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Chained CPI: The Budget Provision Dems Love to Hate

But GOPs aren't buying Obama's conversion on entitlement reform.

by
Bill Straub

Bio

April 16, 2013 - 12:12 am

WASHINGTON – Liberals are seething and conservatives seemingly unimpressed by a provision in President Obama’s proposed 2014 budget that ties future Social Security cost-of-living benefit increases to the chained CPI.

Groups like AARP assert the proposed shift will cost retirees millions of dollars. Conservatives dismiss the move as too-little-too-late and one that doesn’t go far enough in cutting entitlement programs.

“The so-called ‘chained CPI,’ included in the president’s budget, would cut Social Security benefits significantly over the next ten years,” said Nancy LeaMond, executive vice president at AARP. “It would start now, taking money from the pockets of current beneficiaries, and would grow larger over time, having the greatest impact as Americans grow older and rely more on their Social Security benefits. It would also cut additional benefits for veterans and people with disabilities, and raise taxes on most taxpayers.”

LeaMond said polls prove most older Americans oppose changes in the benefit calculations. AARP released a survey last week establishing that 84 percent of those aged 50 or older oppose cutting Social Security checks to balance the budget.

Jeffrey Zients, a deputy director in the Office of Management and Budget, acknowledged that the CPI proposal is “not the president’s preferred policy.”

“He’s willing to do it as part of the comprehensive $1.8 trillion deal that puts us on a sustainable path, gets us out of this pattern of manufactured crisis after manufactured crisis,” Zients said. “So the condition for CPI is that it’s part of a balanced, comprehensive package.”

The switch to the chained CPI is an idea that has been kicking around for several years. It was included in the deficit reduction plan by a committee appointed by the president and led by former Sen. Alan Simpson and former White House Chief of Staff Erskine Bowles two years ago. It was a concession offered by Obama during lengthy budget negotiations with House Speaker John Boehner (R-Ohio), in December. Those talks fell through.

The chained CPI is a method to calculate inflation. Currently, Social Security uses a measure called CPI-W, or CPI for Urban Wage Earners and Clerical Worker, to determine how much benefits will increase from year to year.

Chained CPI, created by the Bureau of Labor Statistics, is different in that it considers factors other than just the inflation rate. It was developed in a response to a study that determined CPI-W was overstating the rate of inflation, thus giving beneficiaries more money than they were entitled to. Chained CPI takes into consideration outside factors like how consumers might respond to price increases – often by purchasing lower-priced items or going without.

Those factors essentially would lower what some experts consider the true inflation rate, thus lowering benefits allotted by Social Security and other programs. One study estimates the switch would reduce Social Security benefits by $130 billion over a 10-year period.

The proposal drew objections from progressive elements. Sen. Bernie Sanders (I-Vt.) stressed that the move would slash Social Security benefits even though the program doesn’t contribute to the nation’s budget deficit. The president’s spending plan, he said, “is a document which does not effectively address the economic crisis facing our nation.”

Sanders said implementation of the Obama proposal would result in 65-year-old retiree losing more than $650 a year in potential benefits by his or her 75th birthday. About $1,000 a year would be cut from their benefits once they reach 85. He vowed to do everything possible to keep the proposal from becoming reality.

“Yes, we must move forward on deficit reduction but it must not be done on the backs of some of the most vulnerable people in this country,” Sanders said.

Most Democrats do not appear eager to support the administration’s CPI plan. House Democratic Leader Nancy Pelosi, of California, admitted as much during a Thursday press conference when she said her caucus was still weighing the plan’s potential impact.

“Whatever we are doing, it is about our extending the life and the strength of Social Security,” said Pelosi, who otherwise lauded the president’s plan. “It’s not about balancing the budget. And so that’s some of the concerns that some of the members have — why is this in this bill?”

Boehner, who characterized the proposed budget as “not serious,” was dismissive about the president’s entitlement initiative.

“Now, I am encouraged that the president acknowledged that our safety net programs are unsustainable but only offered some modest reforms,” Boehner said. “They are modest. It’s nothing close to what we need in order to preserve these programs and to put ourselves on a path to balance the budget. And still it’s a step back from what he’d agreed to over a year and a half ago. So, there’s no reason we can’t make incremental progress where we can agree.’’

