This pretty much echos (in much more detail) my post from a few days ago…
President Obama may be using the chained CPI as a gambit to get political leverage against Republicans for 2014 and beyond, even if he doesn’t realize it. Despite that, many people, particularly those on the left, are upset with President Obama’s decision to tie Social Security to a chained consumer price index (CPI), because it amounts to a cut in Social Security payments overall.
However, while the chained CPI is in his budget proposal, so are increased revenues from closing tax loopholes, something GOP leaders have been adamantly opposed to ever since the fiscal cliff.
Social Security payments are currently tied into the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W), which means that payments increase as the CPI-W. According to theWashington Post, the CPI-W does not reflect the substitutions the average consumer makes for products and services as prices on those things increase. A chained CPI does, and thus, increases at a lower rate.
The reason changing the way Social Security payments are calculated to a chained CPI is so maddening, and why it reduces payments, is because it assumes that inflation isn’t actually happening as fast as the CPI-W says it is. So Social Security payments could eventually fall far enough behind cost of living that people would be unable to make any ends meet on Social Security. Furthermore, it’s possible that calculations regarding rising cost of living could just as easily be underestimating those increases, rather than overestimating. If this is the case, a chained CPI would be even worse for people on Social Security.
The concept has been batted around since the fiscal cliff debacle, when members of the GOP said that this type of action on the so-called “entitlements” could get them interested in revenue increases. At the time, it sounded like some halfway decent compromise might be possible, but now, the GOP has pulled back, with Mitch McConnell (R-KY) saying these reforms “are modest,” and John Boehner (R-OH) repeating his familiar refrain of no more revenue.
The Daily Beast discusses a twist in this, which is the way the chained CPI is a political gambit for Obama. He reaches out with cuts in Social Security, which the Democrats don’t want, and insists on new revenue as part of the deal. Republican leaders follow Boehner and others, refuse the revenue, and Obama gets to say, “I tried, but they won’t work with me.”
Author Michael Tomasky believes that Obama has a genuine belief that the GOP will eventually come around on revenue increases and put forth a real effort to compromise on deficit reduction, however, he also thinks that what will actually happen is the above, simply because the GOP keeps saying, over and over, that Obama got his revenue in the fiscal cliff deal, and therefore we are done with that and all there is left to discuss is spending cuts.
Tomasky is likely correct in his prediction. Another part of the chained CPI concept deals with tax brackets; the CPI-U, which is what is actually reported as “inflation,” is what the government uses to adjust tax brackets so that people don’t get pushed into higher tax brackets merely because of inflation. Under the chained CPI, the tax brackets would change more slowly, and the phenomenon known as “bracket creep” could become more common.
Grover Norquist, of Americans for Tax Reform and the Taxpayer Protection Pledge fame, calls this a tax increase, and he’s right. It would result in a tax increase on Americans over time, but more quickly than the current system.
“Bracket creep” is only part of the revenue in Obama’s budget; he still wants to close loopholes and reduce deductions for the highest income earners, something that the GOP is, and has been, adamantly against for practically forever. When these are paired with the tax increases the chained CPI represents, it does seem less likely that enough will favor Obama’s budget proposal to get it through.
The Washington Post article quotes the president as saying, “If you’re serious about deficit reduction, then there’s no excuse to keep these loopholes open.” But the GOP won’t accept closing loopholes, they won’t accept eliminating deductions, and they pretty much won’t accept anything that means increased revenue anymore, unless that revenue goes to pay for more tax cuts.
With Democrats strongly opposed to a chained CPI, and Republicans strongly opposed to more tax increases through closing loopholes and eliminating deductions for high-income earners, it’s not especially likely that his budget proposal will pass. But Tomasky’s prediction remains the likeliest: Obama’s offering an olive branch, trying to find middle ground, and GOP leaders are still balking because of the tax increases. His budget won’t go through, and not only will we not see a chained CPI, but he’ll get to point at Republicans as the stubborn ones behaving in their obstructionist manner, since he’s going against his party’s wishes to find some way to make something happen.
- How ‘Chained CPI’ Will Hit Your Pocketbook (dailyfinance.com)
- Republicans move the budget goal posts again (kstreet607.com)
- Late Night: Chain of Fools (skydancingblog.com)
- A ‘Chained CPI’ Rattles the Elderly (and Soon to Be) (businessweek.com)
- Chained CPI Could Cut Social Security Increase Benefits (krextv.com)
- Chained CPI Is Very Unpopular With Dems and Republicans (crooksandliars.com)