Obama’s Christmas present to seniors

POSTED BY ORHAN

America’s topple from the fiscal cliff will be triggered by the Budget Control Act of 2011, which was sparked by the debt ceiling debate of the same year. Now, as part of the fiscal cliff negotiations, President Obama has agreed to cut Social Security by switching to something called Chained CPI to figure the amount in your Social Security check.

I checked the Social Security website trying understand the impact of the switch, and pulled a few facts. Turns out the Bureau of Labor Statistics employs several different CPI measurements:

  • Consumer Price Index for All Urban Consumers (CPI-U)
  • Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W)
  • Chained Consumer Price Index for All Urban Consumers (C-CPI-U)
  • An experimental data series, the CPI-E, to measure the “inflation experience” of those aged 62 or older

This chart from the site shows how the different CPIs measure inflation over time. Chained CPI calculations result in a lower inflation rate number:

CPI chart - SSA.gov

No calculation method is (or can be) completely accurate, but seniors are more likely to experience inflation patterns closer to the CPI-E, although the CPI-E may be less accurate because the population test bed is smaller. Inflation measured by the CPI-E is higher, due to seniors’ higher medical costs, which rise faster than other costs.

Inflation measured by the C-CPI-U is lower, due to the “substitution factor” caused by rising prices on some goods. For example, if the cost of chicken goes up, one would tend to substitute some lower priced meat like bologna.* (Some politicians have suggested that because of this, your Social Security check has really been too fat all these years.)

Cost of living adjustments (COLAs – the increase one sees in one’s SS check every few years) are currently based on the CPI-U and CPI-W.

Obama proposes switching to the C-CPI-U to calculate COLAs even though seniors need more than the CPI-U and CPI-W to keep up with inflation, not less. Why the switch? No other reason than C-CPI-U will pay less over time than the current method. Assertions that C-CPI-U is more “accurate”, or it’s just a “tweak” to the calculation, or “if enacted, nobody would notice the difference”, are ludicrous. Over a long retirement, Chained CPI would result in a month’s loss of benefits yearly, or about 8.3%. That’s a hefty cut.

*If the cost of bologna rises too much, I understand Kibbles ‘n Bits Bistro Meals have been found to be quite edible.

13 responses to “Obama’s Christmas present to seniors

  1. You’re getting yourself all worked up over nothing, Obama only tossed this out knowing full well the repugs would never be able to agree to something, this was all about PR.

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    • Obama just floated this for PR purposes? What kind of PR was he going for? Good PR? That would strengthen his standing with his base and leverage some of the political capital he accumulated in the election? Well I really, really hope you’re right and this disappears from the table fast.

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    • Look who’s stopped by! Nice to see you Brian.

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  2. Brian is right.

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  3. That Obama…he’s such a socialist.

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  4. Repugs play checkers, Obama plays chess.

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  5. ojmo is certainly right that a chained CPI cut of 8.3% is a significant hit. On the other hand, what if the government decided to cater to the public delusion that retirees’ benefits were simply a repayment of their average contributions over their working years and base future payouts on that floating number? Trust me, that would be a much heavier hit and would leave the Boomers circling the drain. I guess my point is that, thanks to the anti-socialism demagoguery from the right, it’s all on the table as we approach the cliff. Or curb. Or slope.

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