The way some liberal groups are screaming, you’d think the president had just raided every senior citizen’s bank account.
AARP, for instance, complains that Social Security shouldn’t be used as “a piggy bank for deficit reduction.” Other advocacy groups mutter about broken promises and destitute old people.
In fact, President Barack Obama’s budget wouldn’t take a dime from anyone’s current Social Security check. It would merely reduce the growth of future benefits by changing the way the government calculates inflation.
What the president has done is to endorse the notion that our current Consumer Price Index overstates inflation, because it doesn’t account for people’s ability to switch to lower-cost goods. If the price of beef goes up, people eat more chicken.
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An alternative index called the chained CPI accounts for such substitution. Most economists say it’s a better way to measure inflation.
Over the last decade, the chained CPI has trailed the regular CPI by about a quarter of a percentage point per year. According to the president’s budget, changing indexes would reduce Social Security and other benefit payments by $130 billion over the next 10 years.
The switch also would raise $100 billion in income tax revenue, because tax brackets and the standard deduction would be adjusted more slowly.
At one level, we’re talking about a technocratic tweaking that’s long overdue. Chained CPI was recommended in Simpson-Bowles and various other deficit reduction plans, and a commission headed by Stanford University economist Michael Boskin endorsed the change back in 1996.
“Chained CPI is not about Social Security,” says Marc Goldwein, Senior Policy Director at the Committee for a Responsible Federal Budget. “It’s about measuring inflation right, and that has implications throughout the government and the tax code.”
Opponents of chained CPI say this is, too, about Social Security. For a retiree who lives into his or her 80s, the proposed change would amount to a big cut in income.
They ignore a stark reality: If we do nothing, the Social Security trust fund will be exhausted in 2033, and all recipients will see their benefits cut by 25 percent. Using a less generous inflation measure won’t be enough to balance Social Security’s books, but it is a step in the right direction.
“Even if the budget were in surplus, we still would have a problem with the Social Security trust fund running out of money,” says Murray Weidenbaum, a Washington University economist. “Some people either don’t want to believe that, or they don’t want to pay attention to it.”
Opponents of chained CPI also argue that it — and the current inflation measure — understate the price pressures that rising health care costs place on senior citizens.
The Congressional Budget Office has studied that question and found the evidence inconclusive. “It’s not clear that seniors’ costs are rising faster than the general population,” Goldwein says.
The political future of chained CPI isn’t clear. Anti-tax crusader Grover Norquist has assailed it as a big tax increase, and some of Obama’s fellow Democrats are toeing the AARP line against cutting benefits.
Whatever happens, we’re witnessing a shift in the debate over entitlement spending. Social Security used to be called the third rail of politics, so deadly that no politician dared touch it.
Now, a president has dared. If he doesn’t get shocked too badly, perhaps we can begin to address the program’s long-term imbalance.
David Nicklaus is business columnist at the St. Louis Post-Dispatch. Subscribe to his Facebook page or follow him on Twitter @dnickbiz.
