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Home Publications Blogs CEPR Blog The Chained CPI is a Bad Deal for Kids and Low-Income Working-Age Adults Too

The Chained CPI is a Bad Deal for Kids and Low-Income Working-Age Adults Too

Written by Shawn Fremstad   
Wednesday, 19 December 2012 18:04

Criticism of proposals to shift to the Chained CPI have focused almost exclusively on how the switch would harm seniors. But as Alan Barber and Nicole recently noted in a CEPR brief, the switch would also harm people with disabilities, children, and low-income working-age adults in the here and now, not just after they retire. 

This is an issue that deserves vastly more attention than it has received to date, including from anti-poverty advocates and researchers like me. The shift to the Chained CPI would harm low-income children and non-elderly adults because a long list of means-tested benefits currently use a non-chained CPI, typically the CPI-U, to adjust eligibility standards and/or benefits amounts. For example, as the Congressional Research Service (CRS) detailed in a report last year, in addition to Social Security, the following major federal benefit benefit programs include inflation-indexing elements that rely on the non-chained CPI-U or CPI-W:


—Supplemental Security Income (providing supplemental income for severely disabled children and adults);

—the Earned Income Tax Credit;

—the Child Tax Credit (refundable portion for low-income workers with children);

—the Supplemental Nutritional Assistance Program (SNAP or food stamps);

—Child Nutrition Programs, including school meals.

Moreover, a much longer list of programs big and small for low-income kids, working-age adults, and people with disabilities—more than 50 programs according to CRS—have income eligibility standards, benefits, or other elements that are tied to the federal poverty income guidelines published by HHS each year. As you may have guessed by now, these guidelines are currently indexed annual based on the non-chained CPI-U. 

Some proponents of switching to the Chained CPI in Social Security have argued that the switch should only be made if Supplemental Security Income and veteran's benefits are exempted. However, this wouldn't help the much larger group of low-income people who receive help from all the other low-income programs listed above and who would be harmed by the shift to the Chained CPI. In theory, anti-poverty advocates could make program-by-program arguments for why individual anti-poverty programs shouldn't switch to the Chained CPI. But if the switch to the Chained CPI is made in Social Security and the tax code generally, I imagine they will not have an easy time making their case.

Finally, the official statistical poverty measure Census uses to calculate the number of people living below the poverty line is adjusted each year for the change in the CPI-U. Shifting to the Chained CPI to update the federal poverty line will only exacerbate the extent to which the FPL has officially defined deprivation down since being adopted in the 1960s. Because the FPL has never been adjusted for the increase in real median incomes since the 1960s, it has fallen from about 50 percent of median income in the 1960s to about 30 percent today. This has distorted our picture of economic hardship, and made it easier, as I noted in a recent paper, for conservatives to argue that child poverty is mostly due to a "decline in marriage" and individual's failure to get enough education. 

Tags: inequality | poverty | retirement | Social Security | Supplemental Security Income

Comments (2)Add Comment
Average Social Security
written by Richard, December 19, 2012 7:21
Average Social Security is less than minimum wage. Current average Social Security monthly benefit is $1,237 which works to $14,844 per year. Minimum wage 40 hour week, 52 weeks (which is fantasy) works out to be $15,080 per year.

Cost of Living Adjustments Should Be Based On Cost of Living, Not Politics
written by bmull, December 19, 2012 7:39
This is yet another reason why Chained CPI is even worse than it appears: The poorest people, including many impoverished children, tend to rely on more than one CPI-adjusted program. If Obama wants to cut these programs he should be honest with the American people. This backdoor cut is despicable.

Apparently Obama's envisioning a 5% bump in Social Security payments at age 85 to help "soften the blow." With life expectencies falling, that may not cost very much but, in any case, a typical 85 year old woman will have lost about $8500 in benefits by the time the bump kicks in. None of that will be restored by the bump.

Obama's also envisioning sparing SSI from the cuts, which is appropriate since SSI payments are much too low. But this will further exacerbate public resentment against this program which, rightly or wrongly, many Americans view as riddled with fraud.

Sparing VA disability benefits is a blatantly political move, since those benefits are far more generous than civilian programs. I'm not criticizing it--we have an obligation to take care of our veterans--but just like with the Zadroga 9/11 mess--let's admit that we're favoring one group at the expense of others for purely political reasons.

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