Tornado Alley (PROG)

[BullNBear52]

He's not cutting social security benefits. The change that he proposes just changes the calculation on annual cost of living increases. When CPI goes down in a year SS benefits are not reduced. There just is no COLA increase.

Wonkbook: The trick of chained-CPI
Posted by Ezra Klein and Evan Soltas on April 8, 2013 at 8:07 am

Liberals are not pleased by the news that the Obama administration intends to include chained-CPI — a Social Security cut that’s long been a top priority for Republicans — in this week’s budget. The AFL-CIO, for instance, calls it “unconscionable.” A cynic, of course, might suggest that this is all a necessary part of the White House’s plan: How will conservatives know the Obama administration conceded anything unless liberals are loudly, vocally upset?

But if Peter Orszag, Obama’s first budget director, is right, perhaps there’s less for liberals to be upset about than meets the eye. “What neither side seems to have noticed, however, is that the difference between the chained CPI and the standard CPI has been diminishing,” he writes in Bloomberg View. “That means the impact of switching indexes may not be as great as many assume.”

“Chaining CPI” saves money by switching the government to a slower measure of inflation. That slower measure of inflation means Social Security slows down the cost-of-living increases built into its benefits. It also increases taxes, albeit by less than it cuts spending, by moving people into higher brackets more quickly.

That’s the trick of the policy: It doesn’t make any cuts or raise any taxes directly, it just uses a supposedly more accurate measure of inflation to make opaque cuts automatically. But that means the cuts and taxes all depend on what happens to that new measure of inflation.

When you hear how much money chained-CPI saves, Orszag says, that’s assuming “that the chained index grows 25 to 30 basis points more slowly than the standard indexes do.” And since 2000, that’s been about the average. But the average misses a deceleration in recent years.

“From January 2000 to January 2003, the annual increase in the chained index was 47 basis points lower than that in the CPI-U. From 2003 to 2006, the difference was 31 basis points. From 2006 to 2009, it dropped to 15 basis points. And over the past two years, the average difference has been just 11 basis points.”

If the slowdown holds, chaining CPI won’t save as much money as its proponents hope or its critics fear. That’s not to say it’ll save no money: Orszag estimates it’ll still bring in $150 billion in the next decade, and the savings will grow sharply in the decade after that.

It’s also possible, of course, that the slowdown was a temporary feature of the recession, and it will reverse itself in the coming years, and the gap between the two measures could even widen beyond the 25-30 points budget analysts expect, meaning chained-CPI will save more money than expected. As they say, predictions are hard, especially about the future.

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/04/08/wonkbook-the-trick-of-chained-cpi/