October 21, 2020

Will Inflation Reduce Your Social Security Check

“Ahead of the Aug. 2 deadline to raise the federal debt ceiling, President Obama and GOP House Speaker John Boehner have been meeting privately at the White House to come up with plans to cut the federal deficit by $2 to $4 trillion over the next 10 years, the Associated Press reported July 7. White House officials said that changes in the way that Social Security payments are adjusted could make up $200 billion of those cost savings.

Will Inflation Reduce Your Social Security Check

Despite earlier pledges to leave Social Security untouched, Obama appears willing to compromise by considering a new inflation measure called the chained Consumer Price Index, which shows a lower inflation rate than the traditional CPI.

A chained CPI is a measure of inflation that tries to take into account the adjustments made by consumers as a response to inflation. If, for instance, the price of beef rises, consumers may switch to lower priced poultry. Currently, the CPI used by the federal government measures a fixed basket of goods.

If the reported measure is adopted it would affect not only Social Security but a broad range of government payments. Veteran’s benefits, government pensions and the earned income tax credit are affected by how the government measures inflation.

Opponents of the change claim it just a back door tax increase on the middle class and poor. While the change would not immediately affect Social Security recipients or taxpayers, over time the cuts are significant. Some economists say the chained CPI is annually as much as 0.3% lower than the traditional CPI.

House Democratic leader Nancy Pelosi, and Democratic members in Congress, may be a tough sell for this proposal. Pelosi acted swiftly in denouncing the reported deal.

“”Do not consider Social Security a piggy bank for giving tax cuts to the wealthiest people in our country,”" she said July 7. “”We are not going to balance the budget on the backs of America’s seniors.”"

Obama has said that there will be “”pain involved politically on all sides”" and plans to meet with Pelosi at the White House on July 8.”

More information:

AP News

CPI – Wikipedia

Obama to Meet with Pelosi at White House

United States Federal Budget – Wikipedia

Make the Debt Limit Disappear! – Slate Magazine

Speak Your Mind