to his complete lack of executive experience.  And yet the dumba$$ Repubs are still caving to his demands.  This fiscal cliff battle only serves to shine a glaring spotlight on the two sides: The Dems are interested in only 1 thing - tax increases.  And the Repubs are just a bunch of pu$$ies, incapable of articulating a consistent and coherent message.
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