One of the lesser known, but most devastating Social Security cuts being discussed in Beltway circles is the adoption of a new, less generous version of the Consumer Price Index (CPI) for calculating the yearly cost-of-living adjustment (aka COLA) in Social Security benefits. It is called the “Chained”-CPI, which is fitting, because it will chain you to your parents when they have to move in with you for their golden years. Most importantly, it is the only proposed benefit cut that will whack current and future retirees.
When advocates challenge the new formula though, the conservatives and pseudo-Democrats hawking this proposal are no longer even bothering to defend the “Chained” CPI on its merits. (In fact, the current CPI is, if anything, too modest.) They simply coo at how brilliant and “exciting” of a new policy tool it is. Maya MacGuineas’s cheerful performance at a Senate briefing this morning was a case in point.
MacGuineas, a former Wall Street banker and current president of the Pete Peterson-funded Center for a Responsible Federal Budget, was a panelist at an Urban Institute-sponsored Senate briefing, “The $5 Trillion Question: What Do the Budget Commissions’ Social Security Proposals Mean for Retirees and Taxpayers?” When asked what she would like to see from the President in the forthcoming State of the Union address, she joked about the “Chained” CPI, but not everyone in the audience was laughing. To paraphrase her remarks:
“I kid to my family that I may be the only one in the country who is waiting to hear the President say he’ll support the ‘Chained’ CPI in his State of the Union speech! I will literally be jumping off of my couch in excitement if he does.”
MacGuineas is right that she is likely to be the only person having a “Tom Cruise moment” over the “Chained” CPI—only not for the reason she thinks. She was making fun of herself for knowing the wonkish nuggets that average Americans just don’t know. But even Social Security experts and policy wonks who know the “Chained” CPI proposal are not exactly salivating over it. That’s because while the “Chained” CPI might be the gosh-darned most exciting new policy for Beltway budget hawks like MacGuineas, it would represent a 0.3% benefit cut every year, which would compound over time, cutting $108 billion in benefits over ten years.
What’s more, despite MacGuineas’s protests to the contrary, it is not even a more accurate measure of inflation. You see, the “Chained” CPI assumes that when the price of certain goods increases, consumers choose less expensive substitutes. As a result, the Chained CPI registers slower growth in inflation. But the substitution method does not work for the medical services that make up the lion’s share of seniors’ expenses. You can't exactly trade in your prescription prostate drugs or open-heart surgery for cheaper substitutes.
Even the current CPI, tailored as it is for the regular population, does not adequately weigh the medical expenses of the seniors who rely on Social Security. The Bureau of Labor Statistics has created a new, experimental Consumer Price Index for the elderly, called the CPI-E. The CPI-E grew by 126% from 1982 to 2007, compared to the normal CPI’s 110% growth rate, demonstrating the true cost curve facing the elderly.
Joan Entmacher, the Vice President for Family Economic Security at the national Women’s law Center, and a nationally renowned expert on issues affecting low-income women, challenged MacGuineas on this point during the Q &A session. Why she asked, are we discussing reducing a COLA that is already inadequate, rather than adopting the CPI-E?
MacGuineas’s response was pathetic. “We can’t tailor-make a CPI for specific populations,” she said, with a chuckle. “We believe the case is strong that the current CPI formula is inaccurate. No change will be perfect, but we need to start there.” MacGuineas did nothing to deny Entmacher’s arguments, and indeed, the facts about the CPI’s inadequacy for the elderly, but apparently she just doesn’t care, because “nothing is perfect.” And about the idea of “tailor-made” CPI for the elderly? We don't need to create a new one; we already have it: it's called the CPI-E.
In truth, MacGuineas and her fellow travelers care more about saving money than doing what is right for Americans’ retirement security. They use the accuracy argument as cover. And when called out on their chicanery, they stick to their guns come what may.
To sum up, the conservative case for the Chained CPI amounts to, uh…Well, it’s just, “exciting”!