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Home Publications Blogs Beat the Press The Hill Says that Only Liberals Know Arithmetic

The Hill Says that Only Liberals Know Arithmetic

Saturday, 11 January 2014 23:34

An article on efforts to persuade President Obama to drop his proposal for adopting the chained CPI for indexing Social Security benefits told readers:

"liberal policy experts estimate [the change] could cost seniors thousands of dollars in benefits over their lifetimes."

This is not something that just liberal policy experts have estimated, it is a fact. The proposal would reduce annual benefits after retirement by roughly 0.25 percentage points a year compared with the current index. That would lead to a reduction in benefits of several thousand dollars for a worker who lives to collect benefits for twenty or thirty years. This is how the change would save the government money.


Note: I wrongly attributed this to Politico in the original post. Thanks to Robert Salzberg for catching the mistake.

Comments (10)Add Comment
Obama's Legacy: Inequality is a Zero Sum Problem Between Today's Takers and Tomorrow's Makers
written by Last Mover, January 11, 2014 11:54
This is how the change would save the government money.

It is also how the change would save money for the economic predators who run the country.

As the article says, this how Obama gets the other side to the negotiating table. Even before negotiations begin. Even when nothing is negotiated in return. Obama stands ready to give it away. In the name of debt reduction.

Because you see, Obama is really worried about inequality isn't he. In a zero sum sort of way.

There's too many losers in America. To be winners there must be more opportunities. To have more opportunities the debt must come down.

And one way to get the debt down is to reduce future SS benefits to real makers so predators can have it ... to increase opportunities ... for more makers ... to become more winners.

History will show Obama understood this and acted wisely to take actions that would reduce inequality ... by increasing it even more in the long run with flat out giveaways ... so he could avoid looking like the patsy he always was for the predators during his two terms.

What a legacy. Hope is eternal - and elusive too - because it's always for the future, never for the present.
Which is worse
written by Jennifer, January 12, 2014 7:54
It's hard to pick out the most offensive part of this situation. Is it that Obama insists on budget cuts that are harming the most vulnerable? Is it that he is purposely staking out a position that most Americans, Democrats and Republicans, are against, therefore harming Democrats in general and the ones up for reelection in '14? Or is it that he clings to the idea that CPI will be enough to convince the Congressional Republicans to go for a tax hike? (which will never, ever, happen)
Obama should place an optimistic bet on the future of the USA economy and a Flat Tax
written by John Wright, January 12, 2014 8:39

Rather than attempt to lower the Social Security benefits, Obama should promote that the USA economy will be creating good middle class jobs, at good pay levels, that will be funding future Social Security benefits.

After all, Social Security is a sizeable percentage of current middle class and low wage earnings, so keeping the percentage the same while increasing the earnings pie (though higher wage jobs) will help funding even if the number of workers falls.

Social Security funding concerns are symptomatic of a poorly functioning middle class/lower middle class economy, not a disease that needs to be cured.

Furthermore, for the flat tax advocates like Steve Forbes, Obama should talk about applying Social Security to all forms of income and get rid of the cap.

This would be the "Obama Social Security Flat Tax".

This would be Obama's initial salvo toward a flat tax, that is prized by many conservatives.

The new Social Security Flat Tax would have no exemptions for rents/royalties received, capital gains, and hedge fund carried interest.

As Steve Forbes has lobbied for a flat tax before, Obama should have little problem enlisting his help for the Social Security Flat Tax.

Ok, maybe getting Forbes' help is stretching the limits of possibilities too far.
Not a fan of chained CPI, but
written by EMichael, January 12, 2014 8:43
let's make sure we run all the numbers in the Obama budget.

Chained CPI is only offered if benefit enhancements are included.

"Benefit Enhancement for the Very Elderly and Others Who Rely on Social Security for Long Periods of Time

The benefit enhancement would be equal to 5% of the average retiree benefit, or about $800 per year if the proposal were in effect today.

