Apr 23rd, 2013 | By | Category: Senior Moments Blog, Social Security & Medicare

Chained CPI Objectively

Every time a new concept surfaces on the national scene, there is a flurry of articles about it on the Internet. Some of what is written is obviously biased toward one political camp or another. Such is the case with the chained CPI. We thought trying to take a look at it as objectively as possible might be helpful.

First, the chained CPI is part of President Obama’s 2014 budget plan as it relates to Social Security.

Second, a number of government programs (like Social Security) calculate benefits based on the rate of inflation. Inflation is a measure of changes in the cost of living, which typically increases to one degree or another annually. There are different formula used for calculating changes in the cost of living. The Nation puts it like this:

“Current formulas might, for example, rate an increase in the price of beef as inflation, but not consider the fact that people might start buying chicken instead.” (The Nation)

The chained CPI proposes to bring all the formulas together into one master-formula and control for substitutions people make when prices rise, like buying chicken instead of beef when beef prices go up.

The Fallacy in Chained CPI Formula

The Administration suggests the new formula will save $280b over ten years. And the savings will come from benefits not paid to seniors because of the formula. It’s not a tax increase, nor is it technically a reduction in benefits; but it is a reduction in potential benefits should the cost of living formula remain the same as it is now.

Many supporters of senior citizens are opposed to the chained CPI. The opposition comes from the fact that this is proposed as a means to reduce the deficit. The problem is that senior citizens and Social Security did not create the deficit. Nor would there be any problem with paying out Social Security benefits if the payroll tax were more equitable for wealthy wage earners.

The fact remains that the ceiling on the payroll tax means wage earners will see no increase in their payroll taxes on all income earned above $113,700 in calendar year 2013. Seniors, millions who live on only $1200 a month, face a reduction in benefits they would have received if the current formula remains in place. Wealthy wage earners get a free ride on payroll taxes above $113,700 in 2013. In our judgement, the thinking is faulty and seniors will once again be thrown to the curb.

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