Ten Reasons Why the Chained CPI Is Terrible Policy

FILE -This July 28, 2011, file photo shows the dome of the U.S. Capitol in Washington. During his weekly radio and Internet a
FILE -This July 28, 2011, file photo shows the dome of the U.S. Capitol in Washington. During his weekly radio and Internet address Saturday, Sept. 22, 2012, President Barack Obama faulted Congress for leaving town with several pieces of unfinished business on its plate. He accused lawmakers of being "more worried about their jobs and their paychecks" than their constituents, and he said he wants them to come back in November to finish work on a veterans' job plan, farm policy and helping homeowners refinance. (AP Photo/J. Scott Applewhite, File)

Now that Christmas is over, President Obama and Speaker Boehner will soon resume talks to cut Social Security as part of a deal to avert the fiscal cliff. Here are 10 reasons why the chained CPI -- the Social Security cut they are considering -- is terrible policy.

I spoke about this with David Shuster on last Saturday's Take Action News. Check out the video of our discussion below. Then give yourself the Christmas gift of subscribing to Take Action News TV on YouTube. It's free.

1. Chained CPI is a significant benefit cut that compounds over time, hitting late old-age beneficiaries and the long-time disabled hardest. For a worker with average earnings retiring at age 65 in 2015, chained CPI would cut benefits $653 a year (3.7 percent) at age 75, $1,139 a year (6.5 percent) at age 85 and $1,611 a year (9.2 percent) at age 95.

2. Chained CPI hits current beneficiaries. Even Paul Ryan tried to hold people ages 55 and older harmless from his plan to privatize Medicare (and Social Security before that). Seriously. Check out page 52 of his 2013 budget, and every speech he ever gave on the topic. The theory is, if you're gonna burn people, give them some time to adopt a Spartan lifestyle for several years so they can make up for the lost pension money in time for retirement.

3. Chained CPI cuts benefits for veterans. At least 771,000 veterans receive both Social Security and VA disability benefits. Under chained CPI, both would be cut. A fully disabled veteran claiming benefits at age 30 in 2012 would see a cut in VA benefits alone of $1,425 a year (4.3 percent) at age 45, $2,341 a year (7 percent) at age 55, and $3,231 a year (9.7 percent) at age 65.

4. Chained CPI cuts benefits for the indigent elderly and disabled on Supplemental Security Income (SSI). Do I need to add detail here? These are the poorest of the poor.

5. Chained CPI is less accurate for seniors and people with disabilities. Chained CPI assumes people can substitute cheaper products as prices go up, but this is not true of seniors and people with disabilities for whom health care makes up a larger share of expenses. In 2009, health care made up 12.9 percent of expenses for people 65 or older, but 5.3 percent of spending for people ages 25-64.

6. A more accurate CPI for Social Security is the CPI-E, not the chained CPI. The CPI-E, or experimental Consumer Price Index for the Elderly, weights health care and housing costs more heavily to simulate the basket of goods consumed by seniors. On average, it increased 0.2 percentage-points more annually than the current CPI.

7. Social Security benefits are already declining due to increases in the retirement age and Medicare premiums. After Medicare premiums, Social Security replaced 37 percent of the pre-retirement earnings of a typical worker retiring at 65 in 2010, and is projected to replace 32 percent of the same worker's earnings in 2030.

8. Social Security does not contribute to the deficit. Social Security is self-funded, it is off budget, and it cannot borrow to pay benefits. Therefore it cannot contribute to the deficit. Just take President Reagan's word for it. There is no good reason to include it in fiscal cliff negotiations. In fact, it has never been included in budget negotiations. The famous Reagan-O'Neill Social Security compromise of 1983? They did it through a Commission devoted solely to Social Security -- not the general budget deficit.

9. Giving away a benefit cut for no additional Social Security revenue is foolish. Yes, Chained CPI generates additional income tax revenue (albeit in a regressive way). But it gives Social Security no new revenue. Even Simpson-Bowles tried to do that.

10. "Birthday bump" and other sweeteners are inadequate. The chained CPI's apologists say they will hold the poor and people in late old age harmless through a "birthday bump" in the 20th year of benefits eligibility. As the graphs here and here show, however, this only offsets the benefit cut significantly if you live past 90, and even then doesn't make up for the chained CPI.

Views expressed are the author's own.

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