#LOLHeritage: Three asinine reasons for the Chained CPI

April 1, 2013 | Alex Stone

Former South Carolina Senator and president of the Heritage Foundation Jim DeMint

Former South Carolina Senator and president of the Heritage Foundation Jim DeMint

The Heritage Foundation, the uber-conservative D.C. thinktank headed by former Senator and Tea Party darling Jim DeMint, is an unashamed opponent of Social Security. Past proposals from Heritage have included raising the retirement age, means-testing benefits, and privatizing the entire Social Security system. Their latest policy recommendation – the Chained CPI – swims in the same pool of ultra-conservative ideology.

While the Heritage Foundation and others bill Chained CPI as a “technical fix”, it’s really just a backdoor cut to Social Security benefits. For seniors, veterans, and millions of other Americans who rely on Social Security benefits, the Chained CPI would result in a 6% benefit cut after 20 years. That’s a lifetime loss of almost $14,000 in earned benefits.

But Heritage authors argue there are three good reasons the Chained CPI is actually good public policy. So let’s examine those reasons, which they outline in a recent post, and see whether they hold water:

  1. Heritage: the Chained CPI “would ensure accuracy.”  Reality: the Chained CPI is even less accurate. The current CPI measure is largely inaccurate for the majority of Social Security recipients because it is based on a Consumer Price Index (CPI) for Urban Wage Earners, which does not reflect costs seniors typically face, such as nursing care, prescription drugs, and health-related expenses. Medical inflation has far outpaced inflation in other parts of the economy like with food, clothes, and cars. If Heritage really wanted a more accurate inflationary index for Social Security, they would be advocating for a switch to the CPI- Elderly, an experimental inflation index that is a much more accurate measure of costs faced by seniors.  Of course, using the CPI-Elderly would likely increase benefits while the Chained CPI would cut them. And improving benefits is an untenable position for an organization ideologically opposed to Social Security.
  2. Heritage: the Chained CPI “would avoid benefits cuts later… by saving money.” Reality: the Chained CPI starts cutting benefits immediately, and those cuts get worse over time. Heritage is careful never to call the Chained CPI a “cut” or a “decrease” in benefits. Instead they write convoluted statements like “payments would increase by 0.3 percent less”. While it’s a great example of policy wonk doublespeak, at the end of the day it still means that under Chained CPI, an average retiree today will lose nearly $14,000 in benefits over 20 years.
  3. Heritage: the Chained CPI “would save Social Security billions.” Reality: Any “savings” would come directly out of checks for the beneficiaries who paid for them in the first place. Here you can clearly see the disconnect here between the very comfortably affluent types working at Heritage and a senior who is living on $1,200 a month in Social Security benefits. Social Security’s administrative costs are around 1%, so any so-called “savings” to the program would have to come directly out of the checks of beneficiaries.While it’s true that Social Security does has a projected long-term actuarial shortfall, there are a variety of options for bringing it into balance, including scrapping the cap on taxable earnings ($113,700 in 2013) – an option supported by 71% of Americans. But eliminating the tax cap on earnings would mean ultra-rich Americans would begin to pay the same Social Security tax rate as regular working class Americans. And that’s a big no-no for a conservative thinktank funded by those same ultra-rich Americans.

Social Security is the bedrock of our American retirement system. So don’t be fooled by empty promises from organizations like the Heritage Foundation, where ideology trumps arithmetic, and whose long-term agenda is to weaken and diminish – and ultimately privatize and dismantle – Social Security.

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Posted in Retirement Security, Social Security

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