Daring to Touch a Sacred Cow : Change needed for index tied to Social Security

Most economists agree that the government’s consumer price index, which tracks changes in the average costs of basic goods and services, overstates inflation’s real rate. That’s good news for people on Social Security, for military pensioners and Civil Service retirees, all of whom usually get annual cost-of-living increases based on the CPI. But it’s bad news for a government struggling to cut deficits and eventually produce balanced budgets.

By how much does the CPI inflate the real rate of inflation? A congressionally sponsored study by a panel of respected economists has put the figure at between 0.7 and 2.0 percentage points; its “best estimate” was that the CPI errs on the high side by a full percentage point. Given the tens of millions who get Social Security and other government pension checks each month, that adds up to big bucks indeed.

$280-BILLION SAVING: Big enough, say Sens. William V. Roth Jr. (R-Del.) and Daniel Patrick Moynihan (D-N.Y.), senior members of the Finance Committee, so that the government could save more than $280 billion over the next seven years just by changing the formula it uses to calculate benefit increases. The idea would be to continue using the CPI, but minus one percentage point. In effect, that would simply mean eliminating the windfall that has come from overstating the inflation rate. Retirees who get Treasury checks would still get annual cost-of-living increases--something very few private pension plans provide--but these would be much closer to the real world of price increases.

Here, says Moynihan, is “a real bipartisan opportunity” to deal with a problem whose existence, though long known to Congress, has seldom been openly discussed. The key word here is bipartisan. Social Security remains the most protected item in the federal budget, the holy of holies, inspiring fear of early political death if touched in the wrong way. Social Security, now as always, has been exempted from deficit-cutting efforts. But the adjustment in the CPI now being called for wouldn’t cut existing Social Security or similar government benefits. It would only--fairly, reasonably--bring the annual rate of increase into line with inflationary realities.

BIPARTISAN NEED: Achieving the $281 billion in savings that Moynihan projects over the next seven years would be impossible without a powerful bipartisan consensus, and not just within Congress. President Clinton’s support is vital, because no one, Republican or Democrat, is going to vote to adjust the CPI formula unless it’s understood that that vote won’t become a partisan issue in the next campaign.

The White House has signaled that it might be interested in pursuing the idea of a CPI adjustment, though not necessarily the full percentage point the economists and Moynihan have talked about. Meanwhile, the budget battle swirls on. Here is a bold new element to put on the table. It is a change that makes sense, that’s overdue and that’s doable. Let the White House and Congress get on with it.