Letter to Representative Andrews on Debt Comments

Print
Written by Dean Baker   
Friday, 15 July 2011 09:00

The Honorable Robert Andrews
2265 Rayburn House Office Building
Washington, DC 20515

Dear Representative Andrews,

President Obama recently proposed using the chained CPI to evaluate benefits and cut costs to Social Security while raising revenue. During an interview about this proposal, you voiced your support and said, “There is an appetite in the country among all groups to stop the practice of having our children pay our bills,” and that, “There is a realization that we can’t achieve that objective without real sacrifice by a lot of people, that there is some small group of elites that can pick up the whole tab.”

It is not clear that the chained CPI is more accurate than the current measure. The Bureau of Labor Statistics (BLS) has found that an experimental elderly index (CPI-E), that tracks the consumption patterns of people over age 62, actually shows a higher rate of inflation for the elderly than the CPI currently used for adjusting Social Security benefits.

While the CPI-E is not a full index since it does not look at the specific items bought by the elderly and the specific outlets they use for their shopping, there is no reason why BLS could not construct a full CPI-E. If the concern is having an accurate cost of living adjustment then it would seem that you should support having Congress instruct BLS to construct a full CPI-E. For my part, I don’t know whether this measure would show a higher or lower rate of inflation than the current CPI used for indexing benefits, but it would be a more accurate measure.

As it stands, switching to a chained CPI would undoubtedly mean a cut in scheduled benefits. Using this measure of the CPI would reduce benefits for retirees by 3 percent in 10 years, 6 percent in 20 years and 9 percent in 30 years. We know that the vast majority of retirees are struggling to make ends meet already. Retirees are not the people responsible for wrecking the country’s economy and they depend on Social Security far more than the small group of elites who did. Social Security benefit cuts of this magnitude seem like a major step in the wrong direction.

You should also be aware that there are no plausible projections that do not show our children being considerably wealthier on average than we are today. For example, the Social Security trustees projections imply that wages will on average be almost 40 percent higher in 30 years than they are today. Most workers may not see this gain if income continues to be redistributed upward. However, you are not addressing the pain that upward redistribution will inflict on children when you take Social Security benefits away from their parents.

I hope that you will have the time to review the indexation and generational equity issues more carefully. I would be happy to provide you additional background on the topic if it would be helpful.