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December 18, 2012 9:20 AM Chained CPI … or chain of fools?

By Kathleen Geier

This morning brings news of a possible deal on the horizon, concerning the “fiscal cliff.” Obama would get the an extension of the Bush tax cuts for households with incomes under $400,000 (not $250,000, which was his goal), a two-year debt limit reprieve, the elimination of the sequester, and additional revenue and the extension of emergency unemployment benefits.

What he is willing to give up for this? Quite a lot, actually. It amounts to about half a trillion dollars in future cuts to social programs (the nature of these cuts have yet to be determined), and also significant cuts to Social Security benefits, in the form known as “chained CPI.” “Chained CPI” is an alternative way of calculating the cost of living which will lower benefit amounts.

I realize that compromises are going to be made on this deal which I, along with most Democrats, are not going to like, but I am not a fan of this deal. At all. Where do I begin?

First of all, the idea of all those large unspecified cuts in social programs makes me very uneasy. Secondly, the two-year debt reprieve, while it sounds like a good idea, is actually quite risky for the Democrats, as Brian Beutler explains. And then there are those Social Security cuts.

In last night’s lukewarm blog post about the deal, Paul Krugman pointed out that at least the Social Security cuts “are not nearly as bad as raising the Medicare age.” That is true, but it is also faint praise. Basically, I’m with Delong, who says,“‘Chained-CPI’ is code for ‘let’s really impoverish some women in their 90s!’ It’s a bad policy.”

Indeed. Chained CPI would have a disproportionately negative effect on women, who receive less Social Security than men to begin with, and who also rely more heavily on Social Security as a source of retirement income than men do (because they are less likely to have savings or private pensions).

We actually should be talking about raising Social Security benefits, not lowering them. Very few employers are providing defined benefit pensions these days, and declining wages and increasing economic instability make it difficult for many Americans to save for their retirement. Dramatic fluctuations in the stock market mean the values of workers’ retirement portfolios can suddenly plunge in value. As Joe Nocera pointed out in this excellent column from earlier this year, our pension system has utterly failed to meet the challenges of our brave new economy.

Already, the U.S. social security system is far less generous than those of other industrialized nations. According to the OECD, the social security benefits the median U.S. worker earns are among the lowest of any OECD country — about 42% of earnings, as compared to an average among OECD countries of 61% of earnings (see p. 119 of the report).

Cutting Social Security benefits should be off the table. As Delong says, “This deal would still be on the table in January. And odds are Obama could get a much better deal than this come January.” I agree. I worry, though, that cutting Social Security may be the kind of “Grand Bargain” Obama has always seemed amenable to. I don’t think it’s too cynical to believe that the White House floated the story that they were considering raising the Medicare age, so that Democrats would find the bitter pill of cutting Social Security more acceptable. Let’s hope progressives put up a real fight on this one and force the White House to hold out for something better.

UPDATE: The Washington Post’s Greg Sargent is reporting that, according to Senator Dick Durbin, who is close to the White House, chained CPI and other Social Security cuts may be off the table.

Kathleen Geier is a writer and public policy researcher who lives in Chicago. She blogs at Inequality Matters. Find her on Twitter: @Kathy_Gee

Comments

  • BillFromPA on December 18, 2012 11:30 AM:

    Based on absolutely nothing I theorize that Obama is putting out plans in the expectation that the repugs will reject them, plans that the public at large will view as 'balanced' and we will see as a sellout. This would be dangerous if our opponents were sane and accepted one of them, but they're not and they won't.

  • Dirty Davey on December 18, 2012 11:33 AM:

    It seems to me that in order to argue that the current CPI is too generous you would need to provide some evidence that 90-year-olds are living high on the hog relative to 65-year-olds on Social Security. I just don't see that.

    If we in fact are systematically too generous over time, shouldn't the effects be visible?

  • EdgewaterJoe on December 18, 2012 11:41 AM:

    ... And apparently Boehner has already rejected the deal because it ain't enough and he thinks the Republicans won in favor of a repeal-the-tax-cuts-only "Plan B" (which the White House has summarily rejected). So keep the press impure on, but don't panc. It's negotiations, and Obama still has the cards and is trying to get as broad a deal as he can.

  • Josef K on December 18, 2012 11:47 AM:

    First, are any other media outlets reporting this? If so, how many?

    Second, who are the sources being quoted? Any actual names this time around?

    Third, what is the reaction from the GOP House caucus?

    Fourth, what is the reaction from the Democratic caucus?

    Fifth, what is the reaction from the GOP Senate caucus?

    Sixth and finally: until any and all of the above have been answered definitively, can we quit acting like every pronouncement from our excitement-fixated media is an actual event in and of itself?

  • c u n d gulag on December 18, 2012 11:47 AM:

    Kathleen,
    I've already called the White House and told them I think this is a really, really bad deal.

    For anyone interested, here's the number:
    202-456-1111

    I know I don't need to tell anyone who comments here, but I'll say it anyway - please be polite and respectful when you finally get through.
    Make a little joke about how busy the poor people answering the phone must be today - they have a very tough job on days like this.
    After all, the people answering the phones have about as much impact into President Obama's decision making process, as the rest of us do.

    There is, however, some power in numbers.
    So, please call.
    DON'T E-MAIL!
    CALL!!!

