In Social Security Cuts, Look for the Chained CPI

7:18 am in Uncategorized by Daniel Marans


chains by Sidereal, on Flickr

Although specifics have yet to officially emerge, there is little doubt that among the Social Security benefit cuts the President is proposing will be a reduction in Social Security’s annual cost-of-living adjustment (COLA) through an obscure change in the COLA formula known as the chained CPI.

Update for those who haven’t seen it: The Washington Post reported last night that President Obama is “proposing significant reductions in Medicare spending and for the first time is offering to tackle the rising cost of Social Security,” in a meeting with top House and Senate leaders this morning. Apparently those cuts to Social Security and Medicare would be part of a $4 trillion debt reduction package—a larger deal than the $2 trillion one that had been talked about until this point.

There are a number of reasons why the Social Security cuts are sure to include the chained CPI. Chief among them is that it has been known for weeks now to be “on the table” in debt-ceiling negotiations. Here is Sen. Dick Durbin (D-IL) on June 29 in Tax Analysts:

“It’s a possibility, but no decision’s been made,” Senate Democratic Whip Richard J. Durbin of Illinois said of [the chained CPI’s] inclusion in the deficit reduction package being negotiated in conjunction with raising the debt ceiling.

Days earlier, on Dow Jones Newswire, Republican Majority Leader Eric Cantor (R-VA), refused to call the chained CPI a tax increase—though its effect on the tax code would be to increase revenue—effectively admitting that it was a policy Republicans could live with.

Asked whether the proposal would be interpreted as a tax increase and therefore a non-starter for Republicans, Cantor said it could be seen as both impacting tax rates and benefits paid out by the federal government.

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