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?
Oh great. Here the dirtbags in the govt. go again. Congress is the biggest problem of the people anyway. Talk about crooks screwing the workers and those who have worked and paid into the system. Congress wants to take it from us again. The crooks could not leave it alone and let l. b. jerk, put it into the general fund and deliver our, hard earned wage savings, into the hands of those who have not paid into the system. How about the Crooks putting about 2 Trillion Dollars, back into the fund and strengthen it????
Boehner must have had a lot of facial Botox if he can make these statements and still keep a straight face.
Amazing how the Republican elite can turn their voter base off. Boehner, touch Social Security and tens of Millions of Seniors will find another Party to represent us. Can you say TEA PARTY Mr. Boehner?
Virtually everyone in this Nation knows the problem is not Taxes or as you like to say in DC Revenue but TOO MUCH SPENDING on failed Departments, agencies and multiple programs doing the same thing. You want money the get rid of DOE which has not produced a barrel of oil yet, HUD who created the Financial Mess, is their anyone who thinks Education is better for HEW being in charge get rid of it. Two agencies EPA & OSHA who's problem was solved years ago but continue to hang on creating more and more expensive solutions with smaller and smaller benefits. think about the last ditch cave-in, OSHA rushes out to get the worker out of the ditch by fines, fees and court orders; that really helps get the guy out of the ditch.
BTW, put the REAL MONEY back that Congress stole from SS funds over the last 40 years and we get a raise.
When a Corporation is bankrupt, employees are cut not given salary increases, its past time to cut 30% of DC employees.
I've been reading the comments on this and I think I agree with most of them if not all of them. I really think the people in the government should read them also. Maybe they will start to wake up.
Hey, are there any attorneys, are knowledgeable legal students, out there in the audience that are sick enough of this mess to get a partition started for everyone who wants Congressman to convert to Medicare and SS like the rest of us? Everyone of us that want to, could sign electronically. WHY ARE WE SITTING BACK COMPLAINING AND NOT TAKING ACTION??
If a partition won't work, at least it will tell them what we expect. It's better than a revolt or Tea Party.
I don't know where John Boehner gets this crap about entitlements. Entitlement is something given to me social security isn't an entitlement. I have paid 6.5% of my paycheckes into social security for over 50 years I earned my social security.
John Boehner is so stupid he his picture should be put in every school telling kids if you don't study hard you will be like dumb John Boehner. Why isn't boehmer taking the advice of the pentagon that said they can cut 3 billion or more out of their budget. not boehmer one of the biggest defense companies lie in his state he said that would cost 100,000 jobs.
You know I call boehmer a stupid half wit no one should go to war then cut taxes hell that is what made us such a big deficit and have to worry about a fiscal cliff. Bush lied to us about iraq then he cut taxes and put us in a debt for 8 years of his term. I think the republicans should heed the warning the people are mad and if I had my way I would be voting republicans out of office and never let them in again until they start doing what the people want. The only way I know to get out of debt is to raise the taxes and stop and cut back on spending. to get rid of my debts I had to get a parttime job cut back on my spending and it took me 3 years to get it so i could start saving money and pay cash for 95% of what i buy.
DOWN WITH BOEHMER AND THE REPUBLICANS POOR THINKING.
p.s. lets cout back on boehmers and congress entitlements full retirement after one term and lifetime medical care,
Here is a novel idea, uncap the social security tax and have everyone pay there fair share. That would make SS solvent for decades and we wouldn't have to have this discussion. Why should the middle class pay a larger share of there income to SS than the wealthy. We don't cap federal taxes, why do we have to cap SS, and don't tell me it's because your benefits are capped with SS, do the wealthy get to drive in a special lane on the highway because they pay more in federal tax dollars than the middle class person, no we all have the same benefits regardless of how much we pay in taxes, it's a stupid argument.
Copyright © 2014 Microsoft. All rights reserved.
ABOUT SMART SPENDING
LATEST BLOG POSTS
CardRatings.com's annual survey of people's credit-worthiness show that residents of states that were least affected by the recession are faring the best still.
VIDEO ON MSN MONEY
BLOGS WE LIKE
MUST-SEE ON MSN
A charcuterie master shares his process for cold-smoking meat at home.
- Jetpacks about to go mainstream
- Weird things covered by home insurance
- Bing: 70 percent of adults report 'digital eye strain'