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Budgetology: Move The Chains

Posted: April 12, 2013 at 2:00 pm   /   by

Budgetology: Move The Chains

Based on the reaction to President Obama’s proposal to change the way Social Security cost-of-living adjustments are estimated and transition to Chained CPI, you’d think it was putting it on a path towards insolvency! The truth is, the change is a long-overdue, common sense reform that is a step in the right direction, but falls well short of preserving the program and reducing our long-term debt.  It seems like Washington is dividing itself into two groups of people: those who support Chained CPI and those who aren’t serious about the debt.



Switch to Chained CPI Would Save $230 Billion Over 10 Years. “Under the president’s budget, the government would shift in 2015 from the standard Consumer Price Index — used to compute cost-of-living increases for Social Security and other benefits and to set income-tax brackets — to what is called a ‘chained C.P.I.’ The new formulation would slow the increase in benefits and raise income tax revenues by putting some taxpayers into higher brackets sooner, for total savings of $230 billion over 10 years.” (Jackie Calmes, “Obama Budget Opens Rift For Democrats On Social Benefits,” New York Times4/10/13)



Most Economists Feel Current Version of CPI Overstates Inflation. “Currently, cost-of-living adjustments are determined by a version of the Consumer Price Index, the CPI-W, that is believed by most economists to overstate inflation by failing to take into account the way consumers respond to price increases in one good by shifting to lower-priced substitutes.” (W.W. Houston, “Chained, Chained, Chained,” The Economist, 4/5/13)

Chained CPI Is A “Widely Believed Superior Metric of Inflation” (W.W. Houston, “Chained, Chained, Chained,” The Economist, 4/5/13)

Chained CPI Could Be ‘Good Compromise’ That ‘Might Work.’ “A change to the way inflation is measured could help President Obama and Republicans cut a debt-reduction deal this summer. It’s not the biggest way to cut deficits. But it might be a good compromise because it would reduce projected spending, which Republicans are pushing for. And it would also raise revenue, which Democrats want.” (Jeanne Sahadi, “The Geeky Debt Fix That Might Work,” CNN Money, 4/5/13)

Chained CPI “Reasonable Component” To Put Budget On Sustainable Course. “Because many economists believe the official CPI is upwardly biased and regard the chained CPI as a more accurate measure of inflation, the Center on Budget and Policy Priorities has long supported switching to the chained CPI for adjusting federal benefits and taxes — if it is accompanied by several necessary adjustments to prevent significant hardship… The policy clearly amounts to a reduction in future Social Security benefits, which many find objectionable. However, we believe that the chained CPI is a reasonable component of a comprehensive package to put the budget on a sustainable course…” (Kathy Ruffing, Paul N. Van de Water and Robert Greenstein, “Chained CPI Can Be Part Of A Balanced Deficit-Reduction Package, Under Certain Conditions,” Center on Budget and Policy Priorities2/22/12)

Making The Switch Wouldn’t Be That Big Of A Change

ORSZAG: Impact Of Chained CPI Not As Great As Many Assume. “What neither side seems to have noticed, however, is that the difference between the chained CPI and the standard CPI has been diminishing. That means the impact of switching indexes may not be as great as many assume. The change may still be a good idea, but it probably won’t matter as much as expected. …It may lead some people to ask why policy makers should bother — though I would still support making the shift.” (Peter Orszag, “Chained CPI’s Diminishing Returns for U.S. Budget,” Bloomberg4/7/13)



Rep. Greg Walden (R-OR) Opposes Switch To Chained CPI. “During an interview with CNN’s Wolf Blitzer, National Republican Congressional Committee Chairman Greg Walden (R-Ore.) said Obama was ‘trying to balance this budget on the backs of seniors’ with the plan, which would change the way Social Security cost-of-living adjustments are calculated.” (Jonathan Allen, “Greg Walden Breaks With Party On ‘Chained CPI’,” POLITICO4/10/13)

Sen. Bernie Sanders (I-VT): “If they vote to cut Social Security, they may not be returning to Washington. …While I am extremely disappointed, because I think it is exactly the wrong thing to do, I’m not surprised.” (“Liberal Groups, Lawmakers Balk at Entitlement Cuts in Obama Budget, 2nd Term Overtures to GOP,” Washington Post, 4/9/13)

Rep. Ed Markey (D-MA): “Rep. Ed Markey, a Massachusetts Democrat running for the Senate, issued a statement saying he opposes the budget “because it would cut benefits to seniors on Social Security and makes other significant cuts to other key low-income programs that are vital to Massachusetts residents like low-income heating assistance.” (David Espo, “Obama Budget Gives Everyone Something To Dislike,” Associated Press,4/11/13)

National Organization For Women And AFL-CIO “Disheartened” By Chained CPI.“But liberal Democrats, fresh off fighting to get Obama re-elected last year, say they’re disheartened that Obama isn’t sticking up for what they say are core Democratic principles. Many of the groups, including the AFL-CIO and the National Organization for Women, endorsed Obama last year.” (“Liberal Groups, Lawmakers Balk at Entitlement Cuts in Obama Budget, 2nd Term Overtures to GOP,” Washington Post, 4/9/13)

AFL-CIO: ‘Chained’ CPI: Two Million Times ‘No!’ “The ‘Chained’ CPI is a benefit cut to a program that does not contribute to the deficit. Do not barter it away in the name of deficit reduction. Stand strongly against all cuts to Social Security, Medicare and Medicaid.” (Mike Hall, “’Chained’ CPI: Two Million Times ‘No!’,”AFL-CIO4/9/13)

AARP: Chained CPI Is Wrong For Social Security. “Adopting a Chained CPI is an imbalanced approach for Social Security. This proposal deals with a long concern about the ability of Social Security to pay benefits in the future by cutting benefits now. There is no corresponding effort to better protect benefits. Instead, Social Security benefits would decrease under a Chained CPI by a growing amount each year that will mean seniors fall further and further behind the cost of living.” (David Certner, “Why the Chained CPI is Wrong for Social Security,” AARP Blog4/11/13) is an educational project of Public Notice, an independent, nonpartisan, non-profit, 501(c)(4) organization dedicated to providing facts and insight on the effects public policy has on Americans’ financial well-being.

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Budgetology: Move The Chains