Senior Agenda Link

Senior Agenda airs live every Thursday morning at 10 am. Podcasts are also available.

Wednesday, February 5, 2014

Chained CPI Treating the American People Like a Chain of Fools

Seniors are at risk thanks to components of President Obama's 2014 proposed budget which he calls a grand bargain.  The budget calls for a switch to a Chained CPI as a way of calculating cost of living increases for Social Security benefits.  It amounts to a bunch of bologna for folks who deserve chicken dinners!  

The Chained-CPI works against seniors and here's why;  It operates on the assumption that all items in the shopping cart are easily substituted.  Sure - my family can eat bananas instead of grapes (and we often do), but what to do when the items in the shopping cart are medications or other health-related necessities? Are seniors expected to substitute super glue for denture adhesive because it is cheaper?  How about private insurances with high deductibles and out-of-pocket expenses instead of components of original Medicare because they are cheaper. Some of us can cut corners, but for the millions of seniors already living in poverty and relying on the Social Security benefits they EARNED - there are no corners to cut - the box has already been transformed into a circle.

Chained CPI is shorthand for "Chained Consumer Price Index for All Urban Consumers."  It's a formula used to index spending and taxes to the rate of inflation over time.  Social Security benefits are currently calculated using CPI-W or the Consumer Price Index for Urban Wage Earners and Clerical Workers.  The switch will mean that seniors can expect to receive less in coming days because Social Security benefits will increase at a slower rate.   

How much less?  According to an article by George Zornick at "The Nation", the average earner retiring at age 65 would lose $658 each year until they turn 75 under the Chained-CPI, and $1,147 each year until age 85. The cumulative cuts to seniors on Social Security would reach $28,000 by age 95.  View charts
from Social Security Works here. 

AARP had this to say about the changes in payment: 

"Estimates show that under the chained CPI, your cost-of-living adjustment (COLA) would be about .3 percentage point below the plain old CPI.  That works out to $3 less on every $1000, which doesn't sound like much - except that it keeps compounding over time.

Look at it this way.  The COLA for this year was 1.7 percent.  If your monthly Social Security check was $1250 last year, it increased to $1271.25 this year.  With the Chained CPI, you would be getting $1267.5 - or $3.75 less a month and $45 less a year. Again, that might not seem like a big reduction, but if the COLA is the same next year, the difference increases to $7.61 a month and $91. 32 for the year.

You start to get the picture.  The gap accelerates and begins looking like real money.  If you're 62 and take early retirement this year, by 92 - when health care costs can skyrocket and more than 1 in 6 older Americans lives in poverty - you'll be losing a full month of income every year."  Read full article here.

Proponents of the Chained-CPI say that it's a more accurate measure of inflation because it takes into account consumer's ability to control for inflation by "substituting."  For example, when inflation causes the price of grapes to go up, one might substitute bananas for grapes that month.  Taking into account the effects of substitution means that inflation calculated using the Chained-CPI naturally rises at a slower rate than inflation calculated using the old formula. 

The proposed formula just doesn't work for seniors.  Their shopping carts contain items that cannot be easily substituted. Moreover, the items in their carts are subject to higher inflation than most.  For example, prices for health care are rising twice as fast as overall inflation and seniors spend roughly three times what the rest of the population does on healthcare.  Check out the Economic Policy Institute for confirmation of these numbers and other statistics that reflect the damage the Chained-CPI will do.

Shame -shame -shame on President Obama for being willing to throw seniors under the bus in an effort to reduce the deficit.  Sure - adopting the Chained-CPI will save the federal government an estimated $230 billion over a ten year period.  That might help reduce the deficit if we can trust the federal government not to spend the savings on research about the effects of cocaine on Japanese quail.  We all realize that something has to be done to save Social Security and Medicare but that is quite different that believing that Social Security and Medicare ought to save the nation.  

The White House shies away from calling the adoption of the Chained-CPI a cut to Social Security.  They prefer a "more accurate" formula that "will reduce deficits and improve Social Security solvency."  Trickery and slight of hand have become so commonplace in policy and politics that we have stopped expecting truth.  They tell bold lies and we forgive them. They make empty promises and we give them a pass. They use deception and code language and we roll our eyes. Obama claims that the Chained-CPI isn't really what he wants but he feels he must do it if there is any hope of striking a deal with those darned conservatives.  "I don't believe that all these ideas are optimal, but I'm willing to accept them as part of a compromise," Obama said. Sounds like someone is playing both ends against the middle and refusing to accept responsibility for his own proposal.  He was elected on a platform that pledged to protect and honor seniors, but...  As long as he can romance us with his charm and charisma, who's counting anyway?  

Seniors are counting - and if we leave it up to Washington - they will be counting pennies on the table.  Please contact your local elected official to make your grievances known and say NO to the Chained-CPI.