It would phase in over 10 years, beginning at age 76, or (for other beneficiaries, such as those receiving Disability Insurance) in the 15th year of benefit receipt.

The benefit enhancement would begin in 2020, phasing in over 10 years for those 76 or older (or in their 15th year of eligibility or beyond) in that year.

Beneficiaries who continued to be on the program for an additional 10 years would be eligible for a second benefit enhancement, starting at age 95 in the case of a retired beneficiary.

Because of the benefit enhancement for the very elderly, the Budget proposal would not increase the poverty rate for Social Security beneficiaries, and would slightly reduce poverty among the very elderly according to SSA estimates."


yes to chained CPI
written by tew, January 12, 2014 8:46
I'm for the use of chained CPI for social security benefits because it recognizes the reasonable, real world choices available to consumers. We all make substitutions among goods and services in response to relative prices. Social security is there to provide a baseline of partial income replacement to insure us against poverty (*). It is not there to make sure we can buy all products and services regardless of their price as long as reasonable alternatives are available. If I really like steak and the price of beef shoots sky high, but chicken prices stay the same, I don't think it's inhumane to ask me to consider chicken as an option.

* Other programs kick in if we didn't contribute to the system - our fellow citizens - much during our working years.
The Hill misses the tax increases in President Obama's Chained CPI proposal
written by Robert Salzberg, January 12, 2014 8:54
Chained CPI also raises taxes by slowing the inflation adjustments of tax brackets. Conservatives generally oppose chained CPI for that reason. CBO estimates that the revenue increases are a bit more than 1/3 of the total budgetary impact. Chained CPI yields about $2 in safety net cuts for every $1 in net tax increases.

Applying chained CPI to tax bracket adjustments actually would be more accurate that the current CPI. Taxpayers get a little tax cut every year because of the current CPI not adjusting for purchase substitutions. (The elderly being an exception to this.)

The Hill article never addresses the increased revenue that would come with chained CPI. Worse yet, The Hill article acts like the Republicans wouldn't have to compromise at all to get safety net cuts through chained CPI. That would be true if President Obama's proposal didn't apply to the tax code, but why let reality get in the way of bad journalism?

written by skeptonomist, January 12, 2014 9:36
Another reminder that productivity has always increased and will continue to do so (at least until we run out of fossil fuel or can't use it). Real GDP has thus grown (FRED: USARGDPC). The fraction of output that is devoted to bare necessities has decreased. Tying retiree's compensation to an arbitrary basket of "basic" commodities deprives them of the benefits of increasing production - why should their standard of living be frozen at their pre-retirement level? The starting point for these calculations should probably be nominal GDP per capita. To support this taxes would have to tap all income. Chances of this being adopted are small at present, but just stating the position would help to show how retirees are being squeezed by inequality.
If total production has fallen below trend as at present, it is also reasonable to expect retirees to share in the decrease.
written by skeptonomist, January 12, 2014 9:47
And another reminder that except for timing the payout of the nearly $2.7T excess in the Trust Fund (it should be gone about when the last boomers expire), SS benefits do not have to be set years in advance or tied to prices or anything whatsoever. The money is collected every year and paid out at the same time (again except for the Trust Fund buffer for baby boomers). The level of taxes and benefits could be set by referendum every year, or perhaps in every national election.
written by skeptonomist, January 12, 2014 9:59
Basing SS benefits on nominal GDP is essentially equivalent to John Wright's flat tax on all (personal) income. This would be overwhelmingly popular if people were shown what the tax rates would be compared to current payroll tax rates.
written by EMichael, January 12, 2014 10:21
"This would be Obama's initial salvo toward a flat tax, that is prized by many conservatives.

The new Social Security Flat Tax would have no exemptions for rents/royalties received, capital gains, and hedge fund carried interest.

As Steve Forbes has lobbied for a flat tax before, Obama should have little problem enlisting his help for the Social Security Flat Tax."

Your second paragraph eliminates any chance of conservatives backing your version of the flat tax, particularly Steve Forbes.

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.