(Washington, DC) – Higher taxes — lower benefits — more complexity. A new, more slowly growing consumer price index (CPI), known as the chained CPI, promises the worst of all worlds for tens of millions retirees, disabled and other Americans with the lowest incomes, according to a new report from The Senior Citizens League. “It’s hard to imagine a consumer price index (CPI) that would provide even less generous cost-of-living adjustments (COLAs) than we’ve already seen over the past nine years,” says Mary Johnson, a Social Security policy analyst and author of the new report. “But our government has one and it’s the chained CPI,” Johnson says.
Had the government adopted the chained CPI to adjust benefits since it first was launched in 2001, Social Security benefits would be about 5 percent lower today, according to the new report. Average benefits would be about $57 per month lower and total benefit income would be about $6,148 lower over the period. Assuming Congress had adopted the chained CPI to calculate the COLA starting in 2017 (which it has not yet done), average benefits would be about $174 a month lower at the end of a typical 30-year retirement period, the report says.
The CPI is used not only to adjust Social Security benefits, but benefits for many other federal programs, including military and federal worker retirement programs. It’s also used to set the income thresholds that determine eligibility for safety net programs that include food stamps, Medicare Savings Programs and Medicaid. Finally, the CPI is used to adjust the tax code, including tax brackets and the standard deduction. A more slowly growing index would mean lower benefit growth, and fewer people would qualify for benefits like food stamps and Medicaid. Meanwhile, because the recently enacted law adjusts the tax code using the chained CPI, more people will pay higher taxes.
The Congressional Budget Office has estimated that using the chained CPI to index Social Security and other federal programs would reduce federal spending by $182 billion through 2026. It will also increase the amount people pay in taxes as tax brackets and the standard deduction grow more slowly in coming years. Switching to the chained CPI to index Social Security and other federal benefits has been a central feature of most deficit reductions talks for almost a decade. “Now that Congress has used the chained CPI to index the tax brackets and standard deduction, that the chances are higher that chaining the COLA could be next,” Johnson says.
Even before the tax reform bill was signed into law, a number of Congressional conservatives announced that “entitlement spending,” including Social Security, Medicare and Medicaid, need to be reduced. More recently, the Congressional Budget Office warned that the recently enacted tax cut is already resulting in lower revenues and that the federal debt limit will need to be raised sooner than expected.
Using the chained CPI for indexing purposes would be problematic, says the report. Unlike the traditional CPI in which the final data are available when released, chained CPI data are subject to multiple revisions, with final data posted 10 to 16 months after the initial release. Using the initial data to index the COLA would subject benefit adjustments to estimation error. According to the Congressional Budget Office, initial values of the chained CPI have generally been lower than final values. “This is likely to result in deeper benefit reductions than final data would justify,” Johnson explains.
The Senior Citizens League is opposed to the adoption of the chained CPI and supports using the Consumer Price Index for the Elderly (CPI-E) to index Social Security benefits for inflation, as well as the enactment of a minimum COLA guarantee. The Senior Citizens League is seeking input from the public on this issue. To participate in a survey about Social Security and Medicare, visit our survey page at www.SeniorsLeague.org and Take Action.
With 1.2 million supporters, The Senior Citizens League is one of the nation’s largest nonpartisan seniors groups. Its mission is to promote and assist members and supporters, to educate and alert senior citizens about their rights and freedoms as U.S. Citizens, and to protect and defend the benefits senior citizens have earned and paid for. The Senior Citizens League is a proud affiliate of The Retired Enlisted Association. Visit www.SeniorsLeague.org for more information.