State of the chained CPI

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In Monday’s press briefing prior to Tuesday night’s State of the Union message from President Barack Obama, press secretary Jay Carney answered a series of questions from a reporter about where the administration stood on benefit cuts to Medicare and Social Security, hot retirement planning issues.

Carney said that while Obama is “willing to make tough choices with regard to entitlement reform,” raising the age of Medicare eligibility isn’t among the options he would support.

Then the reporter asked, “What about reducing the annual cost of living increases for Social Security recipients?”

Carney said yes to that question, but with caveats.

(Obama) would consider that the hard choice that includes the so-called chained (consumer price index). In fact, he put that on the table in his proposal, but not in a cherry-picked or piecemeal way. That’s got to be part of a comprehensive package that asks that the burden be shared; so we don’t … ask seniors to bear the burden of further deficit reduction alone. … That’s just not fair and it doesn’t make economic sense — because the choice would be … let’s do that, put the burden on seniors alone, but not close loopholes in our tax code that are available to wealthy individuals or corporations, but not to average folks or small businesses. And that doesn’t make any sense.

The chained CPI is controversial. Retirement organizations such as the AARP oppose it, but it is a way to ask everyone to give a little because it lowers the way Social Security as well as federal retirement plan cost-of-living adjustments are calculated. The reduction isn’t huge — about 0.3 percent according to estimates by the Social Security Administration. For instance, this year’s COLA was 1.7 percent. If the chained CPI were used to calculate it, it would probably have been 1.4 percent.

What do you think? Is changing the COLA calculation an acceptable way to manage the rising cost of Social Security?