Proposal to Trim Inflation Index Meets an Eager, and Wary, Congress

A congressional commission’s recommendation to lop 1.1 percentage points a year off the increase in the inflation rate was greeted in Congress on Wednesday by a combination of wide-eyed enthusiasm and cold-eyed realism.

Sen. Daniel Patrick Moynihan of New York, the top-ranking Democrat on the Senate Finance Committee, which established the commission, said the government could reap a staggering $1-trillion windfall over 12 years by adopting the recommendation, which would increase tax revenues at the same time it reduced federal benefit payments.

That would go a long way toward balancing the federal budget.

But Finance Committee Chairman William V. Roth Jr. (R-Del.), fearful of the political fallout if the Republicans took the lead on so controversial a proposal, said any legislative action would need the “full cooperation and backing of the Clinton administration.”

The commission, chaired by Stanford University economist Michael Boskin, issued a report Wednesday concluding that the government-calculated inflation rate is too high because it does not account soon enough for changes in consumption or in the quality of products. According to the commission, if this year’s consumer price index shows an increase of 3%, the true rate of inflation will actually be just 1.9%.

The issue is explosive because benefit checks for 43 million Americans on Social Security are linked to the CPI, as are government pensions. Also, tax brackets and the size of exemptions are adjusted each year by the CPI, and millions of workers have union contracts dependent on the CPI.

Critics of any change were quick to denounce the prospect of congressional action. Any “arbitrary reduction in the index would undo decades of progress and result in millions of seniors citizens falling below the poverty line,” said AFL-CIO President John Sweeney.

“As I have often said, ‘America needs a raise,’ ” Sweeney said. “Cooking the books is no substitute.”

The American Assn. of Retired Persons, the leading element of the influential senior lobby, said that “proposals to lower the CPI through so-called technical revisions are simply back-door attempts to cut” the annual cost-of-living increase for beneficiaries.

Roth and Moynihan, who asked Boskin to head the commission, said their prime concern was the accuracy of government numbers.

“It is critical that all government statistics be calculated accurately,” Roth said. “This is particularly true in the case of the CPI because of its central role in determining cost of living adjustments (COLAs) in both the public and private sectors.”

Moynihan said the CPI is “not a true” measurement of the cost of living. “We want to adjust benefits for changes in the cost of living, no less and no more,” he said.

The CPI’s overstatement of inflation could be considered the fourth biggest federal program in terms of dollars, after Social Security, health and defense, Moynihan noted.

The CPI, issued monthly, measures changes in the prices of goods and services in a “market basket” used by urban consumers.

The Boskin commission said the current system has two serious flaws. First, it does not quickly reflect the changes in consumption patterns. People eat more chicken when beef gets expensive, for example. And it does not accurately account for changes in quality. Today’s television sets, for instance, have a better picture and need fewer repairs than the TVs sold in 1982-84, the base years for the market basket used in the CPI.

The Clinton administration is keeping a careful distance from endorsing any plan that would trim Social Security’s annual benefit increases.

“The White House will view (the report) very carefully because it has enormous impact on the lives of millions of Americans and has enormous consequences for spending,” White House press secretary Mike McCurry said.

“The issue of how to calculate the CPI and the impact it has on federal spending has been an issue in bipartisan budget deliberations in the past,” McCurry said. “The White House expects it will be an issue in the future.”

A proposal last year to reduce the annual COLA by 0.5% received 46 votes in the Senate. One of its sponsors, Sen. John Breaux (D-La.), welcomed the Boskin commission report and said he hopes it will become “the basis for tough decisions that must be made regarding the government’s entitlement programs.” Social Security and Medicare are the biggest entitlement spending programs.

But other legislators indicated reluctance to make any changes that could trim benefits. “Before we look at” changing the annual benefit hikes, said Sen. Frank Lautenberg (D-N.J.), “we should eliminate tax loopholes and wasteful corporate subsidies, and seek additional savings where possible.”

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Coming Up Shorter

In 10 years, an apparently small reduction of 1.1 percentage points in the cost-of-living adjustment for Social Security benefits can mean nearly $100 a month less in a beneficiary’s wallet. Comparing increases in Social Security benefits with a 2.9% consumer price index and one 1.1 points lower: $964, $865 in 2006