Chained CPI: The Newest GOP Trick To Screw The Elderly

Politicians who insist on cutting the deficit have to find ways to cut spending or raise taxes that don’t look like they’re raising taxes. The newest, most popular tactic to this end, is adopting “chained CPI” which is merely a new way to screw the elderly for the benefit of the rich.

And you thought there was no purpose for the Heritage Foundation, or the U.S. chamber of Commerce.

I used to work for an attorney who said, “Perception, especially in law and politics, trumps facts every time.”  He could’ve been the founder of the modern Republican Party and I didn’t even know it.

Nevertheless, I’m constantly dismayed by GOP doctrinaire over pragmatism; especially in the political world of deficit reduction. The only pragmatic means of deficit reduction is by increasing tax revenue (either through higher rates, fewer deductions, or faster growth) or cutting spending. Unfortunately, both of those methods are unpopular and elections are all about popularity, not competency, honesty, good of the people, etc.

Anyway, to get any support for their plans, And Many government programs, particularly Social Security benefits and the income thresholds for tax brackets, are indexed for inflation. But inflation can be measured in lots of ways.

A CPI By Any Other Name

The IRS code uses CPI-U (Consumer Price Index – Urban), which measures prices for consumers in urban areas, to adjust the income cutoffs for different tax brackets. Social Security uses CPI-W, which is like CPI-U but only counts prices paid by urban wage-earners, not all consumers.

Several deficit-reduction plans, including Simpson-Bowles and Rivlin-Domenici would switch all programs using CPI-U or CPI-W to yet a third calculation called C-CPI-U, or chained CPI.

CPI-U and CPI-W, follow the price of a particular category and selection of goods. That selection could include anything.  For instance, let’s use a year’s supply of olive oil. If olive oil costs go up or down, CPI-U and CPI-W include that change in the calculation for the cost of living index.

But suppose people just stopped using olive oil because the price went up.  Say they switch to canola oil, or buy ceramic, non-stick pans so they won’t have to use any oil?  Their actual cooking costs would no longer mimic CPI-U and CPI-W changes. Chained CPI tries to take “substitution effects” such as this into account. Consequently, its number isn’t as volatile as other metrics.

One would think that would be good. One would be wrong if one were a senior on Social Security.

Unfortunately for seniors, that would cause a big cut in Social Security benefits. For instance, let’s assume a person born in 1940 retires with full benefits at age 65 in 2005. According to the Social Security Administration, that would have had an average beginning monthly benefit amount of $1,435 per month, or $17,220 a year. Under the cost-of-living-adjustment formula and 2012 inflation, that benefit amount would be up to $1,986 a month in 2013, or $23,832 a year. But under chained CPI, the amount would be approximately $1,880 a month, or $22,560 a year. That’s a reduction of more than 5 percent, and more as you go further into the future:

The results by using chained CPI for taxes are astounding. The Tax Policy Center calculated the income tax increases that would be caused by a switch to chained CPI. They’re not huge (a little more than $100 a year for most families) but they’re unusually regressive:

The group getting the biggest tax increase is families with taxable income between $30,000 and $40,000 a year. Their increase is almost six times that of millionaires because millionaires are already in the top bracket, so they’re not being pushed into higher marginal rates due to changing bracket thresholds. While a different inflation measure might mean that the cutoff between the 15 percent and 25 percent goes from $35,000 to $30,000, the threshold for the top 35 percent bracket is already low enough that all millionaires are paying it.

The result of chained CPI raises average taxes by about 0.19 percent of income. Altogether, it’s basically a large, across-the-board cut in Social Security benefits paired with a .19 percent income surtax (5 percent over 12 years).

Of course, the public won’t hear the GOP calling for the drastic slashing of Social Security benefits and an across-the-board tax increases that disproportionately hits low earners. But that’s what they’re deceitfully doing when they lobby for a switch to chained CPI.

Yes, The Heritage Foundation and the U.S. Chamber of Commerce spend their time trying to screw the elderly and the poor in ever more clever ways, and the middle-class that supports the GOP is clueless as to how they continue to vote against their own interest as low-information voters. But what truly baffles me why the media doesn’t bring these things to the attention of the public.

Watchdog groups like the Center for Budget and Policy Priorities argue that the only fair way to do chained CPI would be to pair it with an increase in Social Security benefits, and to exempt Supplemental Security Income, which provides support for impoverished elderly, disabled and blind people. Otherwise, it’s just a typical “raise taxes, cut benefits” plan, and a regressive one at that.

But what baffles me even more than an absent media is how voters don’t bother to make the effort to understand how they are being constantly attacked by the GOP. All other civilized countries treat their elderly with respect. Why does the GOP keep trying to find ways to screw ours?

Harvey A. Gold

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