Salient to Investors:
Obama’s proposal to change the basis for Social Security raises to chained CPI is all about saving money by slowing the growth rate of benefits because chained CPI gives a lower measure of inflation.
From December 1999 through February 2013, the price rise in goods and services used by people aged 62+ is exceeds the rise that chained CPI would have been.
Currently, Social Security benefits are tied to CPI-W – the CPI for urban wage earners and clerical workers, which exceeds chained CPI but is lower than actual inflation for the elderly.
CPI-U is for all urban consumers, or 88 percent of the population, and is the measure widely reported by the media every month as “inflation”, and is used by the government to adjust income tax brackets so people don’t get pushed into higher tax brackets by inflation.
Chained CPI is like CPI-U but takes into account shoppers’ ability to change what they buy in order to take advantage of bargains and avoid items that have risen in price.
Peter Orszag at Citigroup estimates the savings over the next decade of switching to chained CPI to be less than half the CBO estimate.
Monique Morrissey at the Economic Policy Institute said Orszag’s assurances about Social Security should be taken with a grain of salt.
Henry Aaron at Brookings said chained CPI understates the elderly’s cost of living because it does not account for heavy spending on health care, and the gap between chained CPI and current measures could easily widen again. Aaron said the better way to cut Social Security benefits is to selectively reduce benefits for those with comparatively high average earnings, who comprise most of the gains in life expectancy.
Read the full article at http://www.businessweek.com/articles/2013-04-10/why-chained-cpi-rattles-the-elderly-and-soon-to-be#r=rss
Click here to receive free and immediate email alerts of the latest forecasts.