Chained CPI

Seal of the United States Social Security Admi...
Seal of the United States Social Security Administration. It appears on Social Security cards. (Photo credit: Wikipedia)

006cFrom the Huffington Post, authored by Sabrina Siddiqui and Mike McAuliff.

The chained CPI works by assuming that when the price of a product, such as beef, gets too high, consumers don’t keep paying the higher prices. Instead, the model predicts they will switch to something cheaper, such as chicken, keeping their cost of living lower and leading to a lower rate of inflation, as measured by the chained CPI. The lower rate of inflation would mean a downward adjustment in cost of living, and thus stingier benefits.

The cuts would start small, but wind up costing beneficiaries thousands of dollars over time, which is why Democrats have traditionally fought the idea.

But Pelosi wrapped both her arms around it Wednesday, insisting she does not regard it as a “cut.”

“No, I don’t,” she told reporters. “I consider it a strengthening of Social Security, but that’s neither here nor there.”

Later in the article, there is this quote:

That logic, however, is only ever applied to entitlement programs that have their own revenue streams. Nobody would attempt to argue that the military was strengthened by cutting its budget, or that education was strengthened by slashing funding for it.

Social Security was created in the 1930s to combat elderly poverty. It worked: Giving money to older Americans made them less poor. Shrinking benefits would correspondingly lower their standards of living.

“Strengthen the Program?” Since Social Security has the resources to be fully paid up until 2038 if the American economy grows at about a 2% rate I don’t understand why there is a crisis. Why are we penalizing the elderly by reducing already budgeted and paid for benefits? Is it ethical?

No, it’s not. Those people on benefits and people who have paid into the system deserve what they have paid for. This is a form of theft. If the program were in fiscal trouble, this would be a different matter but it is not.

What’s going on here? The federal government pays out more money than it takes in on taxes on every program but social security. So by what logic, is social security a legitimate target for budget cuts?

James Pilant

Here are other comment from the web –

From the Huffington Post:

Democratic Rep. Keith Ellison (Minn.) said Tuesday that one part of a potential deal to avoid the so-called “fiscal cliff” is actually “a stealth way to give people less” and that he and other members of the House Progressive Caucus won’t vote for any plan that includes it.

“It’s a bad idea and it’s a stealth way to give people less,” Ellison told HuffPost Live host Alyona Minkovski. “And, so we’re saying we’re not gonna do it. It is a benefit cut — and here’s the real problem with it being a benefit cut: It would be absolutely horrible if it were a benefit cut but the cut was designed to extend the life of Social Security and to make the program more solvent. But that’s not why they’re doing it. They’re doing it so that they can preserve somebody else to have a tax cut and to not raise taxes on the top 2 percent.”

From the web site, aluation – (This is a strong comment, and I would like you to go to the site and read it in full.)

Commenter extraordinaire anne at Economist’s View posted a very helpful brief from Alan Barber and Nicole Woo of the CEPR on the disaster that a switch to the chained CPI poses for those dependent on Social Security, and less obviously, on the middle class in general.

Here’s a nice one from the web site, Poverty and Policy by Kathryn Baer.

The chained CPI attempts to reflect consumers’ behavior in response to prices as well as prices themselves — specifically the fact that people change their buying habits when prices rise. When beef prices increase, they buy less steak and more chicken, etc.

A switch to this CPI would thus slow benefits growth. But would it accurately reflect retirees’ living costs? Apparently not.

The Bureau of Labor Statistics has been maintaining an experimental CPI for elderly Americans for about 30 years now. It’s found that the index rises somewhat faster than the CPI-W, mainly because seniors spend a greater share of their budgets on health care, housing and, to a lesser extent, heating oil.

The average gap between the indexes isn’t great for any one year, but it mounts up over time. Switch to an index that rises more slowly than the CPI-W and the gap between living costs and benefits increases.

This is from Universal Values Advisors Market Insights: (This is a more in-depth analysis.)

The reality is that, like much of what comes out of Washington, the “Chained-CPI” concept is neither new nor more accurate. This chain-weighted concept is just another step in a series of steps that began in 1980 aimed at changing the CPI concept from one that measures the cost of maintaining “a constant standard of living” to measuring, really, not much at all, as I will explain later. The real purpose of altering the methodology is twofold: 1. To reduce the reported increase in inflation for political reasons; and 2. To lower future federal budget costs of Social Security, Medicare and government pensions by lowering the COLA adjustments without having to haveCongress vote for those or the administration sign it into law. Just note, however, what class bears the biggest burden of this – seniors and retirees.

 

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