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Don't Be Fooled by Misleading Report Calling for Chained CPI

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The Peterson syndicate has just released another volley in their campaign to undermine Congressional support for Social Security -- this time a report from its Moment of Truth arm entitled "Measuring Up: The Case for the Chained CPI." It makes a series of specious claims to support switching to the chained CPI for a range of federal programs, most importantly to determine Social Security's cost of living adjustments (COLAs). The report misstates, misrepresents and misleads in multiple ways, and it should be disregarded.

First, the authors claim to seek the most accurate measure of inflation for setting COLAs for Social Security and other federal programs. Yet the chained CPI, which they advocate adopting for "accuracy" reasons, does not even attempt to measure the cost of living of elderly or people with disabilities, who make up 86 percent of Social Security beneficiaries. Anyone seriously concerned with the accuracy of Social Security's COLA would call for a switch to the index that Congress created expressly to measure the cost of living of the elderly -- the Experimental Consumer Price Index for Older Americans (CPI-E). It actually tracks the cost of living of those aged 62 and older. To make the COLA even more accurate, one could also recommend that Congress provide funding to the Bureau of Labor Statistics to improve the sampling of the CPI-E to make it more robust. With modest funding to survey a larger sample of the elderly and to survey prices and shopping outlets specifically used by them, the CPI-E could be rendered even more accurate and statistically representative, and could then be adopted to determine the most accurate COLAs for Social Security and federal retirement pensions. If the Moment of Truth project were truly concerned with accuracy, this would be their position. It is the position of Senator Harkin, Senator Begich, and Senator Sanders, for example.

Second, the report plays a shell game with the reader. A case can be made (although I disagree with it) that the chained CPI more accurately measures inflation for the general population, but no expert can make the case with a straight face that it is more accurate for Social Security. So the report states that most experts agree that the chained CPI is more accurate (without specifying that these experts mean for the general population), but then apply it primarily to Social Security. The reader is left thinking that experts agree it is more accurate for Social Security, even though the authors never explicitly claim this. Yet Social Security is their target -- the vast majority of the savings from the chained CPI- at least two-thirds -- would come from Social Security.

Third, the report repeatedly claims as fact that the Social Security's current CPI overstates inflation, and asserts that an "overwhelming majority of economists from both parties agree that the chained CPI is a far more accurate measure of inflation than the CPI measurements currently in use." But both this substantive claim and the assertion of scientific consensus around it are unfounded. In fact, 250 Ph.D. economists and 50 social insurance experts agree that there is no empirical basis for the claim that Social Security's COLA overstates inflation. The Social Security population -- the elderly and people with disabilities -- have much higher health-care costs than the average urban worker, upon whose living costs the current CPI is based. Hence it comes as no surprise that the CPI-E, which tracks inflation experienced by the elderly, has historically reported slightly higher inflation than Social Security's current CPI, and Social Security's actuaries project this for the future as well. In other words, Social Security's COLA understates inflation, as most beneficiaries can tell you from their own experience.

Fourth, the report erroneously states that "[t]his switch [to the chained CPI] was recommended by the National Commission on Fiscal Responsibility and Reform ['Fiscal Commission']...," citing the Commission's "supermajority vote in favor of the plan." While they are correct that the by-laws of the Fiscal Commission required a supermajority vote (specifically, 14 out of 18) for approval of any plan, the plan put forward by Erskine Bowles and Alan Simpson in 2010 was actually able to garner only 11 votes - far short of a supermajority. There is no way to spin 11 out of 18 votes into a supermajority, but the report blithely attempts to revise history. The reality is that, unable to agree on a plan, the Fiscal Commission's mandate expired on December 1, 2010. Ever since, Bowles and Simpson's Wall-street funded campaign to cut Social Security has regularly implied some degree of democratic legitimacy from the defunct commission, but the fact is that the commission could not agree on a plan, and hence did not in any way advocate the chained CPI.

Finally, the report claims that the chained CPI has a number of strong advocates from the left, right, and center. This is misleading with regard to the left, for the vast majority of progressives oppose the chained CPI. Many moderates, such as Senator Begich, oppose the less accurate chained CPI, as do groups that cut broadly across the full spectrum of American politics - the American Legion, Veterans of Foreign Wars, Disabled American Veterans, and many other veterans organizations, as well as AARP. Opposition to the chained CPI is also the official stance of the Strengthen Social Security coalition. With over 320 member-organizations representing 50 million members, including the AFL-CIO, NOW, MoveOn, NAACP, Paralyzed Veterans of America, the ARC, and LULAC, the coalition is the largest umbrella group for those most concerned and knowledgeable about Social Security.

Despite their pious claims, the truth is that the Moment of Truth project is not concerned with finding a more accurate COLA for Social Security, but with cutting Social Security spending and hence benefits. The Peterson crowd has learned over the years that direct calls to cut Social Security benefits are politically toxic. They have become very adept at finding ways to undermine the program surreptitiously, and their advocacy of the chained CPI is a prime example. They call it a "technical fix," not a benefit cut. But adopting the chained CPI would in fact cut the annual benefit of the average earner (someone making $43,518) by $658 at age 75, $1,147 at age 85, and $1,622 at age 95. The cumulative cut for that individual would be $4,631 -- more than three months of benefits -- by age 75; $13,910 -- nearly a year of benefits -- by age 85; and $28,004 -- more than a year and a half of benefits -- by age 95.

Our Social Security system is vital to the economic security of our elderly, people with disabilities, children of deceased workers, and others. The average Social Security benefit is $15,139 for retirees and $13,833 for all beneficiaries. Half of senior beneficiaries -- 28.4 million Americans -- receive less than $13,376/year. Social Security is projected to have a long-term funding shortfall, and we can shore this up in numerous ways, without cutting Social Security's modest but vital benefits. (Two approaches a number of experts have proposed, for example, are eliminating the cap on earnings covered by Social Security, or increasing the Social Security contribution rate one-twentieth of 1 percentage point each year for 20 years.) Whatever we do, we should absolutely disregard Wall-street funded reports urging us -- under false pretenses of accuracy -- to cut Social Security benefits.