- by New Deal democrat
There is a small furor in the political blogosphere today about Obama offering to index Social Security benefits to the "chain-weighted" CPI vs. the CPI for all urban workers, or CPI-W (the traditional measure). There is a lot of misinformation or poor information out there, including an article at the Great Orange Satan claiming that the resulting cut would only be 14 cents a month for the average recipient. Here are the facts.
Data for the chain weighted CPI has only been collected since December 1999. During the first 10 years, while the CPI-W rose 30%, the chain-weighted version rose 26.6%. On an annualized basis, that is 2.45% vs. 2.20%. In other words, so far chain-weighted CPI has averaged 0.25% less a year.
The diary on G.O.S. appears to take the 10-year average and then divide by 10, with an example that under the current system, a $1044 monthly benefit would rise to $1075.32 (a 3% increase). The diary claims that under the chain-weighted system, the payment would only go down 10 cents a month, to $1075.22. This is nonsense, it posits a change of .001%, not the .25% based on the evidence of the last 10 years.
In fact, under a chain weighted system, as opposed to the hypothetical 3% increase, the chain-weighted increase would be to $1071.77.
That's still only $3.55 a month.
The problem is, the changes are cumulative. Each year the chain-weighted index falls back further and further.
By the end of 10 years, the .25% loss of the chain-weighted increase would result in a net loss of 3.4%.
After 20 years, the loss is 5.4%.
After 30 years, the loss is 8.3%.
After 40 years, the loss is 11.1%.
After 50 years, the loss is 14%. And so on.
Hence David Dayen calculated the cumulative loss to a person retiring in 2012 would sustain a $500 loss in the year they turned 75, and a $1000 loss in the year they turned 85 under the chain-weighted system.
A tail-end boomer retiring in 2022 would face the $1000 cut by the time they turned 75.
A Gen-Xer retiring in 2032 would start out with the $1000 cut and it would get worse from there.
An early Millenial retiring in 2042 would start out with a $1500 cut a year compared with present benefits.
Those are the facts. I will leave you to your own opinion. BTW, feel free to educate the DKers, since I won't be cross-posting this.
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4 comments:
The only question we should be asking is whether or not the chained CPI is more accurate a measure of inflation. If it is, then it absolutely should be used in all COLA's.
On a side note, many seem to be forgetting that what obama proposed was that we use the chain CPI for all things affected by automatic inflation adjustments, which would of course include tax brackets as well and would generate substantially more revenue over a given time period.
Actually, the more appropriate question is whether the primary purpose is to measure the inflation rate on a fixed-weight basket of goods and services or to capture substitution effects caused by changes in relative prices. The chain-weighted CPI does capture substitution effects and whatever the merits, it is therefore more of a cost-of-living index rather than an inflation index per se. The BLS has been artificially lowering the CPI-W with quality adjustment models (hedonics) which tend to find only quality improvements but never seem to increase prices due to quality/service deterioration. Let's face it, the government wants to raise taxes and cut entitlement benefits through methods that voters will not generally understand or track. End of story!
yes it is true, i thought many a times.
Social Security was meant for people who needed it. Means testing and elimination of the salary cap would take care of any of the supposed problems.
How can a program that will run a surplus for the next 25 years be in 'trouble' and going to 'bankrupt' the country? How does a program with an administrative cost of less than 1% get lumped in with 'government can't do anything right' thinking? How can younger people think that my SS payments and millions of others' are going to be coming out of their checks, when I've put thousands and thousands into my account over the years?
Why are people so eager to believe whatever b.s. the GOP puts out about SS and Medicare, to the point where it becomes 'accepted wisdom' even though the very basis of it is a lie or massive distortion?
Once family and job responsibilities allow, I'm outta here. This country has become so screwed up in so many ways, Berlin is looking better all the time.
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