Going To A Chained-CPI Would Be A Benefit Cut To S.S.

The House has just passed a budget and sent it to the Senate -- and it looks like Social Security recipients have dodged a bullet this time. This budget does not include any cuts to Social Security benefits. But the argument over cutting Social Security benefits is not over. This budget just funds the government through September, and this summer Congress will be discussing a budget for next year -- and you can be sure the Republicans will again be demanding those cuts.

The sneakiest way to cut those benefits, and one which President Obama has said he would consider, is to change the cost-of-living (COLA) raises for Social Security from being equal to the rise in the Consumer Price Index (CPI), which shows the real rise in the cost of goods (inflation). Instead, the Republicans want to fix the COLA raises to a stingier way to figure inflation called the Chained-CPI (which doesn't really reflect the true rate of inflation).

I went to the Labor Department website and got the figures for the last decade of both the CPI and the Chained-CPI. They are reflected in the top chart above. Note that in every year but one (2008), the Chained-CPI has been lower than the CPI, which means that going to a Chained-CPI would reduce the COLA raises that Social Security recipients would get.

The bottom chart illustrates the difference that would cause for recipients (with the green line representing the CPI and the red one representing the Chained-CPI). The chart shows what would have happened to a recipient receiving $1000 a month in 2003 in COLA raises through that decade. Note that the change would be small for the first few years, but as time passes the change becomes larger (and the lines on the chart grow farther apart, which means under the Chained-CPI the recipients would be losing buying power because of inflation -- which mirrors the green line).

We also need to remember that these figures were for a decade that included the recession and the poor economy following it. In a healthy economy, the inflation would grow at a larger rate -- and those lines on the chart would grow apart much faster, since there would be an even bigger difference between the CPI and Chained-CPI. And Social Security recipients would lose more buying power much faster if their COLA was based on the Chained-CPI instead of the CPI.

Now the difference between the two figures, at least for the first few years, probably seems like a negligible difference to Wall Street and many in Congress (whose salary is over 4 times the median salary of a U.S. worker, and much more the Social Security received by the elderly). But to someone who must exist solely on a Social Security check (which averages just slightly more than $1000 a month), every single dollar counts. They are already struggling to live on what they receive now, and they can't afford to lose any buying power at all to inflation.

Those who say that going to a Chained-CPI to figure COLA raises for Social Security recipients would not be a cut in benefits are lying to the American people. How can a growing loss in buying power not be considered a cut in benefits?

The Chained-CPI Would Be A Cut In Benefits

In most years, those receiving Social Security (and Veterans) benefits get a small cost-of-living-adjustment (COLA). This small raise is determined by the Consumer Price Index (CPI) that is determined by the Labor Department.

The Republicans have proposed changing the way this raise is determined. They want to stop using the CPI (which represents the inflation rate in the U.S.) and go to a figure called the Chained-CPI (in which the government makes various adjustments to the inflation figures). They claim the Chained-CPI is a more accurate figure. That is debatable. But what is not debatable is that using the Chained-CPI instead of the CPI would result in a lower COLA raise for recipients of Social Security (and Veterans) benefits.

I made the chart above using Labor Department figures for the last 11 years. It shows the CPI and the Chained-CPI figures for each of those years. Note that in 10 out of those 11 years the CPI has been slightly higher than the Chained-CPI.

The Republicans say this difference is insignificant. I disagree. The average Social Security check is only slightly above $1000 a month -- and if you are living on that (or even less), then every single dollar counts. But it gets worse. Over a period of several years this difference between the CPI and the Chained-CPI will amount to quite a bit as it adds up year after year -- and will result in recipients of Social Security (and Veterans) benefits receiving significantly less in their checks than the current COLA would have given them. To be blunt, those Living on Social Security (and Veterans) benefits would no longer be able to keep up with the real rate of inflation -- and they would become a little poorer with each passing year.

The Republicans claim this would not be a benefit cut. That is a lie. That's exactly what it would be -- a benefit cut. And over an extended period of time, it would represent a huge cut in benefits.

Sadly, the president and some blue dog Democrats have indicated a willingness to consider moving from the CPI to the Chained-CPI. This is unthinkable, and we need to let them know we will not tolerate their cutting Social Security (and Veterans) benefits -- just to appease the Republicans (who want to keep the rich from having to pay their fair share of taxes).

