What IS “Chained CPI" ?

Lately,as we hear democrats and republicans bicker over how to fix the disasterous consequences of the Sequester they enacted as a stopgap measure to assure they would find a viable, working solution to stop runaway spending and cut the deficit, we hear the term Chained CPI. I wasn’t clear what this term meant so googled it. I had been hearing the term, mostly in negative terms, on various tv news shows. But i googled myself to find maybe some balanced views and opinions. l needed to know if it would be a good policy to enact or a poor one, one that would further hurt seniors, veterans, anyone vulnerable and hurting in the current financial mess. You in fact can google the term and find information on dozens of sites.

CPI stands for Consumer Price Index. Why, might you ask, is the "price index" important in budget talks? Because determining what it is currently will directly affect your pocket book, and in the near future if you are a senior, a veteran, or living on a low fixed income. One method of calculation will strip more from your income than the other. Using a Chained CPI formula the Cost-of-living adjustments would be lower than with the plain old CPI. So depending on which formula is used, the amount of your Social Security payments could change, in other words, decrease, over time. The CPI first came up, to my knowledge, in the Simpson Bowles proposal, a proposal that was not accepted as workable and ultimately, though much cited by Republicans, has gone nowhere, as there are too many controversial budget cutting measures in it, such as cutting Social Security. You can google for more details on Simpson Bowles yourself and decide for yourself if they are good or will inflict further damage.

To explain CPI and Chained CPI, I found this in a Washington Post article dtd Dec 12, 2012 – “Economics and policymakers make the general assumption that when prices rise, people will turn to a less expensive product, for example they will buy chicken instead of more expensive beef, iceberg lettuce instead of arugula, store-brand, instead of name-brand cereal. The chained CPI attempts to account for how people react to inflated prices. Using Chained CPI the method of calculating CPI would slightly tweaks the inflation formula, while building significant savings over time, perhaps more than $100 billion over a decade." You can google for more detailed information, comparing the two methods of determing Consumer Price Index.

The same article, in discussing the two methods, stated - “Making such a change (using Chained CPI) also means paying out less in Social Security benefits over time —for example, a person born in 1935 who retired to full benefits at age 65 in 2000 - people in that position had an average initial monthly benefit of $1,435, or $17,220 a year, according to the Social Security Administration. Under the cost-of-living-adjustment formula and 2012 inflation, that benefit would be up to $1,986 a month in 2013, or $23,832 a year. But if payouts were adjusted using chained CPI, the sum would be around $1,880 a month, or $22,560 a year — a cut of more than 5 percent and more as the years go by.”

I have NO idea how they came up with those benefit numbers! I don’t know anyone, none of my friends, who are receiving those amounts today! According to the chart (if you follow that link to the Social Security Admin. chart) I would be getting $1800 a month. I can assure you I am NOT! And in none of the Statements I’d been receiving from Social Security the last 5 or so years prior to my retiring, did they suggest I’d receive that much. I didn’t even end up getting what my statement DID indicate I would get! It was a few hundred a month LESS in the end. It stunned me to realize how much, CLEARLY, Social Security benefits have ALREADY been cut. Case in point, I was born in 1949, started taking benefits at age 62, and only receive $1100 a month or $13000 a year, and that was calculated based on (averaged on) earnings between $35G and $52 G my last few years of employment, and at that I had worked since I was 15, full time since I was 18, until I was 55, only leaving the workforce, my current, at the time, long time position, to move to California to support my son on his prison journey. I shudder to think about HOW I would even live on my social security benefits income alone! My Social Security income would qualify me as POOR under todays guidelines, in fact my SS income is lower than the threshold. Just how much were those born in 1935 making to be getting those stated benefits!? And if you consider inflation the last 10 years, the cost of living has risen substantially so the current payouts don’t go near as far. I shudder to imagine what impact FURTHER cuts to Social Security will effect.

To me, it doesn’t matter which type of calculation they end up using, that involving ‘regular’ CPI or “Chained CPI”….ANY cuts to Social Security will inflict hardships on anyone living on a fixed income. Cuts to Social Security and Medicare are shortsighted, ‘easy’ and ‘lazy’ ways to cut the deficit. Surely we have brighter minds in Government, that can come up with cuts, and measures to grow revenues, that will not harm the working class, the working poor, Seniors or veterans living on fixed incomes.

In closing, let's be clear, the "chained" CPI is a Social Security benefit CUT. The younger you are, the bigger the benefit cut.
AARP has a handy new calculator that helps you calculate how much you lose if Congress enacts a "chained" CPI. The tool also calculates veterans' benefits. You can view the chart by googling AARP's website.