  • Peter C on December 18, 2012 12:15 PM:

    If 'chained CPI' is so much of an improvement over the current CPI, certainly the Republicans will support using it (and not the current CPI) to adjust tax brackets also, right??? If it isn't pain for the Seniors (who will get less), is can't be pain for the wealthy (who would pay more). 'Sauce for the goose' and all, eh?

  • gregor on December 18, 2012 12:18 PM:

    Key in the Republicans running on 'Democrats threw the poor and the elderly under the bus' for the next twenty years, and winning the argument in the elections.

    Democrats are experts at losing even when they are in a position of strength.

    Idiots.

  • Joe Friday on December 18, 2012 12:30 PM:

    First, Social Security does not have a problem that needs addressing.

    Second, any "cuts" to Social Security will not lower the federal deficit by a single PENNY, because by federal statute, Social Security funds can ONLY be used for Social Security benefits.

    Third, Social Security is self-financed, is not part of the federal budget, and cannot contribute to federal deficits & debt.

    So WTF ?

  • jim filyaw on December 18, 2012 12:32 PM:

    that obama would consider this does not surprise me (he's really a poor excuse for a socialist). what does surprise is how quickly professor krugman went all squishy over it.

  • T2 on December 18, 2012 12:41 PM:

    this is not a "cut" to SS, but a reduction on how the annual inflation increase is computed. It does tend to cut the amount certain retirees would get to account for inflation (currently 2% or so).
    That said, SocSec should not be on the table or Medicare, or going up to the $400,000 mark on rich peoples taxes. If Obama isn't careful, the "progressives" will sit on their butts in 2014 and watch the TeaBags add to their numbers in Congress.

    and yes, Boner has already rejected Obama's very generous giveaway. Let's face facts, president Obama is a compromiser.....that's his way. No surprise that he's trying to compromise, even at the expense of going back on his campaign promises. GOP holds, Dems fold, its seems at this moment. But the card game isn't over yet.

  • jeri on December 18, 2012 1:01 PM:

    Why am I not surprised by Obama's willingness to sell out his (presumed) base? Again. I guess sacrifices are a lot easier to bear when it is someone else doing the sacrificing.
    This is the sort of negotiating strategy Democrats embraced prior to the 2010 elections. And they were so ashamed of the deal they cut on health care that they ran away from it during the election. And then they wondered why voter support was so tepid. Here we go again for 2014.
    It's starting to look like Ralph Nader was right all along.

  • cwolf on December 18, 2012 1:11 PM:

    Looks like Obama is Getting Played,,, again.
    What an asshole,,,
    He'll never learn.

  • Ron Byers on December 18, 2012 1:12 PM:

    The problem is we don't hear what is going on in the back room. Both the Republicans and the Democrats (especially Obama) are good at telling the press only what they want the public to know and the press is really bad at getting behind the press releases and "official" leaks.

    As to evidence social security benefits have been rising faster than actual inflation, take a look at Rachel Maddow's ad on that very topic. Social Security was always intended to supplement retirement, but it is now the primary or only source of income for most retirees. If it wasn't rising faster than inflation a whole lot of retirees would be below the poverty line.

    What I am trying to figure out is how chained cpi would help balance the budget.

  • jeri on December 18, 2012 1:16 PM:

    Ah. Ron Byers makes a good case for why the chained CPI is such a good idea. It will help push a whole lot of retirees below the poverty line. It all makes sense now.

  • Ron Byers on December 18, 2012 1:35 PM:

    Jeri, if it will push them below the poverty line I am against it, but I have to see what kind of chain the administration is talking about. If it keeps people where they are, then I am OK with it because that is what a cost of living adjustment is supposed to do.

    I would argue that for the last 20-30 years or so cost of living adjustments have been used to quietly take care of retirees who are the victims of vulture capitalists feasting on private retirement plans.

  • jeri on December 18, 2012 2:19 PM:

    Ron Byers,
    I agree with you completely. But I fear the kind of chain the administration is talking about will certainly harm retirees. And my sarcasm wasn't really aimed at you as much as it was at those who reflexively think cutting entitlements in order to further enrich the already wealthy is a great idea.

  • Doug on December 18, 2012 4:15 PM:

    I thought compromise was the very essence of governing? In that case, it only makes sense for President Obama, or ANY President, to make compromises when necessary.
    With that statement of general principles out of the way, I want to go on record as supporting Josef K's six points.
    Especially the second one...

  • iyoumeweus on December 18, 2012 6:14 PM:

    . BUDGET CUTS
    Cut farm subsidies by 30%.
    Cut military budget by following the recommendations of the Sustainable Defense Task Force report which targeted cuts in: strategic capabilities, conventional forces, operational expenses, procurement strategies and eliminating unnecessary weapons systems. There is broad agreement that savings can be had without sacrificing national security. Estimated to be $100 B/yr
    Eliminate all subsidies for fossil fuels including production credits and charge all petroleum companies full price for all well inspections.
    Eliminate all subsidies on corn ethanol.

    Reduce and eliminate the outsourcing of jobs to private firms which traditionally have been done by the Federal government or the military.
    Increase fees on all Federal lands used for: lumbering, grazing, mining and other for profit activities. In some cases a percentage of the profit may be negotiated to protect the people’s interests.
    None of this seems to be on the table but these cuts should come before any to the safety net or mediaid or medicare or social security. It is hypocrisy to cry over little children who are killed by guns while cutting program which feed, house, keep them warm, provide their health care and education, keep their mother's healthy and perform other services. CHILDREN FIRST MOTHERS SECOND ... THE RICH LEAST