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Tue Dec 18, 2012, 12:33 PM

In Fiscal Cliff Deal, Don’t Chain Grandma to Smaller Social Security Checks

News is out today that a deal to avert the fiscal cliff is nigh. The New York Times is reporting that President Obama’s latest offer, which is close to Speaker Boehner’s dreams and desires, will permanently extend the Bush tax cuts on income below $400,000 and raise them above that bracket. In return, there will be spending cuts. One big component of those cuts is a change in how Social Security benefits are calculated, shifting to using the chained CPI. What sounds like a complex accounting measure will mean a serious benefit reduction for those who are elderly and impoverished. And guess who will get hit hardest? If your guess rhymes with schwomen, you’re correct.

First, what is chained CPI? Currently Social Security benefits are adjusted to account for inflation, but there are many different measures of inflation. If the fiscal cliff deal includes a switch to a chained CPI, it will mean using a measure that tries to take into account human behavior in reaction to price increases—specifically, the substitution for something cheaper if the price of what you normally buy goes up. If provolone costs a fortune, perhaps I’ll switch to Swiss. Unfortunately for the elderly, they buy products that don’t behave much like provolone. As Dean Baker explains, the elderly spend more of their money on health care, which has seen costs far outpace the costs of cheese, and are also generally less likely to be able to make substitutions on what they buy.

A Brad DeLong put it yesterday, “’Chained-CPI’ is code for ‘let's really impoverish some women in their 90s!’” This change would end up reducing benefits by about .3 percent each year and will hammer elderly women. The National Women’s Law Center calculates that the typical single elderly woman would see her monthly benefits reduced by $56 at age 80. It reports that this is “an amount equal to the cost of one week’s worth of food each month.” Perhaps they’ll start substituting cat food for provolone. But these cuts get even worse over time as the reduction adds up. By age 95, the NWLC reports that her benefits will be down by over nine percent, the equivalent of nearly two weeks of food. Even with a “bump up” in later years, the graph below from the NWLC shows how quickly benefits will erode with the chained CPI:


This hurts women more than men because they are more likely to live longer and to be poor while they do so. The NWLC reports that a woman is twice as likely as a man to get to age 95, scrounging for ways to pay for two weeks of food. Their poverty rate is similarly high: single female beneficiaries age 80 and over have a rate of 16.2 percent, compared to just 9.4 percent for their male counterparts. Mike Konczal shows in the graph below that those with lower incomes rely on Social Security far more than their well-off peers:
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complete piece: http://www.thenation.com/blog/171825/dont-chain-grandma-smaller-social-security-checks#

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Reply In Fiscal Cliff Deal, Don’t Chain Grandma to Smaller Social Security Checks (Original post)
limpyhobbler Dec 2012 OP
russspeakeasy Dec 2012 #1
DJ13 Dec 2012 #2

Response to limpyhobbler (Original post)

Tue Dec 18, 2012, 12:39 PM

1. Thanks for the post.

A good read indeed.

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Response to limpyhobbler (Original post)

Tue Dec 18, 2012, 01:16 PM

2. An important post, K&R

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