The New York Times gets it right on Social Security

January 14, 2013 | Alex Stone

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Under the Chained CPI, Social Security benefits would be cut by 9% over 30 years.

This Saturday, the New York Times editorial board took a hard look at a recently proposed cut to Social Security: using a “chained” CPI (Consumer Price Index) to calculate cost-of-living adjustments. What’s the chained CPI – and why does it matter? Dean Baker at CEPR explains it best:

It’s not worth going into the details (the people proposing it don’t care, why should you?), but the point is that the chained CPI would reduce the annual adjustment by 0.3 percentage points.

In other words, after 10 years, the chained CPI would reduce a retiree’s benefit by 3%; over 20 years, by 6%, and over 30 years by 9%. Advocates of the idea – including Republicans who originally proposed the idea, some members of the Obama administration, and a number of economists – argue the chained CPI is a better measure of inflation. But that is not the case for Social Security. As the NYT editors point out:

…that claim does not stand up to scrutiny. The chained index is in many ways a better method of tracking price changes for the broad working population, but there is no compelling evidence that it is better for computing the Social Security COLA.

Seniors have far different purchasing patterns than what even the current CPI assumes, let alone the “chained” version. The typical urban consumer spends a lot of money on cars, cell phones, and clothes – goods which have seen little inflation over the last decade. But seniors, who spend more heavily on health insurance, hospitals, prescription drugs, and nursing care, are struggling to keep up with steep inflationary increases in health care.

Switching to the Chained CPI would not account for higher senior spending on health care items, but it would cut their benefit because it assumes they’re spending on clothes, cell phones, and and cars. Supporters call it a CPI fix, but many others, including the Times’ editors, figure that just means the fix is in:

The fact that some policy makers are willing, even eager, to move ahead with changing the COLA without having developed a more reliable gauge only feeds the impression that they are trying to get away with an unjustified benefit cut.

The CPI currently used for Social Security cost-of-living adjustments is already a poor match for the actual costs most seniors face in the market. Adopting the chained CPI – without dealing with that problem – is a backdoor benefit cut for the Americans who can least afford it.

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Posted in Retirement Security, Social Security

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