Wednesday, December 19, 2012

SOAR Opposes Chained CPI

Anyone watching the news or reading the newspapers about our nation’s debt ceiling has heard the term chained CPI.  But what does it mean and how does it affect us?  The Consumer Price Index (CPI) measures the average change over time in the prices paid by urban consumers for a representative market basket of consumer goods and services. The Bureau of Labor Statistics publishes the measures of price change for population groups on an annual basis.

The proposal to move to a “chained” Consumer Price Index (CPI) for making cost-of-living adjustments (COLAs) to Social Security benefits and indexing income tax will reduce benefits for current and future retirees, while increasing their taxes.

Automatic COLAs for Social Security benefits were enacted in the 1970's, to offset the Social Security beneficiary's additional expenses from one year to the next resulting from inflation.

Replacing the current system with the chained-CPI-U for purposes of calculating the Social Security COLA will reduce benefits for current and future beneficiaries. The chained-CPI-U produces lower estimates of inflation than the current CPI does. The Chief Actuary of the Social Security Administration estimates that this reduced COLA would result in a decrease of about $130 per year (0.9 percent) in benefits for a typical 65 year-old. By the time a senior reaches 95, the annual benefit cut will be almost $1400, a 9.2 percent reduction from currently scheduled benefits.

The growing effect of these reductions means that the lop-sided impact will be felt by Social Security's oldest beneficiaries. These are often women who have outlived their other sources of income, and rely on Social Security as their only lifeline to financial stability. Younger beneficiaries, who have sources of income other than Social Security, may find themselves hit from another direction as well - increased taxes.

A recent report, prepared for Congress, states that these increases would fall mainly on lower and middle-income taxpayers. For example, the tax liability for those with incomes between $10,000 and $20,000 would increase by 14.5 percent, and 3.5 percent for incomes between $20,000 and $30,000, while those with incomes of $1 million and above would see an increase of only 0.1 percent.

SOAR opposes use of the chained CPI-U for calculating Social Security COLAs. This is a benefit cut for current and future beneficiaries.  Any discussion of Social Security should be off the table in debt reduction discussions. Social Security did not cause the nation's debt problems and Social Security beneficiaries, who worked all of their lives and paid into the system, should not be expected to pay for the nation's fiscal mistakes.

There is no question that the nation's debt problem must be addressed, but Social Security beneficiaries should not be asked to bear the burden of solving this problem when Social Security, with its self-financing framework, has not contributed to this situation.

Connie Entrekin, SOAR President

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