J.D. Shnaider: Chained CPI won't fix anything

I read with interest the Feb. 10 guest column, “Cut benefits? There’s a better way to reduce the deficit,” by Don Berry and Terry Lochhead. It made some great points against cutting Social Security benefits.

One of the more recent, and worst, ideas to surface lately in Washington is the proposal to cut Social Security benefits by changing the way the cost-of-living is calculated.

This “chained CPI” plan is often portrayed as a technical “fix.” In fact, it would cut Social Security benefits substantially, leaving seniors with less protection against increasingly expensive health care, prescription drugs and utilities. The only thing that is “cheap” is the talk of the politicians who promised they wouldn’t cut Social Security benefits for current recipients.

The chained CPI breaks that pledge and does it in a way that the longer we live, the more we lose.

In Maine, where there are more than 204,000 people who receive Social Security, we would lose more than half a billion dollars in benefits over 10 years.

The CPI already fails to take into account that seniors spend more on health care, which is rising much faster than overall prices. The CPI assumes, wrongly, that when prices go up, seniors can simply plug in a less expensive substitute. But seniors spend much of their money on basics such as drugs, utilities and health care, which don’t have lower cost substitutes.

The chained CPI won’t fix anything and Social Security shouldn’t be cut to solve Washington’s budget problem.

J. Diane Shnaider, Poland

AARP Maine advocacy volunteer

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Betty Davies's picture

AARP offers some facts

Calculating Social Security’s annual cost-of-living adjustment (COLA) using a chained consumer price index (CPI) would cut benefits the most for the oldest Americans—those who are least able to afford it. The greatest impact of the COLA cut will be on the oldest Americans.

The chained CPI would cut one full month’s income from a 92-year-old beneficiary’s annual Social Security benefits. That’s because the impact of the chained CPI on benefits increases significantly over time. The oldest can least afford a COLA cut. Americans in their 80s and 90s generally have less income, fewer financial assets, and are more dependent on Social Security than younger beneficiaries. They face increasing out-of-pocket medical costs and are at greatest risk of poverty.

The poorest are hit the hardest. The chained CPI will cut living standards most deeply for the poorest households, which tend to rely on Social Security for all or most of their income. Any cut to Social Security benefits is a cut to their total income. Because chained CPI benefit reductions would apply equally to both high- and low-income beneficiaries, the poorest will lose the largest share of income.

Women lose more than men. Women tend to live longer than men and make up a larger share of the population as it ages. They also tend to have lower incomes, are more dependent on Social Security, and are more at risk of falling into poverty.
Social Security benefits are modest. In 2010, the average annual benefit was about $15,000 for men age 80 and older and about $13,000 for women. The oldest Americans count on Social Security the most. One-third (33.9 percent) of all beneficiaries—and nearly four in ten (38 percent) women beneficiaries—age 80 and older rely on Social Security for nearly all of their family income (90 percent or more). That compares to only 19 percent of beneficiaries age 65 to 69.

Income falls as Americans age. In 2010, half of married couples and single people ages 65–69 had income of $37,200 or less. By age 80 and older, half had income less than $19,500. Poverty rates are highest for the oldest old. In 2011, according to the official poverty measure, Americans age 85 and older were 50 percent more likely to be in poverty than those age 65–69 (11.5 percent vs. 7.5 percent).
Nearly one in six older Americans lives in poverty.

Under an updated measure of poverty that takes health care costs into account and is endorsed by the National Academy of Sciences, 15.1 percent of Americans age 65 and older were in poverty in 2011. Almost 19 percent of Americans age 80 and older are in poverty under this updated measure.

Older Americans carry growing debt. Over the past 20 years, Americans age 75+ had a larger increase in average debt than any other age group. From 1989 to 2010, average total debt for those age 75+ increased 529 percent. Average mortgage debt increased by 812 percent and mean credit card debt increased by 813 percent.

Few older families have retirement savings. In 2010, two out of three families headed by a person age 75 or older had no money in retirement savings accounts. Half of those with savings had less than $54,000.

from: http://www.aarp.org/content/dam/aarp/research/public_policy_institute/ec...

Instead of pursuing this cruel plan, here are alternatives:

1) End special tax breaks for millionaires and billionaires. Their promise to create jobs if only we did this has turned out to be a lie.

2) Upper-income people live longer than the rest of us. Adjust the formula for determining Social Security benefits to reflect this.

3) Raise the level of wages subject to the Social Security payroll tax, so it will reflect the income gains of top earners over the past several decades. Many in the top 5% have seen their incomes quadruple, while the rest of us have seen our income stagnate or drop.

MARK GRAVE's picture

Okay, then what it your

Okay, then what it your proposal to fix the Social Security longevity issue?
Keep taking that no compromise position and someday the elderly will get nothing – see how far that goes.

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