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Home Publications Blogs Beat the Press The Obama Administration Is Scared of an Accurate Consumer Price Index

The Obama Administration Is Scared of an Accurate Consumer Price Index

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Tuesday, 16 April 2013 03:42

It would have been helpful to note this fact in an article discussing the Obama administration's proposal to cut Social Security benefits by adopting a chained consumer price index as the basis for Social Security cost of living adjustments (COLA). The piece notes claims that the chained CPI provides a more accurate measure of the rate of inflation, then tells readers:

"Some argue that the chained CPI would cheat seniors by understating inflation for the elderly, who spend more on health care. The nonpartisan Congressional Budget Office (CBO) has found conflicting evidence on that point."

Actually the Congressional Budget Office did not find conflicting evidence on this point, it just noted that the evidence is not conclusive. If the White House was interested in an accurate measure of the rate of inflation seen by seniors then it could instruct the Bureau of Labor Statistics to construct a full elderly CPI that would track the actual consumption patterns of the elderly. It has steadfastly refused to consider this proposal, which could lead to a higher annual COLA.

The Post should have made this point so that readers would recognize that the goal of the Obama administration is to cut Social Security, not make the COLA more accurate. Some people may be confused on this point.

The article also misled readers when it asserted:

"Medicare, Medicaid and Social Security account for nearly 40 percent of federal spending and are growing rapidly, as they must provide benefits to all who qualify, regardless of cost."

Actually the cost of Social Security is growing relatively slowly, having risen by roughly 1.0 percentage point of GDP over the last two decades. It is projected to rise another 1.0 percentage point over the next two decades, then stay roughly constant as a share of GDP over the rest of the century.

Medicare costs have been projected to rise more rapidly because of rapidly growing private sector health care costs. In fact, Medicare costs have risen quite slowly over the last 5 years, although CBO does not project this slower rate of growth to persist.

Comments (11)Add Comment
Also worth noting
written by Chris Engel, April 16, 2013 5:32
A survey of economists showed that there were more economists who are "uncertain" about Chained CPI being more accurate, rather than agreeing:

http://www.igmchicago.org/igm-economic-experts-panel/poll-results?SurveyID=SV_3qSMzAVWMRUHdOJ

This contradicts the Obama administration uncited claim that "most expert economists agree that it's a more accurate measure".

Social Security Chain
written by bakho, April 16, 2013 6:30
Social Security needs to be chained to percentage of GDP. If more income is going to the wealthiest, then the SS cap needs to rise accordingly.

The malefactors of great wealth don't like this because employers must pay half the SS tax and they want all the economic gains for themselves and none for the rest of us.
Change COLA to CODA - Cost of Dying Adjustment
written by Last Mover, April 16, 2013 7:15
In the spirit of how the death panel lie was used to frighten the public into backing off from reducing excessive health care costs entirely unnecessary, the chained CPI could be billed in the media as a Cost of Dying Adjustment.

Obama and the GOP would drop it from the grand bargain agenda like a hot economic potato covered in stimulus spending sauce. All it takes to catch on is a few key sock puppet plants for it to go viral.
...
written by Kat, April 16, 2013 8:53
Scared? Of whom are you speaking? Inclusion of the chained CPI in the budget is the very definition of courage, right?
...
written by Conelrad, April 16, 2013 10:58
Bakho writes: "Social Security needs to be chained to percentage of GDP." This seems to be an idea worth fleshing out (adjustment for elders as a percent of the population, etc.)

As to the presumed employers' contribution, this is essentially paid by employees in the form of lower wages.
...
written by liberal, April 16, 2013 11:01
bakho wrote,
If more income is going to the wealthiest, then the SS cap needs to rise accordingly.


Huh? The truly wealthy don't receive most of their income in the form of wages; they receive them as capital gains.
...
written by liberal, April 16, 2013 11:12
Conelrad wrote,
As to the presumed employers' contribution, this is essentially paid by employees in the form of lower wages.


Not necessarily true a priori, but most economists' view of the relevant elasticities would indeed imply that the employer's share is actually borne by the employee.
...
written by TK421, April 16, 2013 11:27
"Social Security needs to be chained to percentage of GDP. If more income is going to the wealthiest, then the SS cap needs to rise accordingly. "

A good first step toward this would be eliminating the cap on income that is taxed to fund Social Security.
Personal experience
written by Vern, April 16, 2013 12:41
I was retired as an officer from the military over 30 years ago. If the current COLA was over over-paying me by 0.4% I should have seen a standard of living increase of something like 13% when compounded.

When I checked the current military pay grades I find that they are 15% higher than my current retirement. So apparently current soldiers are living pretty high on the hog as compared to 30 years ago, having a standard of living 28% higher (adding what I am currently "over payed" to the increased pay). Or is it possible that current COLA is actually too low not too high.
...
written by JDM, April 16, 2013 12:54
Tell you what. I'm collecting social security now, and I will gladly accept, before knowing what the answer is, the results of a study by the appropriate folks regarding a non-experimental elderly index. I'm willing to agree to this beforehand, why are they?
...
written by BGny, April 18, 2013 5:28
Like JDM, I'm collecting SocSec now.

I want the BLS "experimental" CPI-E standard adopted ASAP. I depend on it for my income & to pay my Medicare costs. Approx. 2 years after a 3 year benefits, but not Part D premium, freeze the 2013 COLA is wiped out by the 5% increase in Part B premiums & the approx. 15% rise in Part D premiums.

I also want to see the salary/wage cap on FICA taxes removed. I'd also like for "carried interest" and any other somehow exempted same year earned income to be taxed on FICA.

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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.

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