The president, as part of the fiscal cliff negotiation offers and counteroffers, has apparently opened the possibility of slightly adjusting the way cost of living increases are calculated for Social Security, by tying it (and all other government accounting) to a "chained CPI" model, a more accurate measure of inflation that accounts for the idea (and fact) that consumers often replace an item with increasing prices with a less expensive substitute. Apparently, this set off more alarm bells on the Left's media than Pearl Harbor. But as with most hair-on-fire freakouts, there is less here than meets the eye.
What is this Chained CPI thing?
Let me begin by restating something I explained almost a year and a half ago, in the wake of the debt limit negotiations of 2011, on this exact subject:
There are no cuts being proposed to social security's basic benefits. Social Security benefits are currently calculated using a formula that takes into account your income and replaces a certain percentage of it. Here is exactly how that's done: by determining one's average monthly income - wage-inflation adjusted - in the 35 best earning years of one's life, and then applying a "bend point" formula to determine your base benefit (fashionably known as PIA or the "primary insurance amount"). If you retire in 2011 at your normal retirement age, for example, your basic benefit is determined using the following formula:A chained CPI measure would also collect more taxes. Tax brackets, like social security benefits, are indexed to inflation, which means that just every so slightly, more people will fall into slightly higher brackets.
(a) 90 percent of the first $749 of his/her average indexed monthly earnings, plusAgain, these "bend points" are adjusted by a formula that has been set in law since 1979, are based on wage-growth, and there is absolutely no changes to that formula in the gang of six plan, and the changes proposed to it in the Fiscal Commission plan actually increases the base benefits for the poorest workers who are also likely to have the least in savings or other retirement income.
(b) 32 percent of his/her average indexed monthly earnings over $749 and through $4,517, plus
(c) 15 percent of his/her average indexed monthly earnings over $4,517.
Let's keep in mind that the president would accept such a deal, only if seniors and other recipients closest to poverty can be protected from adverse effects, while boosting benefits for the most needy. And, as with each of the previous iterations of this proposal, it will likely come with a new special minimum benefit to ensure that for the first time ever, no senior on social security has to live in poverty. Actual liberal policy think tanks (as opposed to screamtastic loudmouths) like the Center for Budget and Policy Priorities and the Center for American Progress have endorsed approaches exactly along these lines. And Leader Pelosi, who has more progressive bona fides in her left toenail than all the howling "Left" groups combined, just let the cat out of the bag:
Asked whether she considers chained CPI a benefit cut, Pelosi told reporters Wednesday, “No. I don’t. I consider it strengthening of Social Security."But but but... won't this still reduce the total lifetime benefit of a senior? Yes, insofar as each additional year lived is an increase in one's lifetime benefits. The only way you can honestly term the Chained CPI measure a "cut" is if you are willing to also make the case that every additional year lived is an "increase" in benefits. Which of our beloved defenders of Social Security would like to make this case to seniors, please step forward.
Chained CPI is not a cut in baseline benefits in Social Security. Even Paul Krugman - the Professional Left's greatest self-proclaimed bearded professor - admits that initial benefits are determined by one's earnings, but that chained CPI would reduce the rate of growth of those benefits by about 0.3%. For every "progressive" who believes that such slowing of the rate of growth is a "benefit cut," I would like them also to step forward and with a straight face, tell me that cutting the rate of growth of defense spending is a "cut" in defense spending. If you think you're a liberal, go ahead and try to say that. Out loud. With a straight face. You can't do it, can you?
But, Social Security is fine for now!
A key arguments zealous liberals often present is that Social Security is in no imminent danger, and so there is no hurry to fix whatever longer term funding issues it might have. Sure, Social Security is safe and sound for the next 20-25 years or so. And that is true.
- Higher taxes on the rich: The president, as his counteroffer, has asked for tax rates to go up for at least those making more than $400,000, in response to Speaker Boehner's offer of letting the rates go up on incomes over $1 million. The proposal would also cap the value of itemized deductions to 28%, basically preventing the rich from taking a greater percent of their incomes in deductions than middle class families. This, along with the president's proposal to raise capital gains and dividend rates, as well as increasing the estate tax, should bring us pretty close to $1.2 trillion.
- No changes to Medicare benefits.
- Extended unemployment benefits and refundable tax credits for the poor and the middle class.
- Infrastructure investment.
- A two-year extension in the debt limit, avoiding another hostage crisis in a couple of months.