CQ TODAY ONLINE NEWS
Oct. 21, 2011 – 12:20 a.m.
Advocates for Seniors Fight Potential CPI Shift
By David Harrison, CQ Staff
Talk of moving to a different cost-of-living adjustment index — the so-called chained CPI — has almost disappeared from public discussion. But that shouldn’t be taken as a sign that the idea has been abandoned.
According to people who have been in contact with the Joint Select Committee on Deficit Reduction, the proposal has not been ruled out — and advocates for seniors and Social Security recipients are lobbying hard to kill it.
Earlier this week, the AARP sent committee members a letter urging them not to revamp the inflation index. “Social Security has not contributed to the deficit, and Social Security benefits should not be reduced for the purpose of reducing the deficit,” the letter said.
Another group, the National Committee to Preserve Social Security and Medicare, has started a major public relations campaign to pressure committee members to protect the 76-year-old retirement program. The campaign includes billboards, calls and a television ad to air during the Sunday morning news talk shows.
“The message to the supercommittee is really, ‘Hands off, no cuts to Social Security, Medicare, Medicaid,’ ” said Max Richtman, the group’s CEO.
The idea is that the alternate inflation gauge, known as the chained consumer price index, would reduce government costs by slowing the growth of benefits. Economists consider the chained CPI a more accurate inflation gauge, but it would yield smaller annual benefit increases than the measure currently used.
The change came up this summer during negotiations over raising the nation’s debt limit and had bipartisan support from members of the Senate’s “Gang of Six,” fiscal conservatives and even the White House. And now that there’s a chance the change is still in play in the deficit talks, advocates for seniors are marshaling their opposition to it.
On Thursday, Rep.
The report shows that payments to current beneficiaries account for almost 76 percent of the program’s costs over the next 10 years. Payments to older workers who will start being eligible for benefits before 2019 account for roughly 21 percent of the costs, leaving only 3 percent of the costs borne by younger workers.
That means that Social Security cuts would mostly affect current and soon-to-be beneficiaries, something that is unacceptable to Levin, who is the ranking Democrat on the Ways and Means Committee.
‘Pretty Significant Change’
The joint deficit committee has been tasked with finding a way to slice at least $1.2 trillion from the deficit over the next decade. Should it fail in its efforts, the compromise law (PL 112-25) that created the panel calls for automatic cuts that would go into effect in 2013. Those cuts would not include changes to Social Security, a move Democrats consider a victory.
Under the chained CPI, the government takes into account the substitutions that consumers make when prices change. For instance, when a hard freeze drives up the price of oranges, people will turn to apples instead of paying more for oranges. The chained measure tends to calculate inflation rates that are a few tenths of a percent lower than the current rates.
Advocates for Seniors Fight Potential CPI Shift
That means Social Security beneficiaries would see lower cost-of-living increases because those bumps are pegged to the government’s inflation figures. As beneficiaries age, the lower cost-of-living increases would compound, advocates say, resulting in significant cuts to older or less affluent recipients. By the time a retiree who started getting benefits at 62 reaches age 73, his or her Social Security benefits would be about 3 percent lower under the new measure, according to an analysis by the Congressional Budget Office.
“People are under the impression that it’s kind of a small change. Given the money it’s bringing in, it’s actually a pretty significant change. It’s a lot of money out of people’s pockets directly. It’s thousands of dollars,” said David Certner, AARP’s director of legislative policy.
But advocates for seniors have pushed for a new, more experimental inflation index, known as the CPI-E, which they say comes closer to reflecting the buying patterns of seniors because it weighs health care expenses more heavily.
Opposition From Anti-Tax, Seniors Groups
The chained CPI also has tax implications, in that income tax thresholds are aligned with inflation. With a lower inflation rate, more people would find themselves in a higher tax bracket, resulting in increased tax revenue.
According to CBO, moving to a chained CPI would bring in $217 billion over a decade, of which $112 billion would be from lower Social Security payments and $72 billion from higher tax revenue. That makes it unpalatable both to seniors groups such as the AARP and to anti-tax advocates such as Americans for Tax Reform, which opposes the measure unless its cost is offset with tax cuts.
“If their recommendation is something that is scored out as a net tax increase, then we’re going to be opposing the supercommittee package,” said Ryan Ellis, tax policy director for Americans for Tax Reform.
Over the summer, debt negotiators, particularly in the White House, pushed for the chained CPI in part because it could be sold as a technical correction that merely gave an accurate assessment of price increases. It didn’t hurt that it combined spending cuts and tax increases, offering something for both sides to rally behind and something for both sides to oppose.
Since then, however, there has been little talk of the new inflation measure. The idea did not come up in President Obama’s recommendations to the joint committee. Nor did it come up in the letters to the bipartisan group from standing congressional committees, which remained vague on the issue of Social Security.
That hasn’t reassured advocates. On Oct. 19, members of the “Gang of Six” senators met with the joint committee to pitch suggestions. The bipartisan group had included the chained CPI in the proposal it released in July.
The new inflation measure also surfaced in the report by a special presidential commission led by former Sen. Alan K. Simpson, R-Wyo., and former Clinton White House chief of staff Erskine Bowles. Their proposal included provisions to lessen the effect on less well-off recipients. The joint committee is reportedly looking to that report for ideas.
It is unclear how much support the idea would garner among lawmakers. Many Democrats vigorously opposed the new inflation index last summer. Republicans have also not been universally sold on the idea.
Members of the joint committee were reluctant to detail their views on the inflation index change. One — Sen.