Social Security: Future benefit hikes to be cut?

Social Security benefit increases would be reduced gradually if Congress opts for a new measure of inflation. Social Security advocates mounting big effort to protest the measure.

Just as 55 million?Social?Security?recipients are about to get their first benefit increase in three years, Congress is looking at reducing future raises by adopting a new measure of inflation that also would increase taxes for most families ? the biggest impact falling on those with low incomes.

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If adopted across the government, the inflation measure would have widespread ramifications. Future increases in veterans' benefits and pensions for federal workers and military personnel would be smaller. And over time, fewer people would qualify for Medicaid, Head Start, food stamps, school lunch programs and home heating assistance than under the current measure.

Taxes would go up by $60 billion over the next decade because annual adjustments to the tax brackets would be smaller, resulting in more people jumping into higher tax brackets because their wages rose faster than the new inflation measure. Annual increases in the standard deduction and personal exemptions would become smaller.

Despite fierce opposition from seniors groups, the proposal is gaining momentum in part because it would let policymakers gradually cut benefits and increase taxes in a way that might not be readily apparent to most Americans. Changes at first would be small ? the?Social?Security?increase would be cut by just a few dollars in the first year.

But the impact, as well as savings to the government, would grow over time, generating about $200 billion in the first decade and much more after that.

The proposal to adopt a new Consumer Price Index was floated by the Obama administration during deficit reduction talks in the summer. Now, it is one of the few options supported by both Democratic and Republican members of a joint supercommittee in Congress working to reduce government borrowing.

The committee of six Democrats and six Republicans is struggling to come up with a plan to reduce government red ink by at least $1.2 trillion over the next decade. Changing the inflation index alone would put them a sixth of the way there.

"I think the thought process behind this is, slip this in, people won't understand it," said Max Richtman, president and CEO of the National Committee to Preserve?Social?Security?and Medicare.

Richtman's group is spending about $2 million on radio, TV and direct mail ads to fight cuts in?Social?Security and Medicare. His message to Congress: "Don't believe that taking this approach to cutting?Social?Security?will not be noticed. You will pay for it."

A TV ad by AARP puts it this way: "We are 50 million seniors who earned our benefits, and you will be hearing from us today ? and on Election Day."

The inflation measure under consideration is called the Chained Consumer Price Index, or chained CPI. On average, the measure shows a lower level of inflation than the more widely used CPI for All Urban Consumers.

Many economists argue that the chained CPI is more accurate because it assumes that as prices increase, consumers switch to lower cost alternatives, reducing the amount of inflation they experience.

For example, if the price of beef increases while the price of pork does not, people will buy more pork. Or, as opponents mockingly argue, if the price of home heating oil goes up, people will turn down their heat and wear more sweaters.

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Source: http://rss.csmonitor.com/~r/feeds/csm/~3/3EpoRvXsvfM/Social-Security-Future-benefit-hikes-to-be-cut

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