A truly bad idea is back again. The Trump administration wants to apply the Chained CPI to federal safety net programs. The government currently uses another measure, the CPI-U (Consumer Price Index for Urban consumers) to calculate inflationary increases in the federal poverty level. Replacing the CPI-U with the Chained CPI would underestimate the impact of inflation on workers’ wages, keeping the federal poverty level artificially low. Millions of Americans would lose benefits like food stamps, Medicaid and Affordable Care Act subsidies as real inflation pushed their incomes above the lower poverty line based on the Chained CPI.ADVERTISEMENT
Once the Chained CPI were adopted for safety net programs, it would be a slippery slope to the conservatives’ long-held goal of applying the chintzier inflation index to Social Security COLAs (cost-of-living adjustments). Annual COLAs are already fairly lean using the current inflation formula.The Social Security Trustees estimate that the COLA for 2020 will be a scant 1.8 percent or $26 per month for the average beneficiary. At least one third of that increase could be swallowed up by a projected $8.80 hike in Medicare Part B premiums.
The last thing senior’s need is the maybe but the dominoes are already starting to fall in that direction. In 2017, the Chained CPI was incorporated into the Trump/GOP tax law to adjust income brackets for inflation. That was step one in the conservative campaign to legitimize their preferred consumer price index. Step two is the proposal from the White House to impose the Chained CPI on federal safety net beneficiaries. We’ve already talked about step three: adopting the Chained CPI for calculating Social Security COLAs.
The Chained CPI has its origins in 1995 with the Advisory Commission to Study the Consumer Price Index (appointed by the U.S. Senate to see if the standard CPI was accurate). The commission was chaired by Michael Boskin, a director of Exxon since 1996, fellow at Stanford’s Hoover Institution and author of several tracts on “reforming” Social Security, with titles like, “The Crisis in Social Security,” “Personal Security Accounts: An Alternative Social Security Reform Proposal” And “Too Many Promises: The Uncertain Future of Social Security.”
In 2013, the Obama administration proposed adopting the Chained CPI as a concession to Tea Party Republicans during debt reduction negotiations. By the next year, Obama had reversed himself and withdrawn the Chained CPI proposal, partly under pressure from groups like the National Committee.
Now the Chained CPI is back. Why is such a patently poor measure of inflation, which could cut benefits for society’s most vulnerable rearing its head again? I suspect that it’s because the programs conservatives want to slash — especially Social Security, Medicare and Medicaid — are too overwhelmingly popular to cut outright. The Chained CPI is a camouflaged way of shrinking eligibility and benefits because it’s a change in the inflation index, not an obvious budget cut. Over time, the Chained CPI would reduce money going into beneficiaries’ pockets but, as one of our senior analysts put it, “There’s no fingerprints. Mr. and Ms. America won’t know what hit them.”
“The only feature of the chained CPI one can be sure about is that it can be applied to reduce government expenditures — at the expense, of course, of the people who benefit from those expenditures,” writes columnist Michael Hiltzik in the Los Angeles Times. As Hiltzik points out, in pushing the Chained CPI, President Trump is “taking a page from conservatives” who wave long wanted to cut Social Security.
If anything, seniors need a more accurate inflation index that reflects their true expense, which are different than younger adults’. Seniors spend almost twice as much on medical care and considerably more on housing than the rest of the population. We favor the CPI-E (Consumer Price Index for the Elderly), which gives extra weight to seniors’ true expenses. The National Committee has endorsed legislation in Congress to adopt the CPI-E for Social Security COLAs, including Rep. John Larson’s (D-Conn.) Social Security 2100 Act, Senator Bernie Sanders’ (I-Vt.) Social Security Expansion Act and Rep. John Garamendi’s (D-Calif.) CPI-E Act.
If the CPI-E had been implemented in 2004, beneficiaries would have received modest benefit increases in the short term. But over time, the average beneficiary would get a monthly boost of $100 or more because of the compounding effect of higher COLAs year after year. Lower income beneficiaries would realize the biggest percentage gains, due to the progressive nature of the benefit formula.
On the contrary, if the Chained CPI were adopted in 2001 at the same level as the standard inflation index, it would be almost six percentage points lower now. That means a significant shrinkage in the Medicaid rolls and far lower COLAs for retirees.
As with many proposals from the White House these days, the Chained CPI represents a move backward in the quest for socioeconomic fairness — the opposite of what a compassionate society ought to do for its most vulnerable citizens. After more than two decades of deliberations, it’s time to unchain us from this paltry inflation index once and for all.
Max Richtman is president and CEO of the National Committee to Preserve Social Security and Medicare, a membership organization that promotes the financial security, health and well being of current and future generations of maturing Americans. He also chairs the board of the National Committee’s Political Action Committee, a PAC that endorses candidates for federal office.