The Debt Deal Trojan Horse And The Elephant In The Room

Terrance Heath

Don’t look now, but someone rolled a Trojan Horse right into the middle of the debt deal negotiations. Funny thing is, Democrats don’t seem to recognize it as such. Maybe nobody’s ever told them the story of the Trojan Horse.

The good news is that there are no Greek warriors hiding in this Trojan Horse. The bad news? This Trojan Horse’s name is "Chained CPI," and what he’s hiding inside are big cuts to Social Security benefits. My fellow blogger Richard Eskow explains it better than I can.


Do you hear a noise like power saws cutting away at your Social Security benefits? That’s the sound of the politicians working on the "Chain Gang."

They’re promoting the "chained CPI," Washington’s latest gimmick for tricking voters and cutting their hard-earned benefits to protect the wealthy. That may sound like inflammatory rhetoric, but the numbers don’t allow for any other conclusion. People retiring today could lose more than $18,000 in benefits over their lifetimes – and people who are already retired will feel the pain too.

What’s wrong with this idea?

1) It’s an underhanded way to cut Social Security benefits (its true intent). 2) It’s unnecessary. 3) It’s unfair to women, the poor, minorities, and the very elderly. 4) It reflects a un-American political culture of pessimism and lost faith in the future.

Any politician who signs onto a "chained CPI" approach to Social Security will feel the wrath of the voters – and deserves to.

What’s a "CPI," you ask? And what’s the benefit of chaining it up? The Daily Money’s Carla Fried explains:

Right now the government uses two different Consumer Price Indexes (CPI), one for figuring out changes to the tax code (income tax brackets are adjusted in line with inflation) and other federal programs, and a separate measurement that is used specifically to set Social Security and federal pension COLAs. What’s under consideration is indexing all these changes to a different measurement called Chained CPI. I’ll spare you all the wonky explanations for why the chained CPI is seen as a better model than the other indices. (You can read more here). But the basic idea is that it will supposedly better reflect our buying habits when we experience rising prices. Rather than assume we will just keep buying more of the same (more expensive) items, the chained CPI factors in the likelihood that we will change our buying habits. The classic example: if apples skyrocket in price, we don’t just keep buying the same amount of apples, and instead look for other less expensive fruit as apple substitutes.

The important upshot is that the chained CPI doesn’t increase as much as the current inflation measurements we’re using. A bipartisan analysis concluded that since 2000, the chained CPI has been on average 0.25 to 0.30 percentage points lower each year than standard CPI measures. Add in the effect of compounding and since 2000, the CPI we use today shows that inflation is up 30 percent. Chained CPI, however, shows a 26 percent increase.

Back to Richard:

As a government agency explains, "Pork and beef are two separate CPI item categories. If the price of pork increases while the price of beef does not, consumers might shift away from pork to beef." So if people can no longer afford pork, they’re spending less. Under a chained-CPI approach cost of living adjustments (COLAs) would then go down.

There’s beef in cat food, right? Let’s hope so, give the consequences those abstract-sounding percentage points Fried mentioned: "…the chained CPI has been on average 0.25 to .030 percentage points lower each year than the standard CPI." That doesn’t sound like much, right? Less than a whole percentage point? Who’s even gonna feel that?

Grandma. That’s who. According to the folks at Strengthen Social Security, the chained CPI would scale back benefits more and more each year, cutting benefits for today’s beneficiaries and hitting older seniors and the long-term disabled hardest.

Lawmakers and the Obama administration are reportedly considering switching to a "chained" Consumer Price Index. According to the advocacy group Strengthen Social Security, the chained-CPI could lead to annual Social Security benefit cuts of $560 for those aged 75, $984 for those aged 85 and $1,392 for those aged 95.

"The proposal to shift to the chained-CPI is actually a stealth attack on Social Security," said Joan Entmacher, director of family economic security at the National Women’s Law Center, during a Friday conference call with reporters. Her comments were echoed by Strengthen Social Security Campaign co-chair Nancy Altman. She said, "The chained-CPI is poor policy, and given that seniors vote in disproportionately high numbers, it is equally poor politics."

According to the Bureau of Labor Statistics, the chained CPI "employs a formula that reflects the effect of substitution that consumers make across item categories in response to changes in relative prices." Such a system estimates a lower cost of living for Americans, especially during recessions, by assuming that consumers buy less during tough economic times. This approach has been touted by some economists and lawmakers as a more accurate way to measure cost of living.

So, wait a minute. The older you are the more your benefits are going to be cut? What is this? Policy Negotiation or a brainstorming session for a sequel to Logan’s Run?

And the cat food connection? Well, the chained CPI is (surprise) tougher on women than it is on men.

"This proposal is a stealth attack on the economic security of older women," Joan Entmacher of National Women’s Law Center in Washington said in a statement. "That is a shameful way to solve our nation’s deficit problem."