Social Security Raise Only 1.5% Next Year

According to the Associated Press, the cost-of-living-adjustment (COLA) for Social Security recipients will only be about 1.5% when it is raised next January. Since the average Social Security payment is about $1162.00 a month, the average raise seen by recipients will be only $17 a month. Historically, this is a very small COLA raise, and will no doubt be a disappointment for many receiving Social Security.

This will be only the seventh time since 1975 (about 38 years) that the raise will be less than 2%. The other raises of less than 2% were in 1986, 1998, 2002, and 2012 -- while no raises were granted in 2009 and 2010.

The 1.5% figure is not official yet, since the government shutdown has prevented the release of the official inflation figures for September by the Labor Department (on which the COLA is based). Official inflation for the year so far is around 1.4%, and most economists expected the September numbers to raise it to about 1.5%.

While the pitiful 1.5% raise is bad enough news for Social Security recipients, the congressional Republicans have once again raised their idea of changing the COLA to a "chained consumer price index" (which is lower than the official inflation rate). That would mean even lower raises for Social Security (and other government programs like veterans benefits). And unfortunately, President Obama has indicated his willingness to consider the change, which would amount to a cut in benefits for many of the most vulnerable Americans.

Here is what a change to the chained CPI would mean:

Enacting a chained CPI would cut Social Security benefits by over $120 billion over 10 years. The average Social Security recipient who retires at age 65 would get $658 less a year at age 75 and would get more than $1,000 less a year at age 85 than under current law.

A chained CPI also would make substantial cuts to benefits of more than 3 million disabled veterans.  The largest cuts would impact young, permanently disabled veterans who were seriously wounded in combat. It would also impact more than 350,000 survivors who receive service-connected death benefits.     Veterans who started receiving VA disability benefits at age 30 would have their benefits reduced by $1,425 at age 45, $2,341 at age 55 and $3,231 at age 65.

Under a chained CPI, the average retired federal employee over the next 25 years would lose $48,000; the average Social Security recipient would lose $23,000; and, the military retiree would lose $42,000.

This is nothing more than a backdoor effort to cut Social Security benefits, and cutting those benefits is opposed by a clear majority of Americans. Democrats need to stand firm, and let the Republicans (and the president) know they will not allow any kind of benefit cut to Social Security (or to veterans benefits).

A Huge Mistake For President Obama

Readers of this blog will know that I was very disappointed when President Obama offered to give the Republicans what they want, by going to a cost-of-living raise for Social Security and Veterans' benefits using the "chained CPI" instead of the real rate of inflation. The "chained CPI" is a much stingier way to figure the rise in inflation, and it will cost seniors and veterans a bit of buying power for every year it is in effect.

There are those who say the difference is small and should be accepted (and have chastised those of us who oppose it). But if you are one of those who depend on Social Security (where the average benefit is only $1000 a month, and many get even less) or a small Veterans' benefit check, then you can't afford to lose even a few dollars in buying power -- and the effect of several years of this loss can be devastating. The problem is that those making the laws have lots of money and don't realize the hardship they would be imposing on millions of Americans with this loss of a "few dollars" each year.

A fellow Texas blogger has now given his opinion of this proposed move to a chained CPI, and I think he's right on target. Manifesto Joe, over at Manifesto Joe's Texas Blues, says the president has made a huge mistake with this proposal. He says:

I've taken a lot of time to weigh the pros and cons of President Obama's proposal for a "chained CPI" to bring about cuts in Social Security, etc. I've read a piece in defense of it, from the Democratic perspective. And, of course, it's not hard to find plenty of excoriations from the left.

I've decided that my sentiments are more with the left. I can appreciate that Obama is a practitioner of "real politics," but he's already tried that with the Republicans for over four years. They've made clear that they're not interested in actually governing.

Obama now stands on the verge of his worst mistake -- not just of his presidency, but of his entire political career. He is about to alienate his core constituency in one more desperate bid to "compromise."

Social Security is indeed a different program than the one created during the New Deal in 1935. Participation isn't voluntary, and demands on the system are far greater. But it has mostly done what it was intended to do. The poverty rate among elderly Americans was once around 50%. Thanks to a compulsory pension system, it's now down to about 10%.

