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December 20, 2012

Pelosi Says Chained CPI Would Strengthen Social Security

Posted in: Uncategorized

Nancy Pelosi

Republican craziness has stopped a deal from happening on the fiscal slope, and really nothing else. Because here’s Nancy Pelosi yesterday on chained CPI, a benefit cut to Social Security recipients that happens to be regressive and more painful as people age:

Q: Members of your Caucus are organizing against the chained CPI that the President has put on the table in negotiations, is that something you can support in any deal at this point? I mean…

Leader Pelosi. Well, whatever the final arrangement is, we’ll have to have balance. So, we’ll see where that figures. But I’ve said to the Members: “express yourselves.” You know, speak out against, because I’m not thrilled with the President’s proposal, I mean, it is what it is in order to save the day. But that doesn’t mean that we’ll all identify with every aspect of it. So, they go forth with my blessing.

Q: Do you consider that a benefit cut?

Leader Pelosi. No, I don’t. I consider it a strengthening of Social Security. But that’s neither here nor there. There’s no use even discussing that because we don’t even know if we have a plan.

She’s right that we don’t know if there’s a plan. But it’s well worth discussing. Chained CPI is a benefit cut. If it were a technical adjustment that had the effect of raising net Social Security benefits, nobody would support it. In fact, an accurate technical adjustment, which accounted for the cost of living of actual seniors who spend far more a percentage of their budgets on medical treatment, WOULD raise net Social Security benefits, because their cost of living is simply higher than the average person by virtue of being sicker in old age.

And Robert Greenstein can make all the arguments he wants about the “protection of the vulnerable” through some birthday bump-up at age 85 (because the loss of money compounded from 65-85 doesn’t make life more difficult for seniors in the interim), but he and virtually nobody else points out the 50 other programs that rely on an inflation index for a cost of living adjustment or income-based eligibility. These include things like food stamps, Medicaid, the Earned Income Tax Credit, veteran’s benefits Supplemental Security Income, the Child Tax Credit and child nutrition programs. Nobody has come out and said that chained CPI will or will not apply to all of those programs (and they’ve been incredibly vague on whether it would apply to tax brackets, creating a regressive tax increase). But the reason to incorporate chained CPI into government planning is to reduce the federal government’s spending burden in the out years, and so I would imagine they’ll apply it to as many areas as possible. And the federal government doesn’t spend too much on non-tax expenditure social programs on the rich. Virtually all that money flows to the vulnerable; that’s why they qualify. And chained CPI would give them less across all those programs.

Then there’s this consequence:

Finally, the official statistical poverty measure Census uses to calculate the number of people living below the poverty line is adjusted each year for the change in the CPI-U. Shifting to the Chained CPI to update the federal poverty line will only exacerbate the extent to which the FPL has officially defined deprivation down since being adopted in the 1960s. Because the FPL has never been adjusted for the increase in real median incomes since the 1960s, it has fallen from about 50 percent of median income in the 1960s to about 30 percent today. This has distorted our picture of economic hardship, and made it easier, as I noted in a recent paper, for conservatives to argue that child poverty is mostly due to a “decline in marriage” and individual’s failure to get enough education.

Just to move this back to Social Security to conclude, Evan Soltas asks some interesting questions, including this one, where he thinks he’s caught both parties in a bit of hypocrisy: “And yet, the most potent double standard may be how parties define the purpose of the program itself. Is it a publicly run, universal, national retirement-savings program? Or is it a safety net for the elderly and disabled who need it?”

Soltas goes on to say that supporting raising the payroll tax cap and increasing progressivity in payroll taxes suggests that it’s a welfare program, while resisting means-testing suggests that it’s a universal retirement-savings program. Of course, means-testing would have to reach so low to acquire any real savings that it would hit people making $40,000 a year. So I don’t think there’s an inconsistency there. The truth is that you have to see Social Security as a safety net, in a time when the three-legged stool of retirement has completely collapsed. Far too many people rely on Social Security as their only visible means of support. And if that’s the case, you have to protect it from cuts that would have a real impact.

POSTSCRIPT: This food for thought.

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