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markpkessinger

(8,381 posts)
Tue Apr 9, 2013, 01:22 AM Apr 2013

Chained CPI does NOT mean chaining COLA increases to the standard CPI!

There is some confusion in the various discussions over what, exactly, "chained CPI" refers to. It would be helpful, I think, if we were all sure we were talking about the same thing before proceeding to debate its merits. Some seem to think it means that future COLA adjustments would be "chained" to the standard CPI. Not so.

Chained CPI is a completely different formula from the standard CPI that rests on the idea that if prices on one particular product (say beef) rise, consumers will substitute a cheaper product (say chicken). That may not sound terribly odious, except that seniors spend a very large portion of their income on health care, for which there often are no cheaper alternatives. As Robert Reich explains:

The White House and prominent Democrats are talking about reducing future Social Security payments by using a formula for adjusting for inflation that's stingier than the current one. It'scalled the "Chained CPI." I did this video so you can understand it -- and understand why it's so wrongheaded.

Even Social Security's current inflation adjustment understates the true impact of inflation on the elderly. That's because they spend 20 to 40 percent of their incomes on health care, and health-care costs have been rising faster than inflation. So why adopt a new inflation adjustment that's even stingier than the current one?

Social Security benefits are already meager for most recipients. The median income of Americans over 65 is less than $20,000 a year. Nearly 70 percent of them depend on Social Security for more than half of this. The average Social Security benefit is less than $15,000 a year.

Besides, Social Security isn't in serious trouble. The Social Security trust fund is flush for at least two decades. If we want to ensure it's there beyond that, there's an easy fix -- just lift the ceiling on income subject to Social Security taxes, which is now $113,700.


AARP explains it thusly:

Estimates show that under the chained CPI, your cost-of-living adjustment (COLA) would be about .3 percentage point below the plain old CPI. That works out to $3 less on every $1,000, which doesn't sound like much — except that it keeps compounding over time.

Look at it this way: The COLA for this year was 1.7 percent. If your monthly Social Security check was $1,250 last year, it increased to $1,271.25 this year.

With the chained CPI, you would be getting $1,267.50 — or $3.75 less a month and $45 less a year. Again, that might not seem like a big reduction, but if the COLA is the same next year, the difference increases to $7.61 a month and $91.32 for the year.

You start to get the picture. The gap accelerates and begins looking like real money. If you're 62 and take early retirement this year, by age 92 — when health care costs can skyrocket and more than 1 in 6 older Americans lives in poverty — you'll be losing a full month of income every year.

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Chained CPI does NOT mean chaining COLA increases to the standard CPI! (Original Post) markpkessinger Apr 2013 OP
You notice how it all comes down to healthcare? It's amazing how we overlook the root cause... dkf Apr 2013 #1
 

dkf

(37,305 posts)
1. You notice how it all comes down to healthcare? It's amazing how we overlook the root cause...
Tue Apr 9, 2013, 02:03 AM
Apr 2013

Health costs are the only problem we have. Wake up people!

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