Your Opinion: Social Security and Consumer Price Index
Friday, April 19, 2013
While I agree with those who think that some minor changes need to be made to Social Security, we need to understand the impact of changing to a chained C.P.I. as a means to adjust for inflation.
The Social Security program, as it now stands, is solvent for the next two decades. If no changes are made 20 years from now benefits would drop to 75 percent of the then current levels.
The United States Department of Labor’s Bureau of Labor Statistics (BLS) monitors the cost of goods and services and computes several different versions of the Consumer Price Index. CPI-U is for all urban consumers and covers about 87 percent of the population. CPI-W is for urban wage earners and clerical workers, it covers about 32 percent of the population. Since 1997 the BLS has also calculated an experimental price index for the elderly, CPI-E, for those over 62. BLS data shows that, from December 1997 through December 2009 the CPI-W rose 33.8 percent, the CPI-U rose 33.9 percent and the CPI-E rose 36.1 percent. The government currently uses the CPI-W for inflation adjustments.
The major reason for this difference in the CPI’s is that medical care inflation has been significantly higher than inflation for most other goods and services. The elderly spend a greater percentage of their income on health care, thus their CPI has increased the greatest.
The chained CPI index assumes that consumers will switch purchases to a cheaper products as prices rise. I guess if we have to switch from steak to hamburger to dog food. It is all the same in the eyes of the fat cat politicians.
With the chained inflation index seniors will fall even further behind their true rate of inflation. This month Bloomberg Businessweek published a graphic showing that from December 1999 through February 2013 the chained CPI increased slightly over 33 percent, the CPI-W increased over 37 percent while the CPI-E increased over 39 percent.
The current inflation adjustments for Social Security are less than what they would have been had they been based on the most accurate data available. By switching to a chained CPI they will be even less accurate. This may be a better fix for Social Security than raising the retirement age even further, or increasing mandatory contributions. Each of us has to decide what we want to support.
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