By Al Norman
Just before the New Year, I was invited to listen in on a White House conference call. The briefing was not open to the media — so it will never be in the news. The conference call was with a high-ranking staff person for President Barack Obama. The subject was the fiscal cliff.
I remember that at the end of the call, during Q&A, one person asked: “What can you tell us about the White House position on the Chained CPI?”
The White House spokesman hemmed a little, then started a long-winded answer, which ended with: “We consider this to be a relatively minor adjustment.” But many elder advocates would not agree with that statement.
The “chained Consumer Price Index” is a proposed new way to measure how the annual Social Security Cost of Living Adjustment (COLA) is calculated. It is one of the suggested solutions to the “fiscal cliff” discussion in Congress that surfaced in mid-December — blessed by the White House.
Most Americans have never heard of this obscure proposal, but it will affect millions of seniors. The Chained CPI is a complicated formula that takes into account changes that average consumers make in their purchases of goods in response to changes in both prices and quantities of products. The net effect is that a chained CPI results in a lower Cost Of Living Adjustment com- pared to the CPI formula now in use.
The COLA affects not only Social Security benefits, but federal civilian and military retirement, railroad retirement, Supplemental Security Income (SSI) and veterans’ compensation and pensions. All these beneficiaries would feel the impact of a change in the COLA.
The Social Security Administration estimates that use of the Chained CPI would result in a yearly 0.3 percentage point reduction compared to the current COLA increase. This may not sound like a big cut, but the AARP estimates that “adopting the Chained CPI for Social Security benefits would take $112 billion out of the pockets of current Social Security beneficiaries over the next 10 years. The greatest impact of Chained CPI would fall on the oldest individuals, eventually resulting in a cut of one full month’s benefit annually.
Social Security is the principal source of income for nearly two-thirds of older American households, and one third of those households depend on Social Security for nearly all of their income. Half of those 65 and older have annual incomes below $18,500. The average Social Security retirement benefit today is only $14,800 a year. A Chained CPI cut would push thousands more retirees into poverty.
COLAs currently are determined using a formula based on increases in the Consumer Price Index for Urban Wage Earners — known as the CPI-W. This measurement is considered biased against older people. Since 2002, the federal government has calculated a CPI-Elderly, which uses a market basket of goods purchased more heavily by elders, like medical costs and prescriptions. The elderly CPI is a better measurement of seniors’ true cost of living — but it never has been adopted.
Ironically, this cut in retirement benefits comes at a time when younger workers have been paying less into Social Security due to a payroll tax cut. The White House should never have agreed to a Chained CPI — which hurts millions of current retirees — exactly the people with limited incomes that President Obama said he wanted to protect.
Al Norman is the executive director of Mass Home Care. He can be reached at 978- 502-3794, or at info@masshomecare.org
