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Another chained CPI skirmish

By Jennie L. Phipps · Bankrate.com
Thursday, October 3, 2013
Posted: 8 am ET

In the wake of the federal budget shutdown and ensuing debate, opponents of the chained Consumer Price Index, or chained CPI, have marshaled their forces in an effort to prevent adoption of that alternative inflation index as part of any budget compromise.

The chained CPI is regarded by supporters as a more accurate way of setting the annual inflation increases for Social Security as well as other federal and state programs affected by the cost of living calculation. That includes veteran's benefits, Medicare, Medicaid, Social Security Disability Insurance, Supplemental Security Income and other programs. A lower CPI index calculation would reduce the growth of spending in all these programs. It also would push more income into higher tax brackets, making more people subject to higher taxes. The net result is more money in government coffers.

Opponents of the chained CPI often say flatly that a lower inflation index would hurt retirees, but people living on retirement income that is not adjusted for inflation, like pensions, annuities and calculated payouts from savings, tend to benefit from anything that holds down inflation. Low inflation is a friend to smart retirement planning.

The National Committee to Preserve Social Security and Medicare Foundation held a press conference yesterday morning to provide data from a report by the Center for Economic and Policy Research. The report included elaborate calculations, mostly extrapolated from data provided by the nonpartisan Congressional Budget Office. The report concluded that switching to the chained CPI would cut the inflation index by an estimated one-quarter of a percentage point a year. It calculated this would lead to a reduction in the growth of Social Security benefits of $1.6 billion in 2015, $14.5 billion in 2020, and $23 billion in 2023. Dean Baker, co-director of the Center for Economic and Policy Research, says that means the average Social Security recipient who is 65 in 2014 could get $1,400 a year less at age 90 than she would have gotten if the government continued to rely on the current CPI calculation.

This is all pretty iffy stuff. Who knows what inflation will be in 27 years? The good thing about the chained CPI is that it controls the rising growth in the cost of a range of government payouts. Everybody is affected, but nobody takes a big direct hit. The Obama administration budget -- and every other proposal suggesting adoption of the chained CPI -- includes provisions that would reduce any impact on the very poor.

In yesterday morning's press conference, one of the speakers, U.S. Rep. Ted Deutch (D-Fla.), said, "If you buy into this proposal you are telling seniors to clip more coupons and turn the heat down."

All things considered, as a senior myself, I don't think that's so bad. What do you think?

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