Rep. Paul Ryan (R-Wis.), chairman of the House Budget Committee, was equally unimpressed with the offer.

“I don’t see it as entitlement reform, as much as clarifying a statistic,” Ryan told reporters.

Even that clarifying statistic might not proceed very far. Gene Sperling, director of the National Economic Council, said the president is offering chained CPI on a conditional basis – Republicans will have to give on an issue they favor to shepherd it into law,  probably some sort of tax hike.

“Obviously, when you’re having a bipartisan budget agreement it requires give and take on both sides,” Sperling said. “You can’t have an agreement where one side says, if you make a compromise, they say, well, we’ll just take that. That doesn’t work.  And it can’t work — it couldn’t work the other way. If they said, well, as part of your agreement, we’re willing to support your infrastructure plan but only if you did all the entitlement savings, we couldn’t say, oh, well, thank you, we’ll just take that. You’d understand that was put on the table as part of a compromise.”

In the recent past, Sperling said, Boehner, House Republican Leader Eric Cantor, of Virginia, and Senate Republican Leader Mitch McConnell, of Kentucky, have indicated “that one of the things that they felt was needed for giving revenues was the CPI.”

The offer, Sperling said, “is not an à-la-carte menu and you can’t decide to only pick out the concessions the president has made and not include the concessions that are from the Republican side that need to be part of a bipartisan deal that could pass both houses.’’

Cantor argued that the CPI question should be evaluated on its own merits and not offered as part of a compromise.

“If the president believes, as we do, that the programs like Medicare, Medicaid and Social Security are on the path to bankruptcy, and that we actually can do some things to put them back on the right course and save them to protect the beneficiaries of these programs, we ought to do so,” Cantor said. “And we ought to do so without holding them hostage for more tax hikes.”

Washington freelancer Bill Straub is former White House correspondent for Scripps Howard News Service.

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All Comments   (8)
All Comments   (8)
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If you want to see what the real inflation number is to compare what you paid for food items now and 4 years ago,what you are paying for gas and home heating oil this year and 4 years ago.Compare the cost of clothing this year with 4 years ago.
I estimate the true cost of day to day living has increased by 12% to 18% compared to 4 years ago
1 year ago
1 year ago Link To Comment
I'd be very interested in just how "chained CPI" is constructed. This administration, and the Federal Government geberally, are not above cooking teh books when they see an advantage.

In reading elsewhere about this proposal, some writers have pointed out that the indexing of income tax rates -- in place since Ronald Reagan's administration -- would also be affected, gradually but surely moving folks into higher tax brackets. When that is the set up, it gives the government a positive interest in inflating the currency. I lived through that once in the Carter years and don't want to see it again.

Perhaps that is the real purpose behind this idea -- reduce or eliminate bracket indexing.
1 year ago
1 year ago Link To Comment
Quoting from the article:
"It was developed in a response to a study that determined CPI-W was overstating the rate of inflation, thus giving beneficiaries more money than they were entitled to. "

Chained CPI is simply a way to reduce benefits. Those benefits are already bad for all and even the current CPI computation doesn't address food or health care -- items Social Security and Medicare recipients depend on. Now, Obama wants to make the increases, which are insufficient today, even lower? So does Paul Ryan?
Why not just stop paying them altogether?

Social Security should not be played with like a polticial football. Either fix it permanently or don't touch it.
1 year ago
1 year ago Link To Comment
The methodology used to determine inflation is one of the most manipulated and inacurate points of data in the government next to unemployment-employment and 'domestic' consumption to GDP.

Theres so many geographical variables involved in inflation as it pertains to any consumer inflation index and especially for those 'particular' goods and services most consumed by the low income segement of our populations.

The only equitable way to measure inflation for benefits is state-by-state, metro and rural in which zip codes would determine inflation increase or decrease of benefits. The most accurate means would probably increase the administrative cost and possibly overall outlay in some geopraphical areas but the current system(s) will continue to increase the poor and poverty classes which carry with it significant increased benefits costs nobody wants to talk about or chart.

