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

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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:

—Medicaid;

—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