It’s bad—bad, bad, bad—or so you would believe when people who react to it complain. How bad is it though, I mean, really, how bad is it? As it turns out, the issue promises worse ramifications than the reality of President Obama’s inclusion of changing the cost of living adjustment (COLA) on future increases in Social Security benefits.
One article used the shocking headline, “Here’s what chained-CPI really means: Up to $849 less for someone who retired in 2001.” Heavens to Mergatroid, that’s awful—until you actually read the article and see just what it is saying. “For simplicity,” the article stated, “let’s assume they’re eligible for the maximum benefit.” This means that the example was not some poor working class stiff who subsisted at just over the poverty level. The example was an upper middle class wage earner in the upper five or six digit range. Then, crunching the numbers, you notice that this person’s monthly Social Security benefit would be $6.04 lower over a twelve year period if the chained CPI (C-CPI) had been used. It’s a little hard to imagine that that person also had no pension, 401K, or investment income would be terribly inconvenienced.
Now, let’s consider someone who might actually be hurt, someone whose last year on the job earned them $30,000 when they retired in 2001. His Social Security benefit would have been $767 per month, and risen only to $989 under the C-CPI, instead of $1,026 under the CPI. As great as the hardship must be for that person, the difference of $3.01 per month seems hardly likely to make a noticeable difference.
So, what is the difference between the CPI and C-CPI. To begin with, the CPI is itself subject to criticism as a measure of inflation. Among the critics, the American Institute for Economic Research argues that the CPI dramatically understates inflation, and recommends it be measured by an Everyday Price Index (EPI) that reviews only the price of things everyone buys daily, instead of lumping in big ticket purchases.
What, then, is the C-CPI, and how does it differ from the CPI? The Motley Fool—some knowing investors—offers that “what the chained CPI does that the regular CPI doesn’t is to take into account the fact that when prices of two different items that are fairly close substitutes for each other don’t move in lockstep, consumers tend to buy more of the relatively cheaper good.” As you might imagine, low income seniors who rely heavily on their Social Security checks will especially do just this. Moreover, they will likely also be Medicare beneficiaries whose prescription drugs will soon become even more affordable as the Affordable Care Act (Obamacare) is fully implemented. Let’s not argue then that $6 per month will deny them their needed medications or food rations.
Other knowing policy wonks have waded into the discussion, like those at the Center on Budget and Policy Priorities who first said, “fears that the chained CPI would impose severe hardship are overblown,” and more recently to say:
Progressives who strongly dislike the chained CPI proposal should consider whether there is any chance that congressional Republicans will agree to raise revenues by curbing tax expenditures without some significant entitlement changes. And if (as I believe) there is no real chance, what’s preferable: the chained CPI with protections for the very old and the poor, or measures such as converting Medicare to premium support, raising the Medicare eligibility age to 67 and risking having some 65- and 66-year-olds go uninsured, and cutting Medicaid deeply and making ours more of a two-tier health care system based on income?
Having said this, I am concerned that Republican leaders will adopt the cynical approach of labeling the chained CPI an “Obama proposal” that they are willing to accept but only as part of a package that raises little or no revenue and, thus, does not force them to make any sizable compromises of their own.
The President has shown his willingness to make substantial concessions to reach an agreement. Will Republicans do the same?
These are not hot-headed journalists and policy wonks talking outside their expertise with nothing more than their outrage guiding them. These are level-headed, knowing people who have been analyzing GOP economic policy and showing it to be a lot of wishful thinking and fairy tales paving the road to disaster for anyone who believes in them.
I have to ask too where the outrage was on the proposal to raise cigarette taxes by another $0.98 per pack! When you figure that sales taxes are applied on the total cost of cigarettes—yes, smokers pay taxes on the taxes they pay—that comes to another $30 to $60 per month on a segment of the public that can ill afford the increase. Cigarette taxes have long been a revenue measure for reasons that make them something that should outrage anyone concerned with tax fairness. A demographic profile of smokers shows that they are overwhelmingly low income individuals, and in a politically powerless minority that receives no support for their objection to being singled out for revenue measures that relieve politicians of the need to push through revenue measures on those who can hurt them when they come up for reelection.
In reality, Obama’s proposed budget was a brilliant political maneuver under-girded by his pragmatism. The GOP has been calling for just this, and any failure to fix the budget in a way that heads off the sequester will more easily be put on their backs if they continue their obstruction. Alan Grayson and other outspoken critics in the “Progressive Caucus” be damned. They are just posturing and behaving irresponsibly on this issue, and possibly setting us up for another 2010 in 2014 by riling up the base. If this issue raises another tsunami of “Occupy Stupidity” in 2014, and we can’t shunt the GOP into obscurity, then what?
Shame on the Progressive Caucus, and all who jumped on this issue without thinking it through. Democrats do not need distension sewn in their ranks. What they need is unity, and a building resolve to usher the GOP into the obscurity of a bad memory. If we can do this, 2014 will be the time to push through the reform we need and want without compromise of our values, but it won’t happen if the Dems let this jade them toward their elected officials.