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Blog: Chained CPI, Our Elders and Our Veterans

Dec 19, 2012 | By Marge Clark, BVM

New “solutions” to the fiscal crisis continue to emerge. Congress and the president continue to volley possible plans to avoid the “cliff.” Speaker Boehner and even the president are beginning to focus on one area of savings objected to by advocates who know what it is: a benefit cut to Social Security beneficiaries.

The “Chained-CPI” is a way to define the basis for inflation, slowing it – which affects the tax base – and more importantly it defines the annual rate of increase in Social Security benefits and veterans’ benefits. The election seemed to clarify that most of the public does not approve of cuts in benefits to our elders or to those in the greatest need, in order to support tax breaks for those with greater wealth. But, many do not recognize the actual effects of this change, if it is made.

CHAINED CPI, Our Elders and Our Veterans

New attention is being given to a measure of inflation termed the “Chained-CPI.” Currently, a formula for calculating inflation is based on a set of typical items in a market basket – the Consumer Price Index (CPI). The “Chained-CPI” differs in that it makes substitutions in the basket – so that is one product goes up in cost at a greater rate than most of the others, a lower priced item would be substituted. This makes the cost increase of the basket be less. So, the inflation rate would be less. Many government programs, as well as tax rates, are based on this index.

This impacts Cost of Living Adjustments (COLA) for recipients of Social Security, Veterans Benefits and many other programs. Robert Greenstein, Executive Director of the Center for Budget Policy Priorities (CBPP) addressed this in a recent interview on National Public Radio. For seniors at a Social Security rate of $1000, under the current CPI it might rise to $1080 for the next year. However, using the Chained-CPI, it might rise to only $1030. They would receive $50 per month less in Social Security benefits. This amount would be significant for seniors on fixed incomes, or for veterans recovering from the trauma of duty in Iraq or Afghanistan.

For seniors, neither the current CPI, nor the Chained-CPI is a good match for where they spend their money. Seniors generally make significantly more health care purchases than does the general public. These purchases are not well represented in either “market basket.” The Chained-CPI would make the situation even worse for our elders. This leads to limited-income seniors bearing the weight of savings for the general population.