It’s amazing what you can learn reading the Washington Post. Today its lead editorial told readers that reducing the annual cost of living adjustment for Social Security by 0.3 percentage points won’t hurt. This would come as news to most seniors who rely on Social Security for most of their income.
This 0.3 percentage point cut is cumulative. After a person has been retired for 10 years benefits would be roughly 3 percent lower than would otherwise be the case. Benefits would be almost 6 percent lower after 20 years, and almost 9 percent lower after 30 years, when most beneficiaries will be in their 90s.
The poverty rate is highest for the oldest seniors, most of whom are women living alone. Most people think cutting benefits for this group by 9 percent would hurt, thankfully we have the Washington Post to tell us otherwise.
(This is a newspaper that has run front page stories warning that raising taxes by less than 1 percent [of income] on people earning $300,000 a year would inflict real pain.)
The rationale for the benefit cut is the use of an alternative measure of inflation, the chained consumer price index, that assumes substantial substitution between consumption items in response to prices changes. The Post asserts that this index is a more accurate measure of inflation.
Actually, the Bureau of Labor Statistics has an experimental elderly index that measures the rate of change in the basket of goods and services consumed by people over age 62. This index shows that the inflation rate experienced by the elderly increases by an average of 0.3 percentage points more than the overall CPI to which Social Security benefits are indexed.
While this is an experimental index that does not track the actual purchasing patterns of the elderly (e.g. examining the specific retail outlets where they shop and the items they purchase), those who are interested in an accurate cost of living adjustment would advocate a fuller elderly index. Those who want to cut Social Security benefits advocate using the chained consumer price index, which we know will show a lower measured rate of inflation.