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PhotobucketI think we are all familiar with the possibility of a "Grand Bargain" with the Republicans trading higher taxes on wealthy Americans for reduced social security benefits in the form of using Chained CPI for cost of living adjustments. The concept of Chained CPI is simple. In determining annual cost of living adjustments, the government would assume that people make adjustments so their actual cost of living  increase is a bit less than the official inflation rate. Thus, Chained CPI assumes the "official" inflation rate is overstated.

If the government changes to the Chained CPI model, over the long term it would pay out billions of dollars less in Social Security benefits. The New York Times reported Chained CPI would reduce Social Security benefits by $135 billion over 10 years and even more in future years due to compounding. If people have $135 billion less to spend, does that help or hurt our economy?  You can't reduce Social Security payments by $135 billion without decreasing economic activity.

In writing this diary, I discovered a lot of the media coverage on this issue assumes the substitutions people make will be fairly innocuous and thus wouldn't be a decrease in people's standard of living. In other words, beef goes up 10%, chicken goes up 6%, so people buy more chicken and less beef. In other words, a fairly painless substitution.

The problem is that analysis has a strong upper middle class to upper class bias.

Economist Dean Baker wrote the median income over people over 65 is less than $20,000. Also, about 70% of them rely on Social Security for over half their income. Another 40% rely on it for 90% of their income.

The Chained CPI would result in the following benefit cuts for someone who retires at age 65.

a 3.7 percent cut at age 75;
a 6.5 percent cut at age 85;
and a 9.2 percent cut at 95.
The average social security benefit is $1,153 per month. That means Chained CPI would result in decreased purchasing power of between $43 and $106 a month. Also, if $1153 is the average benefit, there are millions of people who receive less. Many of them will have no or very little other income. The less you earn, the less room you have to reduce expenses so the impact will be even more. This doesn't factor in any Medicare/Medicaid or other budget cuts that might be part of any budget agreement.

There was another blogathon diary today illustrating chained CPI would also reduce the number of people eligible for the EITC plus government programs.

People with low and moderate incomes spend almost all if not all their income on things they need. If they slowly lose purchasing power, they will have to spend less on food, housing, medicine, utilities, transportation, etc. That $43 to $106 a month will really matter to many people.

In the article, Dean Baker also explains the actual inflation rate for people over 62 is higher, not lower than the actual CPI according to the experimental CPI-E index being studied. Thus, Chained CPI would be less accurate, not more accurate:

The Bureau of Labor Statistics (BLS) has constructed an experimental elderly index (CPI-E) which reflects the consumption patterns of people over age 62. This index has shown a rate of inflation that averages 0.2-0.3 percentage points higher than the CPI-W. The main reason for the higher rate of inflation is that the elderly devote a larger share of their income to health care, which has generally risen more rapidly in price than other items. It is also likely that the elderly are less able to substitute between goods, both due to the nature of the items they consume and their limited mobility, so the substitutions assumed in the chained CPI might be especially inappropriate for the elderly population
Why are people so dependent on social security?  Simple. The last 30 years of union busting, free trade, outsourced jobs, decreased health benefits, reduced safety net, inadequate minimum wage, and a whole host of policies that transferred wealth from ordinary people to corporations is people simply don't have the nest eggs they used to. That's another reason I am against a Chained CPI approach.

Also, social security does not contribute to the deficit. All benefits are paid out of the Social Security trust fund. Thus Chained CPI will not reduce the budget deficit.

While Social Security is forecasted to be solvent until 2033, I do understand we need to strengthen it but I do not favor strengthening by reducing people's benefits. I do favor Bernie Sanders proposal to increase the payroll tax cap applying it to incomes over $250,000. This proposal would keep social security solvent for 75 years. I understand people of good faith on Daily Kos have a different view.

