Bye-bye, chained CPI
Chalk it up to Republican obstinacy, Democratic opposition, or just plain common sense, the White House has dropped the noxious chained CPI from its Social Security proposals for the upcoming federal budget.
The chained consumer price index is a new way of calculating inflation that backers say is more “accurate” than the traditional CPI. As we demonstrated conclusively last year, it’s not more “accurate.”
But those who advocated using the chained CPI to calculate annual Social Security cost-of-living raises didn’t really care about its accuracy. For them, its salient quality was that it produced a lower inflation calculation, by an average of about 0.3% a year.
As we’ve pointed out in the past, the difference is cumulative. The result is a stealth benefit cut for recipients that grows over time. It might look modest at first, but after 10 years of retirement, recipients would be receiving 3% less in their monthly checks than they would have received under the traditional CPI. After 20 years--that is, for retirees in their mid-80s--the difference is minus-6% and after 30 years nearly 10%.
That’s especially disturbing because retirees become more dependent on Social Security as they grow older and begin to outlive their personal assets. It’s also troubling because Social Security is most important for the elderly, especially low-income elderly, as a bulwark against economic downturns.
That effect was particularly marked during the Great Recession, which cost Americans an average 20% of their household wealth. As was shown in a recent report by economists at the Federal Reserve, the losses were measurably mitigated for those on Social Security.
Despite all that, the chained CPI has lived on for years in Washington as a potential sop to conservatives in negotiations over a fiscal “grand bargain.”
The White House now indicates that it has finally given up hope on reaching that bargain with Republicans. (What took them so long?) So the chained CPI, which was part of President Obama’s budget proposal as recently as last year, is out of the budget to be unveiled on March 4.
Social Security advocates are calling that a victory, because it effectively takes the chained CPI out of the mainstream of “entitlement reform.” It’s a significant victory, but the danger is that it might not be lasting. Recent history shows that the dream of forcing low-income seniors to pay for budget cuts so that wealthy Americans aren’t burdened with a tax increase never really dies; it just goes into hibernation.