Posts Tagged ‘Senior Citizens’

Obama’s stealth attack on Social Security

March 18, 2013

Chained CPIPresident Obama is trying to sell a truly bad idea—a stealth plan for cutting Social Security and other social safety net programs by changing the means of calculating cost of living adjustments.   Instead of using the present Consumer Price Index, which is based on the prices of a market basket of goods, the President proposes to use switch to a “Chained CPI,” which goes up at a slower rate than actual prices.

This would affect not only Social Security, but veterans’ benefits, disability benefits and any other government program that is linked to the Consumer Price Index.  It is a stealth increase in taxes, because income tax brackets are now indexed to the CPI so that taxpayers aren’t moved into higher brackets by means of inflation.  The taxpayers whose taxes would increase are those in the middle tax brackets, not those already in the highest brackets.

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Supposedly elderly Americans rely on three “legs” for their retirement income—savings, company pensions and Social Security.  I’m one of the fortunate few who actually has all three “legs”.  But most elderly American are down to just one “leg”  and would be  badly hurt by any cuts to Social Security.

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The above chart shows the dependence on Social Security of the various income groups.  The first quintile is the bottom 20 percent of elderly Americans in income, and the fifth quintile is the top 20 percent in income.  The chart above shows that the first three quintiles—60 percent of American senior citizens—get the vast majority of their income from Social Security, and the next quintile gets half.   The chart below gives a different breakdown.

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Cost of living increases would be three-tenths of a percentage point less under the Chained CPI system that they are now. That doesn’t seem like much, but the cumulative effect would be sizeable.

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The existing CPI probably understates rather than overstates the rise in the cost of living for senior citizens.  We spend a larger fraction of our income than average Americans on medical care and housing, whose cost is rising faster than the cost of food, transportation and communication.  Some economists propose a CPI-E which would reflect senior citizens’ actual medical and housing costs.

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The great harm that Barack Obama has done as President has been to persuade Democrats to go along with anti-liberal policies out of loyalty and the perception that it is enough that he is not a Republican.  During the Bush administration, then House Speaker Nancy Pelosi blocked proposals by President Bush that would have undermined Social Security.  Now she is a proponent of the Chained CPI.

I don’t know the President’s motives in taking the stand he does.  I suspect that he simply accepts the consensus among the Washington elite that Social Security, Medicare and other elements of the social safety net need to be reduced, and that the most important objective for government is to eliminate the federal budget deficit.  My guess is that, in working against the interests and wishes of his core supporters, he thinks of himself as a great statesman, like President Nixon going to China.

Click on A President Who’ll Cut Social Security, and Liberals Who Love Him Too Much for analysis by Richard RJ Eskow for Crooks and Liars.

Click on House Democrats Express Openness to Entitlement Benefit Cuts for a Talking Parts Memo article on how Democrats embrace the Chained CPI.

Click on Chained CPI: the Younger You Are, the Bigger the Cut for analysis by the AFL-CIO.

Click on Numbers Racket for a 2008 article by Kevin Phillips on the history of changes in the CPI.  I doubt if you will be surprised to learn that each change in the CPI calculation made the rise in the cost of living seem less than it was before.