Social Security boogey man could be back in USA 2016

Chained CPI cuts benefits to SS recipents

It’s that time of year again when 60 million Americans receiving Social Security are at the mercy of politicians to decide whether or not they will receive a cost of living increase (COLA) and the method used to calculate increases negotiated in the fall and due to begin January 2016.

The calculation used to determine the amount of the COLA, or whether there will be an increase or not, is the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) is almost the same in July and June this year.  The CPI-W measures prices to determine the increase.

In 2015 federal retirees, Social Security benefits and military retirement all received 1.7 percent cost of living increase as determined by the CPI-W in the third quarter of 2014.

Unfortunately the CPI-W this year has declined 0.3 percent in the last 12 months, which does not look good for increases.  The 2014 third quarter average is compared to the averages in the same quarter this year to determine if retirees will receive a raise next January.

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Social Security for 60 million Americans

Social Security is viewed as an entitlement by some politicians, although technically it is not because employees and employers pay into the system in order to create a retirement system.  Because of so-called entitlement perception, various ways of calculating or re-calculating benefits looms large during budget time in Washington particularly by Republicans. 

One of the most punitive calculations for cost of living increases is called Chained CPI, which has been proposed before but not enacted.  This method is a measure of inflation that grows more slowly and ensures Social Security recipients would get smaller increases. Some estimates as high as $10,000 over a lifetime.

Chained CPI changes which items it incorporates into inflation calculations when prices climb and consumers switch to cheaper alternatives. For example, when beef gets too expensive and people start buying more chicken, under chained CPI the inflation index would also switch to measuring the price of the cheaper chicken, instead of the cumulative effect of higher prices on everything.

Supporters say the method is more accurate because it measures what people are actually buying. Opponents call it the "cat food index" because it leaves people on fixed incomes with less money, forcing them to buy cheaper and cheaper alternatives for basic staples like pet food, according to a report in the Huffington Post.

Depending on a person's income and age, shifting to the new inflation gauge could mean cuts of thousands of dollars from retirees' future incomes, they said.

Senator Bernie Sanders (I-Vt.) who is currently running to be the Democratic nominee for president in 2016 has been a consistent critic for years against chained CPI, and would be again this year if it is proposed.

 "At a time when the wealthy and corporations are doing phenomenally well, median family income is nearly $5,000 less than it was in 1999," Sanders continued. "When you look at a budget, it is imperative that you look at the overarching reality of American life, and today when we look at America we have to understand that we have an obscene level of income and wealth inequality, the highest of any major country on earth, and worse in America today than at any time since 1929."

Although President Barack Obama has proposed chained CPI in the past to leverage something from Republicans, he most likely will not propose it for a reduction in benefits.  Last February the budget predictions, however, left out mentioning increase for Social Security benefits, which was cause for concern.

There was only general language against “slashing” benefits: “The Administration will oppose any measures that privatize or weaken the Social Security system and will not accept an approach that slashes benefits for future generations or reduces basic benefits for current beneficiaries.” This language allows for negotiating with Republicans who continually try to reduce Social Security benefits and raise the age of eligibility.  This year will not be any different.

The president’s current transfer reallocation plan insures that both the Social Security retirement fund and the disability fund would be able to pay full benefits until 2033. Without the reallocation transfer the 11 million disabled would have their benefits reduced by one-fifth or 19 percent. With this cut the severely disabled would see their incomes fall below the poverty line. 

But, there will likely be a partisan fight on transfer reallocation proposal because the House Republicans passed a rule in January that would hold a transfer between the two funds hostage unless there is a plan in place to cut Social Security benefits overall. Repubublicans do not see anything wrong with putting millions of vulnerable Americans at risk.  The arguments they use are myths designed to sway public opinion against a vulnerable population.  What is not a myth is how difficult it is to qualify for disability benefits.  Still, they argue incorrectly that people receiving disability do not deserve it.

Legislators are back in Washington after Labor Day on September 8 to begin work before they take another break at the end of September.  Social Security benefits might not be at the top of their list, but it certainly is for 60 million Americans. 

Resources
http://www.fedsmith.com/2015/08/19/cola-increase-in-2016-appears-less-likely/
Huffington Post
http://www.ssa.gov/oact/progdata/icpGraph.html
http://ourfuture.org/20150206/president-obamas-2016-budget-relatively-good-on-social-security?gclid=CMmny8GEwscCFVKEfgodxRkMSw

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