Did You Know That The Chained-CPI Is Actually A Middle Class Tax Hike?

Digby

Did you know that? Yes, it is:

Did you also know that none of that, by law, can go to fund Social Security’s projected “shortfall?” And that if they do change that law, it will forever put an end to the dedicated revenue stream that keeps SS out of the general budget? I’m afraid so:

If the chained CPI is adopted as part of a budget deal unconnected to any larger plan for Social Security then it effectively means that there will have been a substantial cut to Social Security benefits without any quid pro quo in terms of increased revenue. This hardly seems like a good negotiating move from the standpoint of those looking to preserve and strengthen the program.

And did you also know that the Chained-CPI cuts alone will not close the projected shortfall?  So, even if this is done, we’ll be right back here in a few years looking for new ways to “save” Social Security by cutting it.

By the way, according to CBO, this tax hike amounts to about $124 billion over 10 years. Not chump change, by any means, but hardly something that “takes the deficit off the table.” Remember how much Lockheed, which depends almost entirely on taxpayer funds, makes in one year?:

According to its 2011 annual report, “82% of our $46.5 billion in net sales were from the US Government, including 61% from the Department of Defense.” And don’t forget that a significant part of the 17% of its sales that went to international customers in 2011 were actually paid for by Uncle Sam under the rubric of foreign military aid. Only 1% of its sales that year were to “US commercial and other customers.” Its CEO made $20,538,981, while the company paid only $722 million in net federal and foreign taxes in that same year.

I think that puts the $124 billion over ten years in perspective, don’t you?

So wait, the Chained-CPI won’t fix the projected SS shortfall 20 years from now, and even if the poorest are given a little “bump” it’s not enough to make up for the cuts and it won’t raise all that much money in the larger sense. So what’s the point of all this again? This can’t just be a sneaky way to raise taxes on the middle class without telling them, can it? No, that could never happen.

Although, consider this from Dean Baker:

For the typical retiree, Social Security benefits are close to two-thirds of their income. This means that the use of the chained CPI would amount to a hit to their income of approximately 2.0 percent (two-thirds of 3.0 percent).

By contrast, if we assume that a couple earning $500,000 a year is the typical household affected by the tax increase [enacted at the beginning of the year], then their additional tax burden will be 4.6 percent of their income over $450,000 or $2,300. If we assume that this couple had not unusual exemptions (or even usual ones), then their after-tax income before the tax increase would have been around $350,000. This means that the Obama tax increase would reduce their after tax income by a bit less than 0.7 percent. This means that the hit to Social Security beneficiaries from the chained CPI will be around three times as large as the hit to the typical affluent taxpayer from the Obama tax increase.

That’s not counting the money retired people will pay in additional taxes if they happen to have taxable income, which a fair number of those middle class retirees probably will. (The taxman comes for your 401K money eventually …)

So, what we have is a proposal to cut Social Security benefits to fix a projected future shortfall and it won’t fix the shortfall.  Meanwhile, it will raise taxes, mostly on the middle class in a sneaky backdoor fashion but there’s no mechanism to use any of the money raised to go to Social Security without changing the dedicated funding system and putting Social Security into the general budget (thus leaving it far more vulnerable to future cuts.) And interestingly, this tax increase adds up to much more than the expiration of the Bush tax cuts for those making over 400k a year. What a beautiful scam.

Don’t worry though.  If we can only gut these “entitlements” for the sick and the old we’ll have vanquished the bad guys forever more and then we can do whatever we want. Right? Isn’t that what the Grand Bargain promises?

Update: In case you are among the last two people on earth who still think he’s not serious:

President Obama pledged in a private meeting with Senate Republicans on “to challenge his own party on entitlement reform,” The Hill reports.

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