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Chained CPI: The Budget Provision Dems Love to Hate

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.”