June 25, 2021

Social Security Cuts Possible in Budget Deficit Deal

“In a move that could anger both Republicans and Democrats, President Obama is considering changing the way inflation is measured. This would involve cutting Social Security by $112 billion over 10 years, cutting pension payments and veterans’ disability payments by $24 billion, and raising taxes by $60 billion.

Social Security Cuts Possible in Budget Deficit Deal

Inflation is currently gauged using a consumer price index in order to determine annual cost of living changes for Americans. The alternative would be to use a ‘chained consumer price index’. Advocates favoring a change say that the current method of measuring inflation overstates the speed with which prices rise.

Opponents, such as Representative Xavier Becerra think that the chained CPI is a negotiating tactic on Obama’s part. “”He has tried many ways to get out Republican colleagues to come to some middle ground and hasn’t succeeded. I suspect he’s saying, ‘Look, I’ll put everything on the table, let’s see what sticks.’”"

Senator Tom Coburn, R-Oklahoma, and one of the ‘Gang of Six’ who have worked to put together a long term debt plan, said “”There hasn’t been any economist anywhere that says we shouldn’t do that. We need a CPI [Consumer Price Index] that truly reflects what’s happening in the economy, not what’s good for politicians.”"

This idea was initially discussed by the Gang of Six and Vice President Joe Biden, in a series of meetings. It was brought back up on July 6th, when Treasury Secretary Timothy Geitner met with House Democrats. When pressed on the subject by Democrats, Geithner didn’t dismiss it.

In a meeting on July 7th between President Obama and congressional leaders, they tried to come to an agreement over a deficit-reduction plan. This is needed to help pass the debt-limit increase by the deadline of August 2nd.

Although he described the meeting as “”constructive”" and “”frank”", Obama pointed out that they are still “”far apart on a wide range of issues.”"

Some Democrats view the ‘chainsaw CPI’ as a cut in Social Security benefits, reducing projected spending by 1.2 percent. Representative Jan Schakowsky, D-Illinois, pointed out that seniors already face increased cost of living due to medical care.

“”Seniors get the double whammy – higher health care costs and deeper benefit cuts,”" she said.

Senator John Thune, R-South Dakota, supports applying the chained CPI to benefit programs but not taxes. “”That would be a license to steal for the federal government if you just locked in tax increases every year based on what some index is,”" he said.

Inflation is a rise in the cost of goods and services. It is measured by surveying what people buy and where they shop. Every month, price collectors in 87 cities record prices of various products, and use this information to calculate what the typical family buys each month.

This methodology is considered flawed by economists, due to the fact that it doesn’t account for individuals and their response to increasing prices. An overestimate of inflation can lead to a cost of living increase for beneficiaries of Social Security, veterans and federal retirees. Other people affected are people who qualify for food stamps and other aid, due to the fact that eligibility for these programs is tied to federal poverty guidelines.

Marc Goldwein, the former associate director of the administration’s deficit commission summed it up this way. “”It’s a no-brainer. We’re measure inflation wrong now and it’s obvious we should measure it right – especially if it’s going to reduce the deficit.”"”

Bloomberg

In Debt Talks, Obama Offers Social Security Cuts

Obama Urges Dems To Accept Changes To Medicare, Social Security

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