Is Chained CPI the Path to a Stronger Social Security?
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The Fiscal Times
March 22, 2013

Talk of adjusting the Labor Department’s consumer price index to more accurately measure real inflation in the economy has now become a bargaining chip in a renewed effort by the White House and key members of Congress to negotiate a “grand bargain” of deficit reduction measures.

Known as chained CPI, this alternative formula reflects how consumers change their purchasing habits when prices rise or fall for a broad range of services, including food, housing, clothing and medical expenses.

The Congressional Budget Office estimated that government spending on Social Security, Medicare and other benefits would decline by about $216 billion over ten years if this less-generous index were in place.

“I think chained CPI is a real possibility, but only if it is crafted in the right way,” said Senator Dick Durbin (D-Illinois), the second-ranking Democrat in the Senate, on Wednesday morning in Washington.

Durbin made his remarks while also announcing he’ll soon unveil a plan to create a bipartisan panel to recommend to Congress measures to guarantee the solvency of Social Security for the next 75 years.

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Durbin explained that nothing would be done to alter the underlying federal retirement program and that the savings would not be used for deficit reduction. “It’s still our responsibility to make sure that it’s there... What I’m getting to is there are things we can do, if we do them early, over a gradual period of time,” to ensure the solvency of Social Security, he said.

But officials at AARP, the largest seniors’ advocacy group, and liberal economists and activists warned recently that reducing the cost-of-living adjustment – even by as little as a third of percentage point – over time would have a highly detrimental impact on the economic well-being of older and disabled Americans and their families who receive benefits from Social Security. Many Democrats and liberal groups stress that Social Security is not contributing to the deficit and that there is plenty of time to deal with the long-term funding problem.

Durbin said Wednesday that liberals were being “short-sighted” if they didn’t recognize that it would cost the average senior about $3.50 a month in lost benefit increases to assure 50 more years of solvency in the program.

“There are things we can do” to help Social Security have “solvency,” Durbin said. “But people are afraid to walk into this thicket. I think we can and we should. I go back, again, to [an] Illinois illustration. We’ve ignored our pensions for 40 years, and now, we don’t know how to get out of this mess. I don’t want to see anything like that [happen] with Social Security.”

Washington Editor and D.C. Bureau Chief Eric Pianin is a veteran journalist who has covered the federal government, congressional budget and tax issues, and national politics. He spent over 25 years at The Washington Post.