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Republicans praise Obama’s proposal to adopt ‘chained CPI’

Apr. 18, 2013 - 05:25PM   |  
By STEPHEN LOSEY   |   Comments

The White House’s inclusion of the so-called chained CPI, or consumer price index, in its fiscal 2014 budget gave House Republicans ammunition Thursday as they called for adopting a less-generous measure of inflation.

The House Ways and Means subcommittee’s hearing Thursday on the chained CPI focused on its effect on Social Security benefits. But the chained CPI would also lower cost-of-living adjustments for federal retirees’ pensions, military pensions, veterans’ benefits and other benefit programs that are regularly adjusted for inflation.

There now is no bill before Congress that would switch to the chained CPI as an inflation measure. But if one comes up for a vote, President Obama’s support for chained CPI could give some Democrats political cover to vote for it, increasing its chances of passing the Democratic-controlled Senate.

Federal employee groups, some Democrats and other liberal groups bitterly oppose adopting the chained CPI, saying it is a backdoor way to cut Social Security and other benefits by lowering their future rates of increase.

But supporters of the chained CPI say it is a more accurate measure of inflation. The government’s current method of measuring inflation does not take into account so-called “substitution bias,” or consumers’ tendency to buy, for example, cheaper fruit when the price of other fruit increases. The chained CPI does take substitutions into account, and as a result, produces inflation rates that tend to be about 0.25 percentage points lower than the current CPI method, according to the Congressional Budget Office.

Republicans on the subcommittee repeatedly pointed to the White House’s chained CPI proposal during the hearing to bolster their case that future increases to Social Security and other benefits must be lowered.

“I want to say something I don’t say much, which is, I congratulate the president on acknowledging that we have a problem” with Social Security, Rep. Tim Griffin, R-Ark., said. “I thank President Obama for starting the conversation, so we can fix this for the next generation of people.”

Subcommittee chairman Sam Johnson, R-Texas, also cited the White House’s budgetary statements that the chained CPI is more accurate.

“The president likes to say that if we agree on a policy, then we should act and not let our differences hold us up,” Johnson said.

But Rep. Lloyd Doggett, D-Texas, disagreed with Republicans’ assertions that Social Security was contributing to the nation’s debt crisis and said the chained CPI should not be considered as part of a deficit-reduction strategy. Doggett said he is concerned that chained CPI advocates are pointing to the White House’s apparent support for the proposal, without giving ground on additional revenues.

“Once again, as has happened a number of other times in this administration, [Obama] begins by saying he agrees with what the Republicans want, which is clearly a limitation on the growth of Social Security benefits, and then begs for something in return,” Doggett said. “And of course, they have rejected any other revenues, including additional revenues to protect the solvency of Social Security, or closing corporate [tax] loopholes, or making the other changes that would allow us to address our budget shortfall, which is very real.”

Critics such as the National Active and Retired Federal Employees Association point out that the chained CPI does not account for health care costs, which make up a greater part of seniors’ regular expenses than of the general population. As a result, NARFE said in an April 17 letter to the Ways and Means subcommittee on Social Security, the chained CPI doesn’t correctly measure how the prices seniors pay change over time.

“Do not be misled; the chained CPI is not a more accurate measure of inflation for seniors,” NARFE National President Joseph Beaudoin said.

Switching to a lower CPI at first would mean a few hundred dollars less per year for federal retirees. But its effect would compound over the years and decades until, eventually, some retirees would likely earn tens of thousands of dollars less than they would under the current method of setting COLAs.

CBO said switching to the chained CPI could reduce the deficit by $340 billion over a decade. Those savings would include $37.5 billion in reduced increases to federal and military pensions, veterans’ pensions and compensation, and other non-Social Security retirement programs.

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