Whether it's the Boehner plan or the Reid plan or who knows what plan, Social Security "reform" is all the rage. The immediate reform that appears to be in everyone's deck is the chained CPI, a new formula for the consumer price index on which cost of living adjustments will be based. The chained CPI is predicated on a "substitution effect," taking into account how consumers react to rising prices—if the cost of one thing goes up, consumers respond by substituting something cheaper. So it really is in keeping with the Catfood Commission. When seniors can't afford to buy chicken, beef, or pork, it'll be Friskies.
But it's not just seniors (or veterans) who would be hurt by this new formula. That's because it would also be used to determine tax brackets, and just guess who will get hit hardest [pdf] when it comes to taxes:
- The chained CPI would raise taxes on all middle class families—while leaving millionaires and billionaires virtually untouched. The Tax Policy Center found that by 2021, households with incomes of about $137,216 or less, which make up the bottom 80% in the income scale, would see their average tax rates go up more than households with incomes of $137,217 or more, which make up the top 20% of the income scale (0.2% vs. 0.1%). Worse, the top 0.1% would see virtually no change in their average federal tax rate. [See Figure 1 below.]
- The chained CPI would raise taxes on the middle class at a time when progressivity in the tax code is at its lowest point in decades. We should be thinking about ways to shift the tax burden back on to people who can most afford to pay, not how to collect more taxes from the middle class.
This information is based, in part, on the Tax Policy Center's report, "Tax Parameters Indexed with Chained CPI, Current Policy." Based on that, the analysts at the Strengthen Social Security coalition conclude:
Application of the Chained CPI will increase taxes over time for low and moderate income taxpayers in at least three meaningful ways. Tax bracket thresholds will grow more slowly, so low and moderate income taxpayers will more quickly have earnings that put them into higher tax brackets; growth in the standard deductions (more frequently used by low and moderate income households) would grow more slowly; and Earned Income Tax Credit (EITC) and Children’s Tax Credit (CTC) eligibility thresholds will rise more slowly, more quickly disqualifying lower-income households from these benefits.
Of course, because having a middle class in this country is overrated.