October 9, 2013

As I've been predicting, talk of the chained CPI is rising again as part of a budget deal, according to the National Review's Robert Costa. Remember, the chained CPI also means a major tax hike on the working poor! Michael Hiltzik of the LA Times:

The chained CPI has risen to walk among us again in the muttering and jawboning around the government shutdown/debt limit standoff and the search for an exit. We're hearing again about a "grand bargain" on the government deficit -- never mind that the deficit is falling, not rising -- that would trade, say, cuts in Social Security and Medicare and some kind of tax reform for an end to the government shutdown and an increase in the debt limit.

In other words, the average person gets a kick in the slats, and the politicians in Washington get to deliver it. That's some bargain.

Call the White House switchboard at 202-456-1414 and tell them: Hands off Social Security and Medicare. No chained CPI!

A few things to remember about the chained CPI, which I've written about herehere, and here. (If you're going to kill a zombie, you have to keep coming at it.)

First, its vaunted accuracy is a myth. An index like the CPI can't be judged more or less accurate, because it measures only what it's defined to measure. Does the market basket measured by the CPI accurately define what people spend money on? Yes, if they spend money on what's in the basket. And we know that retirees don't spend money the same way as young or middle-aged families; they spend disproportionately more on healthcare and housing.

The agency that produces the inflation index recognized that elderly consumers are a special case bydeveloping an experimental index, known as the CPI-E, for those 62 and older.

What really makes the chained CPI  attractive to budget cutters is that it consistently comes in lower than the traditional CPI. For retirees, the gap builds over time; after 30 years, benefits would be 10% lower than under the traditional CPI. The CPI-E, however, rises slightly faster than the traditional index. That's why you never hear pundits praising it for its "accuracy."

The chained CPI also involves another nasty shock for average Americans. For the sake of fairness, using it as the Social Security cost of living measure would mean using it for other government calculations indexed to inflation, such as income tax brackets.

What would that mean? Well, according to the Tax Policy Center, it would hit low-income taxpayers especially hardSomeone earning $30,000 to $40,000 would get whacked three times as hard, measured by the tax increase as a share of total income, as someone earning more than $1 million.

Social Security advocates have always considered President Obama to be a little squishy when it comes to resisting Republican efforts to cut Social Security and Medicare and hit the middle class with higher taxes. Thus far, Democrats in Congress have held the line.

But every crisis brings yet another effort to preserve the prerogatives of the wealthy and take the cost out of middle- and working-class hides. On this occasion, when the costs of the shutdown have fallen on Head Start children, medical patients and middle-class workers, to slice away another portion of their safety net would be a truly unspeakable act.

Call the White House switchboard at 202-456-1414 and tell them: Hands off Social Security and Medicare.

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Call your senator or congressperson.

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