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Social Security Advocates Slam COLA Cut Proposals

Social Security

First Posted: 07/01/11 04:58 PM ET Updated: 08/31/11 06:12 AM ET

WASHINGTON -- Prominent Social Security advocates expressed deep concern Friday at news that lawmakers may change the way the government measures inflation for taxes and federal benefit programs, weighing such a move as part of a last-minute deal to raise the nation's statutory debt limit while simultaneously cutting the federal budget.

Lawmakers and the Obama administration are reportedly considering switching to a "chained" Consumer Price Index. According to the advocacy group Strengthen Social Security, the chained-CPI could lead to annual Social Security benefit cuts of $560 for those aged 75, $984 for those aged 85 and $1,392 for those aged 95.

"The proposal to shift to the chained-CPI is actually a stealth attack on Social Security," said Joan Entmacher, director of family economic security at the National Women's Law Center, during a Friday conference call with reporters. Her comments were echoed by Strengthen Social Security Campaign co-chair Nancy Altman. She said, "The chained-CPI is poor policy, and given that seniors vote in disproportionately high numbers, it is equally poor politics."

According to the Bureau of Labor Statistics, the chained CPI "employs a formula that reflects the effect of substitution that consumers make across item categories in response to changes in relative prices." Such a system estimates a lower cost of living for Americans, especially during recessions, by assuming that consumers buy less during tough economic times. This approach has been touted by some economists and lawmakers as a more accurate way to measure cost of living.

Social Security advocates say the measure is an inaccurate and unfair way to calculate costs for seniors. A recent report by the Economic Policy Institute, a progressive Washington think tank, states that the chained-CPI is "inappropriate for calculating Social Security COLAs [because] consumption patterns of Social Security recipients differ from those of the general population." The report goes on to note that "the 65-and-older population spends two to three times more on health care than does the general population, and prices for health care are rising much faster than inflation."

The suggested shift to the chained-CPI has drawn some positive attention from lawmakers because of its potential to both cut Federal spending and raise income taxes. Dow Jones reports that, while they declined to go into detail about specific deficit-cutting proposals, senior Democratic and Republican leaders have suggested that the chained-CPI option is still on the table.

The very mention of Social Security as part of a potential compromise on deficit reduction has the program's backers on edge. "In the case of Social Security, instead of seeing it as the sum of two numbers which can be cut or raised to push the overall budget deficit down, it really should be looked at from the perspective of overall retirement security in this country," says Josh Bivens, an economist with EPI.

Altman summed up her views on politicians willing to bargain on Social Security by bluntly stating, "If they want to reassure the American people that Washington can be trusted with worker's contributions to Social Security, they should leave Social Security out of the debt-limit deal. The choice is theirs and so will be the consequences."

Senior lobbying powerhouse AARP -- among the most powerful interest groups in Washington -- has said it is open to reducing Social Security benefits, but not as part of a debt limit deal.

Negotiators have until Aug. 2 before the nation defaults on its debt, potentially stopping all payments to citizens (including Social Security beneficiaries) and triggering an economic crisis.

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