Thoughts on the Chained CPI, Social Security, and the Budget
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Thoughts on the Chained CPI, Social Security, and the Budget


Written by Dean Baker   
Monday, 17 December 2012 21:43


According to reliable sources, the Obama administration is seriously contemplating a deal under which the annual cost of living adjustment for Social Security benefits would be indexed to the chained consumer price indexrather than the CPI for wage and clerical workers (CPI-W) to which it is now indexed. This will lead to a reduction in benefits of approximately 0.3 percentage points annually. This loss would be cumulative through time so that after 10 years the cut would be roughly 3 percent, after 20 years 6 percent, and after 30 years 9 percent. If a typical senior collects benefits for twenty years, then the average reduction in benefits will be roughly 3 percent.  

There are a few quick points worth addressing:

    1. The claim that the chained CPI provides a more accurate measure of the cost of living;

    1. Whether Social Security benefits are now and will in the future be sufficient to allow for a decent standard of living for retirees; and

    1. Whether this is a reasonable way to be dealing with concerns over the budget.

Read More: Thoughts on the Chained CPI

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