What’s wrong with the Obama administration’s proposal to change the way Social Security checks are adjusted for inflation from using the Consumer Price Index (CPI) to instead using something called a “chained” CPI?
Let’s start with the fundamental problem: Social Security is not a cause of the federal budget deficit, and will not be for years, even if nothing is done to raise more revenue for the program.
Sure the US will eventually have to come up with more money to pay the benefits earned by retirees in the Baby Boom generation, but that problem of an eventual shortfall in Social Security tax revenues can be easily solved by simply eliminating the cap — currently $113,000 in annual income — that is subject to the FICA tax. If the cap were completely eliminated, so that all income was subject to the tax, as is the case with the Medicare tax, the shortfall would be nearly eliminated. Any remaining shortfall could be erased too, by extending some kind of FICA tax to unearned income from investments. My favorite is one that is common in Europe: a small — say 0.25% — tax on short-term stock and bond trades.
But there is a bigger problem with this Obama proposal to cut both Social Security benefits and Medicare funding: Adopting a long-time Republican proposal, it only looks at those programs in isolation, and concludes that they need to be cut. Our Nobel Peace Prize-winning president does not look at the biggest and most wasteful spending in the entire federal budget, which is the military. That bloated white elephant, which this year is sucking up close to $800 billion, not counting the interest on money borrowed to pay for past wars and armaments, could be cut in half or even by three-quarters, and it would still leave the US military budget larger than any other nation’s in the world. The US would be no less safe in that case. In fact, it would be a hell of a lot safer because we would no longer have US troops stationed expensively and provocatively in 1000 foreign locations.
Nobody in Congress is talking about slashing military spending and spending the savings on medical care, Social Security, education and other pressing needs. The public needs to demand this.
But let’s leave those two points aside for a moment, important as they are.
What the Obama administration is calling for — a switch from the Bureau of Labor Statistics’ CPI to a new chained-CPI to determine inflation adjustments in Social Security checks each year — is a brazen attempt to cut benefits for the elderly without admitting it. This is unconscionable, and as poorly reported as the story has been, the American people, regardless of age, are smart enough to be solidly opposed to the idea. People old enough to be drawing Social Security benefits, or who are close to filing for Social Security, know it’s stealing from them. But younger people, who almost all have parents or grandparents who are depending on Social Security, also know intuitively that this is a bad idea, and are opposed to it.
Chained-CPI has long been a favorite scam among by Republicans and conservative Democrats, who are in thrall to business interests that want to reduce the payroll taxes they have to pay into the Social Security system. But their claim that it is a “more accurate” way to measure inflation’s impact on the cost of living is clearly a fraud and a lie.
The rationale behind a chained-CPI calculation of inflation is a theory that when the price of some good or service rises too much, people supposedly switch to a cheaper alternative, so that alternative should be substituted in the “market-basked” used to calculate the cost of living.
Now sometimes that may be true. When gasoline prices soared during the Bush invasion of Iraq, many people downsized their cars to cut their gasoline bills. That move to smaller cars also cut families’ overall transportation expenses because small cars are generally cheaper than big ones. A chained-CPI would account for this by substituting small cars in the market basket, and might also lower the allocation for gasoline, since people would be buying less.
But the theory falls down, especially when it comes to older people, who drive a lot fewer miles than those who are commuting every day to work, and who also tend not to buy new cars. The old gas-guzzler they have, which doesn’t get many miles put on it in a year, is kept on the road and repaired as needed. They continue to buy whatever gasoline it takes to drive the thing. (I had a great aunt who died in the mid-1970s. We discovered that the 1950s Rambler she drove, which was in mint condition because it was kept in a garage, only had 10,000 miles on it because she just used it to go to the store once a week. When my cousin, who inherited it, tried to drive it home to New York, she discovered, out on the highway, that she couldn’t get it to go over 30 mph. Taking it back to the garage she learned from the mechanic that there was so much wear on the metal throttle arm that rode over a rod to move the carburator fuel control, that it would hang up on a ridge formed where it rested at 30 mph — the fastest my aunt ever drove. She would never have traded that car in for a new smaller one to save on gas.)
Old people and the disabled also spend vastly more on health care than most other people, and the cost of that health care is rising much faster than most other things.That’s a point the CPI, chained or not, doesn’t factor in. And the elderly and disabled have little choice about making substitutions on health care. They don’t — and shouldn’t — change doctors. And if you need an operation, you go where your doctor practices. If you need heart medication or cholesterol-lowering medication, you buy what is prescribed, whatever it costs. If you need Medi-gap insurance to cover your health needs, you buy it, whatever the inflated premium. Even Medicare itself has become more expensive at a pace well above the inflation rate!
Housing is another problem area. Young people, if their rent goes up, can move to cheaper digs. Old people can’t do that so easily. If they are in some kind of senior housing, it’s probably the only one in their neighborhood, and they’re not going to move to some place cheaper where they don’t know anyone, or where they are too far from their family, or to the son or daughter who lives nearest and who has been helping them out as needed. Nor should we expect them to move just to save money. If they are in their family home, it is where they are comfortable. It would take a lot to make them move, so they probably won’t. (Add to that the fact that with housing prices still way down thanks to the housing collapse, it would be a terrible thing for them to have to sell at a time like this — akin to selling out of the stock market right after a crash.)
Food is another area where the elderly have a harder time making substitutions. As people get older, they tend to get much more set in their ways. A young person can decide that buying salmon is too expensive, so they’re going to switch to mackerel or sardines, but an older person can get very fussy. They may not know how to cook a new fish, and won’t even try to switch. They may not even be doing that much cooking, and are relying on prepared foods that can be put in a microwave. There’s not much room for switching there.
All in all, this chained-CPI proposal from the White House is a disgusting betrayal by a president who swore as a candidate that he would stand firm against any cuts in Social Security or Medicare. As economics professor Michael Hudson so succinctly explains in an interview in Counterpunch, chained-CPI isn’t really a consumer price index, it’s a “cost of lower living standards index.” He says, “If living standards are ground down and down (through substitutions of cheaper goods and services) because people are poor, then the government can say, ‘Because you’re getting poorer and poorer, your living standards have declined, so we don’t have to pay you so much to live.’ … Poverty will cascade downward, and so will the chained CPI. This gives new means to the working class being put in chains.”
There are only two proper responses to this betrayal. One: we must demand that there be no cuts in Social Security or Medicare benefits, or increases in the taxes paid by those already paying taxes into the program or receiving benefits, until the military budget is first cut by at least 50 percent. Two: We must demand that no change be made in the index used to adjust Social Security benefits for inflation unless or until the government conducts an honest, unbiased and transparent academic study to develop a valid market basket for the elderly and disabled, to determine what their actual costs of living are, and how they are impacted by inflation. And no index should be based on simply adjusting as the elderly and disabled adjust to becoming increasingly destitute.
Dave Lindorff is a founder of This Can’t Be Happening and a contributor to Hopeless: Barack Obama and the Politics of Illusion, published by AK Press. Hopeless is also available in a Kindle edition. Lindorff’s article on drones in Philadelphia appears in the March issue of CounterPunch magazine. He lives in Philadelphia.