Older women are already more economically vulnerable than older men — they often spend fewer years in the workforce because they take care children, the elderly and spouses — and these cuts would leave many of them unable to meet basic needs, Entmacher said.

For example, for a woman who gets a benefit of $1,100 at age 65 — the median monthly benefit of all single women 65 and older — replacing the current COLA with the chained CPI would mean $56 less per month and $672 less per year at age 80, the report said.

"That may not sound like a big cut to some members of Congress — but it translates to a loss of more than a week’s worth of food per month or 13 weeks of food in a year," Entmacher said in a statement. "At age 90, that would mean $87 less per month and more than $1,000 less that year so a woman with an initial benefit of $1,100 a month will lose more than $6,300 by age 80 and more than $15,000 by age 90."

Frankly, in the "good ol’ days" before Social Security, it was actually worse than cat food.

Day 12: Fancying up the cat food. As a mission of personal interest I have been trying to track down the origin or popularization moment of the meme of elderly women being reduced to eating catfood to survive, and while I haven’t found it, I think it is worth saying that prior to Social Security, catfood would have been an improvement for many. From Time magazine’s eulogy to Dr. Francis Townsend who died in 1960:

Like so many oddball Utopias, the Townsend Plan began in Southern California.*Because of fragile health, Francis Townsend had given up a horse-and-buggy practice in South Dakota’s Black Hills and headed for Long Beach with his wife (his former nurse) at age 50. One morning in the bleak year of 1934, when he was down to his last $500, he happened to see three aged crones pawing through a garbage pail in search of food. The sight outraged Townsend’s sensibilities, and he began to curse in such a loud voice that his wife begged him to be quiet. But Francis Townsend would not be hushed: within a month his plan was written, and before a year had passed, the wrathful Savonarola of the senescent was heard across the U.S.

Townsend led a crusade to secure generous middle-class worthy pensions for all that is credited for influencing the shape and growing generosity of Social Security (for example though passed in 1935, it was not supposed to pay pension benefits until 1942, but this was sped up to 1940 in 1939 partly due to the continuing popularity of the "Townsend plan").

I bring this up because there is a refrain from some quarters that calling the deficit commission the "Catfood Commission" is so very unfair and mean and unserious. The critics are right, it is inaccurate; we should be calling it the "Garbage Commission."

Sound far-fetched? Not so much when you consider that the "chained CPI" does not take into account that seniors spend twice as much on health care as the average person. So, it cuts one area where seniors can’t substitute as much for the things they buy. Health care, it turns out, doesn’t go on sale as often as apples, oranges, beef, pork … or cat food.

Meanwhile, things are getting a bit crowded around the negotiating table. In addition to the "chained CPI" Trojan horse that no one recognizes, there’s a huge elephant in the middle of the room that no one even sees. As Dave Johnson pointed out, it’s the same elephant sitting in the middle of every room.

Ten years ago we were on a path to paying off the country’s debt. In fact, if we had stayed on the same trajectory the debt might be paid off already. But then we cut taxes even more, and raised the military budget even more, and the deficits and resulting debt exploded. This sequence — debt-payoff trajectory to deficits caused by tax cuts and military spending increases — should be stated clearly at the start of every meeting that discusses deficits and debt.

I am in Chicago to cover the Clinton Global Initiative (CGI) – America, which is discussing practical, scalable projects to create jobs here. I will write more about the meeting but wanted to hit a few of the points right now.

Obama: President Obama gives a press conference today and talks about how taxes have to be part of the deficit equation. Republicans scream.

Clinton: Here at CGI-America, former President Clinton carefully says that we need taxes to be higher, and the crowd of millionaires and billionaires breaks out in spontaneous applause.

Peterson: Also at CGI "deficit hawk" Pete Peterson says that "our long-term debt threatens our long-term economic future," and he’s right. (I wish he would get off of Social Security because it doesn’t contribute a dime to the debt, but otherwise he is right.) He also says the defense budget is "unchecked." Wow is he right about that.

But ten years ago we were paying off the debt. Then came the Bush tax cuts and the huge increase in military spending. We need to get the money from where the money went.

The thing is, we know where the money went. We know there the money is. We know where it isn’t.

And what’s more, a majority of Americans are in favor of getting some of it back. As Bruce Bartlett very effectively illustrated, in poll after poll after poll after poll Americans support raising taxes for the wealthy. Meanwhile, an overwhelming majority of Americans oppose Social Security cuts.

So, why are America’s seniors now in line to take a $300 billion hit for sake of reducing a deficit that has nothing to do with Social Security? (Even the chair of the president’s own deficit commission admits as much.) Why are tax increases and defense cuts off the table?

Because nobody involved in the debt deal negotiations recognizes the Trojan horse in the room, and nobody even sees the elephant in the room.

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