Chained CPI is also not a political winner. The AARP reports that 2/3 of voters age 50 and and above are opposed to Chained CPI. Also:

Similarly lopsided margins of older voters believe that Social Security should be "off the table" in the current budget debate. In particular, 84 percent said that they oppose reducing Social Security benefits as a means of reducing the federal budget deficit. The same percentage of older voters said that the future of the retirement security program should be considered separately, and as the graph below shows, political affiliation made barely any difference.
Could this even be a wedge issue used to divide the Republican coalition?

The political right has never liked Social Security. The Republican Party ultimately went along with it because it was too popular so they had to. The Republican Party has found it just as difficult to cut social security as Democrats would find it to increase taxes on the middle class. The GOP would like nothing more than to get whatever social security reductions they can under a Democratic President to try and escape blame for them.

Social Security is also the most effective anti-poverty program ever passed. But we have so much work to do. Note:

Census Bureau data puts the official poverty rate at 15 percent, 46 million people, and at 22 percent for children under 18.  Some have speculated the real number is two to three times that amount.
I've always believed the true poverty rate is 2-3 times the reported amount.

 photo C-CPISenatorWarren.png

I want to share how the Chained CPI and overall budget discussions make me feel. They make me feel very sad. I feel the Republicans have us between a rock and a hard place.
I remember this Greg Sargent editorial, and I thought he made a lot of valid points.

The Republican Party has resorted to gerrymandering, filibusters, and political hostage taking to advance its agenda. If a political party can abuse minority rights, they don't need public opinion on their side to advance their agenda. And the Democratic Party doesn't have any effective way of countering this.

I have read quite a few comments the past month. There are a lot of people who are very scared. I know we don't have a living minimum wage or an adequate safety net. I'd like us to all work together so that someday we will live in a country where nobody has to go without health care, food, or shelter.

In closing, I don't refer to Social Security or Medicare as "entitlement programs." I refer to them as "earned benefit" programs. People pay into these programs, and collect their benefits when due. That's an earned benefit, not an entitlement.

DailyKos Blogathon Monday April 8 through Friday April 12

(All times are Eastern, diaries published by the Pushing back at the Grand Bargain group)
Monday, April 8
10:00 a.m. Roger Fox
12:00 noon eXtina
2:00 p.m. joanneleon (An Yves Smith article republished with permission)
4:00 p.m. Horace Boothroyd III
6:00 p.m. slinkerwink
8:00 p.m. joedemocrat

Tuesday, April 9
10:00 a.m. bobswern (A Michael Hudson article republished with permission)
12:00 noon
2:00 p.m. joe shikspack
4:00 p.m.
6:00 p.m.
8:00 p.m.

Wednesday, April 10
10:00 a.m.
12:00 noon  Words in Action
2:00 p.m.
4:00 p.m.
6:00 p.m.
8:00 p.m.

Thursday, April 11
10:00 a.m.
12:00 noon
2:00 p.m.
4:00 p.m.
6:00 p.m.
8:00 p.m. angleajean

Friday April 12
10:00 a.m. Reserved
12:00 noon Reserved
2:00 p.m. Reserved
4:00 p.m. Reserved
6:00 p.m. Reserved
8:00 p.m. Reserved


1. Call your senators and representatives and tell them "Hell No!" with a priority on contacting senators.  U.S. Capitol Switchboard at (202) 224-3121.  You can find email contact information here

2.  Contact the White House and tell them "Hell No!".  Switchboard: 202-456-1414.  Email contact page is here.

3.  Petitions.  There are a number of petitions available.  Choose from the following or preferably sign them all.

a. White House petition calling for no cuts to Social Security.
b. AFL-CIO petition calling for no cuts to Social Security, Medicare, Medicaid and calling for more jobs, repealing the sequester and ending tax loopholes for the wealthiest individuals and corporations.

4. Social Media.  Share this diary and promote this blogathon on Facebook and Google+ using the buttons at the top of the diary.  Send this out on Twitter and add the hashtags #HellNo and #NoGrandBargain.

Originally posted to Pushing back at the Grand Bargain on Mon Apr 08, 2013 at 05:00 PM PDT.

Also republished by Social Security Defenders.

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