Rep. Peter DeFazio (D-OR) really thinks the idea of a chained CPI for Social Security is a disastrous one, and does a good job of explaining why.
[Starting at 0:45] What is a chained CPI? Well, the pointy heads like Mr. Furman who work for President Obama say "we're [...] overstating inflation with the way we adjust, so there's something called 'substitution effect,' so when prices of things go up, you buy something cheaper so that means there isn't inflation."
Well, no. Wait a minute. The think you used to buy is more expensive so you're buying something else. In the pointy head economics world this makes sense. So let's see how this would work for someone on Medicare. Okay, you can't afford your heart bypass so instead you'll say to the doctor "look, I can't afford the copay on the heart bypass, why don't you do a hernia instead?" That's substitution, and in Mr. Furman's world this makes sense.
Now what this would do to seniors on Social Security—we already understate inflation, and seniors haven't gotten a COLA for the lat two years. Tell me the price of prescription drugs and medical care hasn't gone up over the last two years. We need, in fact, a different measure for seniors, for Medicare, for veterans for others who consume more health care and more essentials which the CPI doesn't measure. It just measures junk that people buy. That's all it measures. And they're saying because people will buy cheaper junk we should change the CPI.
That means a senior, by the time they reach 85 in this brave new world of the chained CPI will get $100 less a month in their Social Security. Hmmm, not too good. Veterans would see their benefits also be restrained and go down about the same amount.
And then there's this other little impact they're not mentioning. If you're earning $20,000 a year, the tax brackets get adjusted every year. Well, they wouldn't get adjusted so much any more under the chained CPI. So someone who earns $20,000 a year over ten years would see their taxes go up 14 percent. But, guess what? For the rich people, ha. You earn $500,000 a year, you're already at the top, their taxes will only go up 0.3 percent. Three-tenths of one percent. Fourteen percent for someone who earns $20,000 a year. Point three percent for someone who earns $500,000.[...]
All of this, all combined of this great Gang of Six would save $4 trillion over ten years. That is, seniors will pay more, working people will pay more, veterans will pay more. Rich people? Nah. Not so much. But it would save $4 trillion.
Guess what. If we let all the Bush tax cuts expire the end of next year, all of them and the stupid Social Security tax holiday, that would be $5 trillion over ten years and we wouldn't have cut Social Security. We wouldn't have cut veterans' benefits. We wouldn't have asked low-income and middle-income people to pay more in taxes. Now does that make more sense? I think so.[...]
Of course it makes sense. Hopefully, DeFazio and his progressive colleagues in the House will be able to hammer this message through to both the Senate and the White House. To that end, DeFazio and more than 70 other House members have signed on to this letter [pdf], sponsored by Donna Edwards opposing Social Security, Medicare, and Medicaid cuts, and specifically opposing the chained CPI. You can send the same message to the White House.
