Tags: CPI | chained CPI | Obama | Thomas

Using Chained CPI Risks a Senior Poverty Crisis

Friday, 12 Apr 2013 08:02 AM

By Michael Kling

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President Barack Obama’s proposals to cut Social Security by using the “stingier chained” Consumer Price Index (CPI) risks a senior poverty crisis, says a Kenneth Thomas, a political science professor at the University of Missouri-St. Louis.

In his budget proposal, Obama proposed using the chained CPI instead of the traditional CPI to calculate Social Security cost-of-living increases. Because the chained CPI computes a smaller inflation rate, it would produce smaller increases in the benefits for Social Security beneficiaries.

“This risks undoing all the progress made against senior poverty since the passage of Medicare and Medicaid in 1965,” Thomas writes in his blog, “Middle Class Political Economist.”

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

“If this cut really happens, Social Security benefits will steadily fall in true inflation-adjusted terms due to the magic of compounding,” he warns. “Moreover, with 49 percent of the work force having no retirement plan at work and another 31 percent with only a grossly inadequate 401(k), the cuts will worsen the coming retirement crisis. The only question will then be: how high will senior poverty have to go before we do something about it?”

In 1968, 25 percent of seniors were poor, compared with 9.4 percent in 2006, he notes. However, senior poverty is higher after medical care and other expenses that hit seniors particularly hard are counted.

The U.S. senior poverty rate, measured by the international standard of 50 percent of median income, is already 25 percent, Thomas says. That’s much higher than in most developed countries, more than three times Sweden’s rate and over four times as high as Canada’s.

Why did Obama propose cutting Social Security after Americans rejected a candidate who wanted to cut Social Security and Medicare? Perhaps, Thomas suggests, he is “chasing the fantasy of ‘being the adult in the room,’ but this is a losing proposition.”

By proposing to cut Social Security as a concession to Republicans, Obama automatically draws Republican opposition, Thomas says, pointing out that Rep. Greg Walden, R-Ore., chairman of the House GOP re-election committee, has blasted the proposal as “a shocking attack on seniors.”

Obama’s proposal is an example of him negotiating with himself, Thomas writes. “We have plenty of examples of the President negotiating with himself to bad effect, most notably in the 2011 debt ceiling battle.”

Robert Reich, Secretary of Labor under President Bill Clinton, agrees.

“The president’s predilection for negotiating with himself is not new,” states Reich on his blog. “But his willingness to do it with Social Security, the government’s most popular program — which Democrats have protected from Republican assaults for almost 80 years — doesn’t bode well.”

Obama’s negotiating attempt will ultimately fail due to Republican intransigence, he predicts. “They’ve been wanting to cut Social Security for years. But they won’t agree to close tax loopholes for the rich.”

Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.

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