If there’s any field in which the Trump administration excels, it’s in coming up with more ways to disadvantage the already disadvantaged in American society. Undermining the healthcare system, tormenting immigrants, throwing people off Medicaid — the list is almost endless.
This week, the administration proposed to redefine “poverty” in a way that could deprive millions of low-income Americans of needed assistance.
The proposal was nestled within a filing Monday by the White House Office of Management and Budget, which seeks comment on whether to change the way inflation is indexed for the purpose of measuring poverty. Among the options, according to the OMB, is changing from the standard consumer price index (CPI) to something known as the chained consumer price index (C-CPI), which the Bureau of Labor Statistics has published only since 2002.
We’ll get to the details of the differences between these two indices in a moment. What’s important is that from the standpoint of government budget cutters, the chained version tends to rise more slowly, differing from the CPI by an average of two- to three-tenths of a percentage point per year. The difference is cumulative, so that from any starting point, after 10 years they would be 2 to 3 percentage points apart.
If applied to eligibility for low-income assistance programs — food stamps, Medicaid, heating assistance, welfare — a lower official inflation rate would reduce the eligibility ceiling over time, compared with the current index. That’s important for many of the roughly 40 million people officially counted as living in poverty in America today.
It also reflects the spirit of Trump administration policies aimed at making life harder for low-income households, says Aviva Aron-Dine, an expert on health policy at the Center on Budget and Policy Priorities. “They’re looking for levers to pull to reduce benefits and eligibility,” Aron-Dine told me.
Not only are eligibility limits at risk for food stamps, Medicaid and other programs linked to the federal poverty level, the change also would reduce the premium subsidies provided by the Affordable Care Act, “and thereby increase the out-of-pocket premium charges faced by millions of people who purchase health insurance through the ACA marketplaces,” the Center on Budget and Policy Priorities observes.
The administration has tried to conceal its intentions, in its usual passive-aggressive manner. By casting its proposal as merely a request for comment on several possible changes in inflation indexes, the White House can claim it’s neutral about the choices. But most of the other choices aren’t really appropriate for any broad-based income-tested program. The filing, moreover, mentions that the chained CPI already is used by the IRS in adjusting federal tax brackets, a change mandated by the tax cut legislation of 2017. The mention, as it happens, is so obscure that only an expert in tax law would be sure to notice it.
In other words, the White House is performing a magician’s trick — people might think they’re choosing among equivalent options, like picking a card from a proffered deck, but the conjuror is making sure the right card is picked.
Fans of the chained CPI, most of whom are conservatives, like to claim that it’s a more “accurate” measure of inflation than the traditional index. There’s little evidence for that.
An index like the CPI can’t be judged as more or less accurate, because it measures only what it’s defined to measure. Does the market basket measured by the CPI accurately define what people spend money on? Yes, if they spend money on what’s in the basket. And different demographic groups spend money differently — retirees don’t spend money the same way as young or middle-aged families, and the poor don’t spend it like the middle class.
The only feature of the chained CPI one can be sure about is that it can be applied to reduce government expenditures — at the expense, of course, of the people who benefit from those expenditures.
Indeed, in hinting at a shift toward the chained CPI, Trump is taking a page from conservatives who have been trying for years to cut Social Security benefits, using the same method.
In the Social Security context, the only virtue of the chained CPI from their standpoint is that it would reduce the inflation adjustments from their current pace — meaning less money for retirees. If Social Security “reformers” really were interested in a more accurate inflation index for retirees, they would move to the CPI-E, a specialized measure that overweights expenses likely to play a larger role in the lives of seniors, such as healthcare.
The ostensible advantage of the chained CPI over its traditional cousin is that it takes into account so-called substitution effects. Those are what happen when a price rise in a given product or commodity prompts consumers to make an alternative purchase. Since they’re no longer making choices from the CPI’s standard market basket, the argument goes, the CPI’s inflation tracking is thrown awry.
This is a poorly understood process. The traditional CPI actually does adjust for some substitutions, if they take place within categories — if Gala apples rise in price, for example, the CPI recognizes that consumers might buy Fuji apples if they’ve risen less. The chained CPI anticipates substitutions across categories — if apples rise in price, consumers might switch to bananas — or more important, if the price of food goes up, they may cut back on heating oil.
The complexities of the various CPIs sometimes flummox even experts. Back in 2011, the eminent economist Sylvester Schieber tried to illustrate how the chained CPI works for the House Ways and Means Committee. At a hearing on Social Security, he explained that the chained CPI would recognize that “if the price of a Mercedes goes up … maybe you don’t buy the Mercedes, you switch and you buy an Audi or something.”
As I wrote at the time, it was hard to say whether this was a real-life event for Schieber or whether he thought that a parable about substitution in the luxury car market would hit the plutocrats on the Ways and Means Committee where they lived.
More to the point, Schieber was wrong, because substitution within categories of goods such as new cars already was baked into the standard CPI. A more accurate example would be that if the price of gas or medical care goes up, you cut back on food.
As is so often the case with Trump, his slipshod approach gives away his game. An administration genuinely concerned about how best to serve the poor with government assistance programs wouldn’t start with tweaking the inflation rate. It would start with examining years of research examining whether the poverty line itself is adequate, or — as seems to be the case, too low.
In fact, the government in 2010 began publishing a “supplemental poverty measure” that yielded a higher poverty rate and revealed that more people were living below the line — rather than a poverty rate of 12.3% in 2017 (39.7 million people) the supplemental measure showed a rate of 13.9% (44.8 million people).