Modifying inflation index for Social Security COLA and other federal adjustments. Budget negotiators are on to something, too bad the AARP doesn’t like it

11 Jul

"The Third-Term Panic", by Thomas Na...

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As reported on

Four senior congressional aides said lawmakers are discussing using an alternative yardstick to gauge inflation, known as the “chained consumer price index,” to determine annual cost-of-living adjustments for millions of Americans.

The idea may rile both Democrats and Republicans, because it could mean paring Social Security by $112 billion over 10 years, raising taxes by $60 billion and cutting pension and veterans’ disability payments by $24 billion, according to estimates by the nonpartisan Congressional Budget Office and the Joint Committee on Taxation.

Advocates say the government should switch to the chained index because its current measure of inflation overstates how quickly prices rise.

This is not a new idea, for years some experts have argued that the inflation measure overstates the impact of inflation, especially on seniors who spend money differently than younger families. Such a change would be relatively painless and yet provide real measurable savings.

I would go one step further and say that new Social Security recipients should not have any COLA adjustment for the first five years after starting their payments or in the alternative before age 65. This would not only save considerable money, it would encourage a delay in the receipt of benefits and perhaps longer periods of employment. Every American has several alternatives to saving for retirement. It doesn’t seem unreasonable that future retirees fund at least inflation erosion of their income for five years. An exception could be made for the very lowest income seniors.

Nothing may come of all this talk, but there is hope.  Despite what you may hear from those on the left, Social Security does have a dramatic impact on the federal deficit and it should be a key component of any comprehensive solution to the budget and deficit problem we face.  However, it seems to me that just as not letting current tax rates expire is not a tax cut, not allowing future Social Security benefit increases to occur is not a benefit reduction.

Needless to say, as usual, the AARP has a different view. 

“AARP is strongly opposed to any deficit reduction proposal that makes harmful cuts to vital Social Security and Medicare benefits,” Rand said.

Rand singled out some of the specific savings that have been floated in the press over the last 24 hours, most notably changes to the program’s formula for annual Cost of Living Adjustments that would reduce benefits over time by indexing them to stingier inflation measures.

“AARP will fight any cuts that are proposed to this important program, including proposals to reduce the cost of living adjustment for beneficiaries (COLA)—such as the proposed chained CPI—which AARP also believes should not be considered as part of the debt ceiling or deficit reduction negotiations,” The AARP CEO Rand said.

The AARP would do well to take a broader view of what is of critical importance to America.  Already too large a percentage of the resources of the U.S. are consumed by us seniors at the expense of our children and grandchildren.

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