I understand why Obama is trying, one last time I hope, to compromise here. He hasn't been able to get Republicans who still control the U.S. House to sit down at the table and give something up on their "no new taxes" (i.e., no new taxes on big corporations and the super-rich) pledges. New revenue is clearly needed, and two-thirds of big corporations are paying no federal income taxes. In addition, super-billionaire Warren Buffett has acknowledged that he pays a lower percentage of his income in federal personal income tax than does his secretary. And he's far from alone among the richest elite.

Something clearly has to give. But Obama is giving first, as usual. As former Labor Secretary Robert Reich phrased it, "The president throws things on the table before the Republicans have even sat down for dinner."

House Democratic Leader Nancy Pelosi has strong misgivings about the president's strategy. The general feeling among Democrats was expressed well by U.S. Rep. Rush Holt of New Jersey: "If he's trying to do it to show he is forthcoming as a negotiator, then why doesn't he wait until he gets to the negotiating table? There's a lot of talk about the fact that politically this is not a winner. Our brand is the party that brought you Social Security."

In America, this is the day of the locust. I spent 27 weeks unemployed just recently, and for a long time was falling through the cracks. Oh, there are plenty of part-time, temporary and contract jobs, if you want them. Having a lot of medical ailments, I don't have the option of taking jobs that don't offer health insurance. And Social Security is a cornerstone of my someday retirement. It's not an option for me, and I've been paying into the system since I was a teenager.

And the same big corporations that are offering these feces-paying jobs with no benefits are the ones getting by paying little or nothing in corporate income tax. Oh, the rates are comparatively high -- for those who don't have tax attorneys good enough to get them out of paying. It just came out that Facebook not only isn't paying any income tax for 2012, on profits of $1 billion, they may actually get a refund worth nearly $430 million.

I've understood why Obama has done much of what he's done in a game of political hardball with Republicans. But as many times as he's felt their spikes, it's time to start digging his in and saying no. Otherwise, he unwisely risks his core Democratic constituency, and it should be clear by now that nothing's going to get done anyway. The Republicans, who are interested only in power, not in governing, are already trying to score political points by turning up their noses at this idea.

The president needs to abandon the idea of the "chained" Consumer Price Index now, while he still can. Then he should take his case directly to the American people. It's been estimated that U.S. senior citizens could lose as much as $112 billion over 10 years if this idea floats. If they know the facts, they'll certainly say no.

Sensible Ideas To Cut The Budget

Recently the Republicans, by their refusal to compromise on a reasonable budget, forced the sequestration cuts on Americans -- cuts that mainly fell on the most vulnerable Americans. Now they want more cuts, and once again, they want to protect the rich while making vulnerable Americans (children, veterans, poor & disadvantaged, unemployed, elderly, etc.) pay for those cuts. And shockingly, President Obama seems to want to go along with it -- at least partially. He has proposed cuts to Medicare and basing cost of living raises on a new way to figure inflation -- the chained CPI.

Going to a chained CPI would amount to a back door way to cut benefits for veterans and for Social Security, and would more quickly push working Americans into a higher tax bracket -- and the president said he would be willing to do it for only very small increases in taxes for the rich. Both the presidential and Republican proposals are a rather hard-hearted way to cut the budget, and both should be rejected. There are better ways to reduce the budget -- ways that are more ethical (because the burden wouldn't be put on the most vulnerable people) and would reduce the budget quicker by saving or raising more money.

Richard Eskow, over at the blog of The Campaign for America's Future, has come up with several good ideas -- and all of them make a lot more sense than either the Republicans' or the president's plan. Here are his suggestions (along with how much they would save over a ten year period):

1. Close the multiple loopholes in the capital gains laws - $174.2 billion.
There are currently a number of loopholes that allow people to declare their earned income as investment income -- which allows them to pay a capital gains tax on it, which is much lower than the tax on earned income would be.

1A. Eliminate the capital gains tax completely - $900 billion.
Why should different types of income be taxed at a different rate? This allows the rich, who make most of their money from investment income, to pay a much lower rate than Americans who actually work for their income. Income is income, and it should all be taxed as earned income.

