Social Security Cuts: Chained CPI is Obama's Grand Compromise


Social Security was created as a way to protect the well-being of retired American citizens. Currently, new changes are being proposed that may upset the spirit behind the Social Security Act of 1935, but these changes are only brought up as a means to fix a much larger problem:; the national debt.

The only reason President Obama is proposing chained CPI, an idea that was mentioned by Republicans in 2011 during the debt ceiling debate, is because it is a part of his much larger plan, the grand compromise to attain the $4+ trillion grand bargain. The President hopes to include chained CPI in a way to reduce the national debt in an intelligent and balanced way. There are two conditions Obama set in order for him to support chained CPI:.

- The change is part of a balanced deficit reduction package that includes substantial revenue raised through tax reform.

- It is coupled with measures to protect the vulnerable and avoid increasing poverty and hardship.

Throughout its history, Social Security has changed for the betterment of those the Act was meant to protect. According to the Social Security Administration's website, Social Security began as a government-sponsored retirement program, paid for by deductions from employee income. Benefits such as for the spouse and children, disability benefits, and even cost of living adjustments came later on.

It is this cost of living adjustment debate that is currently being debated in Congress and the White House. Chained CPI is seriously being considered as a new way to account for these adjustments.

In terms of Social Security, there was no cost of living adjustment for the first 15 years. It took two more decades to make the benefit increases automatic. Imagine what it would have been like if this never happened?

This debate has generally been characterized through politically opposite ideologies.

A major distinction between progressives and conservatives is their opposing interpretations of laws. This can clearly be seen in recent Supreme Court cases where there are those justices who believe in a strict interpretation of the U.S. Constitution and others who believe that laws require a fresh interpretation in light of changing times.

America is now in a transition where it must deal with nearly insurmountable national debt and protecting the well-being of not only current retirees, but future generations as well. The political malaise in Washington does not appear to be providing a clear vision of what the future will look like for these millennials.

Now, President Obama is proposing the radical notion, at least in the eyes of his most liberal supporters, of chained CPI. Chained CPI is a different view on how to calculate benefit increases.

In an NPR interview with Robert Greenstein, president of the Center on Budget and Policy Priorities, Mr. Greenstein explained what the difference between chained CPI and traditional CPI:

"The regular CPI measures the costs each month of a market basket of items that average Americans may purchase each month and so it tells us how much prices are rising, what the inflation rate is. The chained CPI is identical, really, to the regular CPI in all respects except one. It includes an adjustment so that if, for example, beef prices rise much faster than chicken prices, and consumers, as a result, buy less beef and more chicken, it picks up the switching from the beef to the chicken, which makes their total costs for the month rise a little less quickly than if you assumed they continued to buy the same amount of beef and the same amount of chicken as before."

That interview was recorded in July 2011 as the fiscally-oriented Gang of Six was attempting to solve the issue of the ever-looming debt ceiling increase. For the concept to be put on the table again in budget talks by a Democratic president makes one think that there is a lot more behind the story.

Since chained CPI rises slower than traditional CPI and, if enacted as the next measure of SSA benefit increases among other uses, will result in the cost savings that Republicans have been hoping for. It will enable the Social Security trust fund to remain solvent longer, while paying beneficiaries less.

How much less? Chained CPI is estimated to be .25% lower than standard CPI. If a beneficiary was receiving $10,000 a year, under current law and assuming inflation was 3%, that beneficiary would receive $10,300. In chained CPI, they would receive a 2.75% increase and receive $10,275. Through compounding year over year and taking into account the rising number of retirees, that $25 quickly adds up.

President Obama is compromising as much as he could with Republicans who are willing to listen. The hope is that that will result in enough Republicans going along with the President's other budget ideas, such as revenue increases in infrastructure spending.

Chained CPI is not the whole story, but it is the most controversial component. If nothing is done, the current fiscal situation will continue to plague the country and the presidency. At least the president is making an effort to find solutions through compromise, even if it means upsetting some of the people who voted for him.