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What is the “Chained CPI” and How Does it Hurt Seniors and the Disabled?

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No cuts. No austerity. No excuses. That’s what we would be hearing from our political leaders if the interests of regular Americans were truly their concern. Instead, we hear from them the need for “shared sacrifice” and a “balanced approach” to solve the budget crisis. And we hear a Democratic president propose a budget that makes seniors and the disabled pay for the crisis.

According to the Washington Post, “The proposal to change the formula to calculate Social Security payments, also originally part of the offer to [House Speaker] Boehner, would generate $130 billion in savings and $100 billion in revenue, a result of the impact of the change on other government programs.”

This is the so-called “chained CPI”, a “free market” way of calculating inflation that will reduce the annual Cost of Living Adjustments or COLAs that protect seniors’ fixed incomes from inflation.

What is “Chained CPI”?

Here’s how it works: the existing method bases Social Security’s annual COLAs on the Consumer Price Index or CPI. This is already an unfair measure, so much so that while food, fuel and healthcare were steadily rising along with corporate profits, Social Security recipients received no increases in their income at all in 2010 and 2011. In 2012, their income increased only 3.6%, and this year only 1.7%. But instead of improving CPI methodology to take account of the price rises that affect seniors and disabled people the most – especially the skyrocketing cost of healthcare – President Obama is proposing to make the COLA even stingier, using the “chained CPI”. This free-market swindle is based on the idea that since all prices don’t rise equally fast, people will “make choices” and avoid buying the items whose prices are rising fastest. This is usually characterized by its well-heeled proponents as “choosing chicken when the price of beef goes up”.

Nearly 70% of seniors rely on Social Security (also known as SSA) for at least half their income, and the average benefit is less than $15,000 per year. The median income of Americans over age 65 is under $20,000 a year from all sources, including whatever private pensions, savings or annuities they scrimped and saved for during their working lives. “Beef or chicken?” in practice it will be the choice between eating beans, or buying medicine, or paying the rent.  The Senior Citizens’ League estimates that by utilizing these chained CPI adjustments, a married couple currently receiving $2,500 per month from SSA would lose anywhere from $90 to $930 every year. This is how President Obama proposes to fix the deficit.

An AARP study shows how losses under chained CPI would compound over time: “If you’re 62 and take early retirement this year, by age 92 – when health care costs can skyrocket and more than 1 in 6 older Americans lives in poverty – you’ll be losing a full month of income every year.” (, 2/2013)

Politicians of both parties, mindful of the fact that most voters know that the Social Security Trust Fund is supposed to be separate from other expenditures – and therefore has nothing to do with the deficit – claim that these cuts are needed to “preserve and stabilize the system”. They point to figures showing that the fund will run out of money in the next two to three decades. But a simple solution has been identified many times; it’s called “removing the cap”. The system is funded through the payroll tax, which is identified on workers’ paystubs as FICA, and amounts to 12.4% of each worker’s income – half coming from the worker, half from the employer. But this tax stops when the “cap” is reached, currently at $113,700 per employee. Any income above it is exempt from FICA.

The forecast shortage in the Social Security Trust Fund isn’t due to the “aging baby boomers”. It’s the result of the massive increase in inequality over the past 30 years. This is documented in a 2010 Congressional Research Service report: “Because of increasing earnings inequality, the percentage of covered earnings that are taxable has decreased from 90% in 1982 to 85% in 2005 [and 83% in 2007] … Of the 9.5 million Americans with earnings above the base, roughly 80% are men … The large declines in the late 1990s were mainly because salaries for top earners grew faster than the pay of workers below the cap.” (, 9/24/2010)

Make the Rich Pay

All that would be required to make the fund solvent for the next 75 years would be the removal of this cap, so that all earnings would be subject to FICA. This is what the same Congressional report concluded.

As a Huffington Post writer pointed out, the “chained CPI” proposal would save no more than what would be accomplished by a 10% reduction in just one Pentagon project, the F-35 Joint Strike Fighter, which is expected to cost $1.5 trillion for 2,457 brand new warplanes. Projects like this only strengthen military forces that already exceed those of the next 13, 17, or 23 most heavily armed nations, depending how it’s calculated.

Activists who supported Obama’s re-election are outraged at the attack on Social Security. The New York Times, the ever-imbedded spokesman of the ruling elite, spells out the president’s excuse to his base in its April 10th headline: “Obama unveils budget meant to draw GOP to the table”.

The article goes on to further rationalize this attack: “Mr. Obama incorporated the compromise offers on Social Security and Medicare into his annual budget for the first time – over vehement objections from many Democrats – in part after earlier private discussions with individual Republican senators about what he could do to assure them of his seriousness about reaching a long-term deal to stabilize the national debt”. (NY Times, 4/11/2013)

And sure enough, the president’s offer drew menacing praise from leading Republican Lindsey Graham: “There are nuggets of his budget that I think are optimistic. It’s overall a bad plan for the economy but when you look at chained CPI and Medicare reductions, we’re beginning to set the stage for the Grand Bargain. Chained CPI, adjust and harmonize the retirement age of Medicare with Social Security, do some means testing for both programs and in return flatten the tax code, generate about $600BN in revenue and if you look at these changes over thirty years it’s four to five trillion dollars in savings… this is somewhat encouraging. His overall budget’s not going to make it but he has sort of made a step forward in the entitlement reform process that would allow a guy like me to begin talk about flattening the tax code and generating more revenue”. (NBC News)

Senator Graham expressed with unusual frankness how important it is for a Democratic President to lead the charge against the old, the sick, and the poor: “If the president will lead on this, and he showed some leadership – no Democrat will get to his right. Nobody is going to adjust the age for retirement if the President doesn’t embrace it. Nobody is going to adjust CPI if the President doesn’t embrace it, so he’s showing some signs of leadership that’s been lacking.”

The ruling elite, the richest 0.01%, is looking at us through the eyes of this Southern grandee and saying: “Don’t blame us, Obama’s your man, you elected him, and look, even he is saying that you have to make do with less.”

The change from the existing CPI to chained CPI will hurt the most vulnerable in our society without making much of a dent in the federal budget in the short term. By putting this proposal forward in his budget address, President Obama shows that he can touch the “third rail” of American politics and survive – not as the lesser of two evils but the more effective evil. and others are frantically collecting petitions to remind the president that they are his base, and this is not what they elected him to do. This will do nothing to change the pro-corporate character of the Democratic Party.

Activists who are serious about an effective fight-back against austerity should instead put their energies into running independent, anti-corporate working class candidates as a vitally necessary strategy to challenge the corporate agenda and corporate control of the political system. If this is not done, the right wing will once again be left alone to tap into workers’ anger against the policies of Obama and the Democrats, and they will again build support as they did through the Tea Party in 2009 and 2010.

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