2. Eliminate the Bush tax cuts for everyone making more than $250,000 a year, instead of the higher limit agreed to last December - $183 billion.
This was the threshold that President Obama originally wanted, but he let the GOP talk him into a much higher threshold -- and that is now costing this country about $18.3 billion in revenues each year (which is more than the chained CPI would save).

3. Reduce the budget for U.S. overseas military bases by 20% - $200 billion.
This country has over 800 foreign military bases. We could close many of them without hurting our ability to defend ourselves (and our friends). In fact, I think they could be cut by a lot more than 20%.

4. Allow the government to negotiate with drug companies - $220 billion.
This should have been done long ago, and would create more savings than the proposed cuts to Medicare. And it's something that other countries routinely do. If Canada can negotiate with the drug companies to save their citizens money, why can't the U.S. do it? The answer is, of course, that too many of our congresspeople have been bought off by Big Pharma.

5. Enact DoD-friendly cuts to the military budget - $519 billion.
We currently spend nearly half of the entire world's military spending (and more than the next 15 or 16 biggest spenders put together). There is simply no good reason for us to continue doing that. Much of it is because we continue to fund corporate projects that either don't work or the military has said is not needed. We could easily cut this amount without hurting our defense capability -- and still be spending far more than any other country.

6. Enact the Fairness In Taxation Act, which would create new and higher tax brackets for those making over a million dollars - $872.5 billion.
These brackets would range from 45% for millionaires to 49% for billionaires -- and those new brackets would still be far less than those groups had to pay during the Eisenhower administration, when the top tax bracket was about 90%.

7. Eliminate corporate tax loopholes - $1.24 trillion.
This one thing would bring in 10 times the amount that going to a chained CPI would bring. And there is no reason why these corporations shouldn't be paying their share of taxes -- especially when you consider that their profits are bigger than they have ever been (and they are currently sitting on trillions of dollars -- much of it hidden in off-shore accounts).

8. Create a financial transactions tax for high-volume Wall Street trading - $1.8 trillion.
This tax could be very low (like 0.5%) and still bring in a huge amount of money to our treasury -- and it makes a lot of sense. If the poor, and other Americans struggling to survive must pay sales taxes when they buy goods and services they need, why should the financial giants get a free ride on their high-volume trading?

All of these are good ideas that would not hurt vulnerable Americans -- and all of them would balance the budget much faster than the crazy chained CPI idea.

Chained CPI -- Stealing From Seniors

The Republicans have never liked Social Security. They voted against it when it was proposed, and they have tried to get rid of it several times since then ( including efforts to privatize it, so their masters on Wall Street can profit from it). But it is extremely disappointing to see a Democratic president wanting to do something that would damage the Social Security program (and therefore hurt millions of seniors in this country). But that is just what President Obama is expected to do this coming week.

He is going to propose that Congress pass a law adopting the Republican plan to cut Social Security benefits for millions of Americans. That plan is to change how Social Security cost-of-living raises are figured. Instead of using the real rate of inflation to figure those raises each year, the raises would be based on something called the "chained CPI" -- which means those raises would not actually keep up with real inflation. This would cause seniors to lose a bit of buying power each year, until after several years they are experiencing a significant cut in the benefits they receive from Social Security -- a program they paid into all of their working lives and hasn't contributed to this country's deficit and debt problems at all.

This is illustrated very well by the chart above (from the National Women's Law Center). The Social Security program is one of the federal programs that actually works like it was supposed to work. It provides elderly Americans with an income after they retire and keeps millions of elderly Americans out of poverty. That was its purpose, and it has worked very well for many years. Don't let the Republicans (and this president) start down the road of cutting benefits for Social Security. Those benefits are not huge to begin with (averaging only about $1000 a month), and should never be cut. Cutting the benefits will help destroy one of the program's aims -- to keep seniors out of poverty.

I know I probably sound like a broken record on this issue, but it's very important. Wall Street CEOs may think cutting Social Security benefits is a good idea, but they don't depend on those benefits (and probably will never have to depend on them). But millions of seniors do depend on Social Security to live (and a lot of them depend on it alone). For them, the idea of going to a chained CPI is a terrible idea -- because that's just fancy Washington D.C. talk for cutting their already meager benefits.