AARP Home » AARP Blog » AARP »Money & Savings »Obama Budget Said to Drop ‘Chained CPI’

Obama Budget Said to Drop ‘Chained CPI’

Posted on 02/20/2014 by | Senior Editor, Money Team | Comments

Money & Savings Print Print

The White House says it is dropping a proposal that would have lowered the cost-of–living adjustments for Social Security and other government social programs, according to published reports.

social-securityPresident Barack Obama had previously proposed tying inflation adjustments to the so-called chained CPI, which measures inflation more conservatively, in exchange for tax increases. Republican lawmakers, who have backed the chained CPI,  didn’t go along with the deal.

Politico reported a White House official saying: “Over the course of last year, Republicans consistently showed a lack of willingness to negotiate on a deficit reduction deal, refusing to identify even one unfair tax loophole they would be willing to close, despite the president’s willingness to put tough things on the table.”

The chained CPI isn’t permanently off the table, the official said, but at least for now it won’t be part of the president’s budget proposal that will be released next month.

“We’re pleased that the president has recognized that Social Security should be kept separate from the rest of the federal budget, and should not be part of any proposal that would cut benefits to reduce the deficit,” AARP Executive Vice President Nancy A. LeaMond said in a statement.  “As the president and Congress work to address the challenges facing our nation, AARP believes it is time for responsible solutions that improve the retirement and overall economic security of current and future generations.”

Mikki Waid, a senior strategic policy adviser with AARP’s Public Policy Institute, said, “It’s a relief. It means that individuals’ benefits, especially those who need them most — which are the oldest — won’t be cut.”

This year, Social Security beneficiaries received a bump up of around 1.5 percent, or about $19 per month for the typical retiree.

Proponents of the chained CPI say it more accurately measures inflation because it takes into account that consumers will adjust their spending when the prices of certain items go up. For instance, they will switch to cheaper chicken if the cost of beef jumps.

Waid, however, said there is no research showing that older Americans make such substitutions because there isn’t any data available to do such studies.

If adopted, the chained CPI would have the most detrimental impact on the nation’s oldest citizens, who would experience the compounding effect of year-after-year lower cost-of-living adjustments, Waid said.

Republicans might not have accepted the president’s offer to adopt the chained CPI because of its impact on taxes, Waid said.

The chained CPI would have been used to adjust tax brackets each year. Smaller adjustments mean that more taxpayers might be pushed into higher tax brackets over time, Waid said.

“Not only is [the chained CPI] a cut in benefits, it’s an increase in tax revenues,” she said. “I believe that Republicans finally realized that.”

tell us whatYOU THINK


Please leave your comment below.

You must be signed in to comment.

Sign In | Register