The far right proposals literally ignores the wealth desparity gap and the increase in poverty and the more than thirty years of declining middle down income. It also ignores the fact that on the down range side of the baby boom population going into retirement, inflation will, at some point make them the poorest class in retirement in the most modern American times. If the economic recovery drags on for another couple of decades or so, then you have to multiply the negatives by 'x' times. The far right is not thinking beyond their eyebrows! They should leave everything alone and devote 100% of their time and efforts to rebuillding a sustainable economy and get unemployment down to 4.5% at least! Anything less, is a totally dishonest approach and they'll pay for that arrogant mistake, for a very long time in the voting polls. The generations that bought America to this point and times of circumstances should step up and PAY whatever is necessary rather than making future generations pay for their arrogant greed and stupidity.
1 year ago
1 year ago Link To Comment
"The far right proposals literally ignores the wealth desparity gap and the increase in poverty and the more than thirty years of declining middle down income."

The "far right" wants to create wealth and subsequent better paying jobs for the poor through reducing the size of government, elimination of job-killing EPA regulations, reduced taxes on everyone including business, and eliminating job-reducing work restrictions, i.e., an environment that will grow GDP. Much of this policy will also stop the flight of companies moving overseas. That's the ideal. Whether it will happen, who knows?

As long as the poor are wealthier than they were during prior decades, should be the measure. Think of all the new, inexpensive product available to the poor during the past 50 years - cell phones, toaster ovens, digital TVs, dish washers, clothing, used cars, everything at Walmart, government housing, food stamps, school meals, welfare, etc, etc, etc. By trying to reduce income gaps, the poor will not get richer but poorer. To make the "poor" poorer in order to punish the rich is asinine policy.

As for the declining income of the middle class that is explained by the increase in the number of single parent families, that make less than two parent households, on which household income is based.

The baby boomers are far richer than the generations that will follow, who will by necessity need to pay off the national debt, through higher taxes, another way the middle class will be penalized.
1 year ago
1 year ago Link To Comment
You must be a young'in! ALL you comments are purely GOP populist rhetoric. Historic data proves in invalid in every case I can think of. On another topic I produced tons of historic data to Marc Malone (re about taxes) which will provide you with plenty of insight.

"The "far right" wants to create wealth and subsequent better paying jobs for the poor through reducing the size of government, elimination of job-killing EPA regulations, reduced taxes on everyone including business, and eliminating job-reducing work restrictions..."

That is simplicity rheotric for which historic data proves invalid. The GOP is anti pay increases leaviung to the privates sector to establish purely out of good will. Well take a look at the wealth despirity charts from the 80s forward. Take a good look at the 'actual' tax rates payed by the nations top 5,000 corporations and wealthy individuals get nearly the same tax loop holes that the small businessman, middle and poor classes don't. Take a good look at the historic unemployment charts picking and era of governemnt you think was really behind your ideas. Theres rhetoric then theres reality -- the reality of human nature. For the past several decades corporations are all about profits for Wall Street and shareholders and NOT labor equity as the historic income charts as a percentage to GDP will validate.

"As long as the poor are wealthier than they were during prior decades..."

In all your presentation you ignore the issues of inflation. Millions of americans live on 'fixed' incomes suposedly adjusted for inflation. The socalled adjustment for inflation is a completel fraud. Heres a test for you. If your parents are retired and have been on a fixed income for at least ten years or more, enter their social securtity portion of their beginning income into a legitimate inflation calculator and adjust it to 2013. Now, compare that number to what they're actually getting. Now, ask them if it has stayed up with the cost increases of the most common things they have to spend money on for sustainment. I can tell you the answer! Its NO! Healthcare goods and services 'alone' rises on average between 3.5-5.5% per annum. Fuel costs rise eradically, untility costs rise above the socalled national inflation rate, food costs radically, standard interest rates on credit cards rose and have stayed higher than when first issued and on down the line. The national inflation rate as stated by the federal government is the most abused and manipulated data there is.

If you want any historical data that I use to support all my positions, make a list of them and I'll gladly provide them.
1 year ago
1 year ago Link To Comment
Why not eliminat current services baseline budgeting and use the chained CPI?
1 year ago
1 year ago Link To Comment
We need to fix these problems.Should balance the books&stop spending money,that no longer exists.How can we let Obama know,hes got to stop giving mon ey to countries which hate us?2nd.If he feels hes got to give money out,then help Americans that are struggling to living from daily to monthly?LIz
1 year ago
1 year ago Link To Comment
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