By Mary Johnson, Editor
Are you following the debate over the debt limit? Congress recently agreed to keep its hands off Social Security and Medicare. But it would be premature — even dangerous for your benefits — to get too comfortable with the notion that Social Security or Medicare benefits are “off the table.”
In politics, nothing is ever completely off the table. All too often it just gets called something else.
In the late 1990s, for example, lawmakers working to reduce budget deficits managed to keep their hands off Social Security and still significantly reduce the cost-of-living adjustments (COLAs). This feat was accomplished not by passing any law which reduced the COLA, but by prodding the U.S. Bureau of Labor Statistics (BLS) into changing the way our government measures inflation.
A series of changes to the methodology used by the BLS to calculate the consumer price index were recommended by the 1996 “Cost of Living” Commission, chaired by economist Michael Boskin. At the time, the commission made the controversial finding that the CPI overstated inflation by 1.1% and in its report discussed the implications for the government due to “over-indexing” (and thus overpaying) those who received Social Security and other COLA adjusted benefits. The recommendations of the Commission were, for the most part, adopted and implemented by the economists at the BLS, with most becoming effective by the end of 1999.
The changes made to the CPI methodology during this time tended to show inflation as growing more slowly than under earlier methods. Since 2000, this led to more slowly - growing Social Security COLAs and a significant 36% drop in Social Security buying power since those changes became effective in 2000.
We need to stay vigilant that this back-door approach to reducing Social Security benefits isn’t put into play again as budget negotiators struggle to reach a budget agreement to lift the U.S. debt limit by the deadline. That deadline could come as early as June according to Treasury Secretary Janet Yellen.
The threat is still there. To assist budget negotiators, the Congressional Budget Office last December issued two volumes of budget options that this Congress might consider for reducing the deficit. One option which has formed a key feature of virtually every plan for cutting the growth of Social Security benefits over the past 22 years is to use an “Alternative Measure of Inflation to Index Social Security and Other Mandatory Programs.” That measure is known as the “chained” CPI, which would cut the growth in Social Security benefits over the next ten years by an estimated $175.2 billion.
The proposal saves far greater amounts ($256.6 billion) should Congress use the chained CPI to index other programs such as SNAP (food stamps), Medicaid, and other benefit programs linked to federal poverty guidelines which are adjusted for inflation. Such a change would tend to make it harder to qualify for low-income assistance in the future because income and asset restrictions would grow more slowly.
The chained CPI is already used to index federal tax brackets and standard deductions. That tends to slow the growth in both, and it means that when incomes increase, such as they have for Social Security recipients in 2022 and 2023, taxpayers get bumped into higher tax brackets and pay more in taxes.
TSCL is carefully monitoring legislation and proposals for Social Security Reform that would mandate this sort of back-door COLA cut. Many retirees tell us they want stronger protection from inflation for their Social Security benefits, not weaker — and support tying the annual inflation adjustment to a CPI that better measures senior costs.
Letter to The Honorable Keven McCarthy, Speaker, U.S. House of Representatives, Janet Yellen, Secretary of the Treasury. Options For Reducing The Deficit, 2023-2032 — Volume II: Smaller Reductions, Congressional Budget Office, December 2022.