Is this a joke: 20 years?

Robert Greenstein

The Chained CPI: A Response to Robert Kuttner

The President’s decision to include, in his latest “fiscal cliff” offer to House Speaker John Boehner, a proposal to use the “chained Consumer Price Index” in calculating both annual cost-of-living adjustments in Social Security and other benefits and annual inflation adjustments to various features of the tax code (such as the incomes at which tax brackets begin and end) is eliciting dismay among many progressives.

At CBPP, we have long been open to such a change if, and only if, the tax savings are devoted entirely to deficit reduction (not to financing other tax cuts) and the benefit change includes protections for poor and very old beneficiaries. The details on the Administration’s proposal are not yet available and, until they are, we’re withholding judgment on it.

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But, the average cut isn’t 3 percent per year. It’s three-tenths of 1 percentage point per year (0.3 percent), according to the Social Security actuaries, or one-tenth what Kuttner assumed. And according to the Congressional Budget Office, the average reduction would be a bit smaller than that — 0.25 percent per year.

To be sure, the benefit loss would cumulate over time; after 20 years, it would represent a benefit cut of about 5 to 6 percent. But, the proposal also appears to include a benefit increase after about 20 years that’s equal to 5 percent of the average Social Security benefit, returning the benefit level at that point to close what it would be under current law. (It would begin to slowly erode again after that.)

In short, this proposal would affect beneficiaries. But the benefit reduction is much smaller than Kuttner portrays it.

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http://www.offthechartsblog.org/the-chained-cpi-a-response-to-robert-kuttner/