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Dear Congress: A Vote for the Chained CPI Is a Vote to Cut Social Security Benefits

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The following letter was co-authored by Eric Kingson and Nancy Altman, co-chairs of the Strengthen Social Security Coalition, and sent to every Congressional office.

Our coalition of 320 organizations representing a broad cross-section of the American people respectfully urges you to reject the use of the less-generous and less-accurate chained-CPI as the basis for Social Security's cost of living adjustments for current and future seniors, people with disabilities, and other beneficiaries.

A vote for the chained-CPI is a vote to cut your constituents' Social Security benefits. The chained-CPI would pull $112 billion directly out of the pockets of beneficiaries over the next 10 years and much more thereafter. A typical Social Security retiree would lose roughly $500 in benefits at age 75 under the chained CPI as compared to the current law; $1,000 in their 85th year and $1,500 at age 90.

This may not sound like a lot of money, but two-thirds of seniors rely on Social Security for half or more of their income; one-third rely on Social Security for ninety percent or more of their income. Those benefits are modest, averaging just $14,900 a year for retirees, just $13,600 for all beneficiaries. A member of our coalition, the National Women's Law Center, has calculated that the cut translates to two weeks of food per month for an average widow who survives to age 95.

Some have suggested ways to shield the most vulnerable populations from the impact of the chained-CPI. The need to shield some from the harsh impact of the change underscores that it is simply a disguised benefit cut. Those proposals merely soften the blow to some, but by no means all, of the most vulnerable among us. For example, a bump-up in benefits after twenty years does nothing for those who are in their late seventies and early eighties. Even for those receiving the bump-up, most beneficiaries are never restored to where they would have been under current law. While exempting, or making off-setting changes in, the Supplemental Security Income program softens the blow for some very poor seniors and people with disabilities, the vast majority of Social Security beneficiaries, many of them with low or modest benefits, living in or near poverty, are not held-harmless.

Because current seniors are on limited, fixed incomes, the president, the vice president and many members of Congress have assured the public that they would not cut Social Security benefits for today's seniors. Voting for legislation that includes the chained-CPI repudiates that promise. Those supporting the chained-CPI are implicitly saying that they consider Social Security benefits too high, and that this year's 1.7 percent COLA adjustment is too generous.

If you oppose the chained CPI but believe it is necessary in order to obtain agreement on a deficit reduction deal, we remind you that Social Security has not and cannot by law contribute to the federal debt. The program is too important to be used as a bargaining chip in fiscal cliff negotiations.

For more information, please see Ten Things Members of Congress Should Know About the Chained-CPI [also below].

Sincerely,
Nancy Altman and Eric Kingson
Co-chairs, Strengthen Social Security Coalition

Ten Things Everyone Should Know About the Social Security COLA Cut
 
Here are ten things that we believe are important for members of Congress and their staff to know before voting on whether to cut the Social Security benefits of today's seniors and people with disabilities by changing the COLA.
 
1) The COLA is part of Social Security's basic benefit. It is NOT a benefit increase. The COLA is designed to make sure that Social Security's modest but vital benefits do not erode over time. Without these annual adjustments, the benefits would slowly but inexorably lose their purchasing power.  Without it, the longer one lived, the less purchasing power her or his benefits would have. 

2) With the support of the overwhelming majority of Democratic and Republican members of the House and Senate, President Richard Nixon signed the COLA into law on July 1, 1972 saying that this "action constitutes a major break-through for older Americans, for it says at last that inflation-proof social security benefits are theirs as a matter of right, and not as something which must be temporarily won over and over again from each succeeding Congress."

3) In 2013, the COLA adjustment will be 1.7 percent and in 2012 it was 3.6 percent. There were no COLA increases in 2010 and 2011, however, because the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) upon which the COLA is based, did not rise in the first three quarters of 2009 and 2010, respectively. The American Recovery & Reinvestment Act of 2009 provided a one-time payment of $250 to seniors receiving Social Security benefits to substitute for the lack of a COLA in 2010, but nothing was provided in 2011.

Social Security COLA: 2008-2013
2008- 2.3%
2009- 5.8%
2010- 0%
2011- 0%
2012- 3.6%
2013- 1.7%

4) The chained-CPI is not more accurate for seniors and people with severe disabilities. As 250 Ph.D. economists and more than 50 social insurance experts with Ph.D.s in related fields recently pointed out in an Economic Policy Institute statement, there simply is "no empirical basis for reducing the Social Security COLA."  In fact, "it is just as likely that the current COLA fails to keep up with rising costs confronting elderly and disabled beneficiaries."

5) The existing COLA understates inflation for seniors and people with severe disabilities because it does not take into account the greater proportion of income that seniors and people with disabilities spend on health care. In 2009, individuals aged 65 or older spent 12.9 percent of their incomes on health care, compared with 5.3 percent spent by people ages 25-64. What is more, health care costs have increased 50 percent more than prices overall since 1989. Moreover, the anticipated increase in the monthly premiums for the Medicare Part B (Medical Insurance) and Medicare Part D (Prescription Drug coverage will eat up all of the COLA of some beneficiaries and much of it for many.  These premiums are increasing well in excess of Social Security's COLAs.

6) The Consumer Price Index for the Elderly (CPI-E) for Americans 62 and older does a more accurate job of measuring the purchasing power of Social Security benefits. The CPI-E is an experimental price index intended to represent the consumption habits of households aged 62 or older that the Bureau of Labor Statistics created to account for the greater share of income seniors spend on health care, as well as other expenses such as housing. From 1982--when the BLS started employing the CPI-E--until 2007, the CPI-E increased 126.5 percent while the CPI-W rose just 110 percent. This suggests that a more accurate COLA based on the CPI-E should be more generous than the current one--not less.

7) The chained CPI would make an already-inaccurate COLA even less accurate. Some policymakers are discussing adopting a less generous COLA formula: the Chained Consumer Price Index for All Urban Consumers (C-CPI-U), known more commonly as the chained CPI. Proponents of the chained CPI claim it is a more accurate measure of inflation because it accounts for higher-level price substitution, or the tendency of consumers to trade down for cheaper products when prices go up. But for seniors and people with disabilities who spend more of their incomes on health care, trading down is not a viable option.

8) The chained CPI cuts Social Security benefits more with each passing year, hitting the most vulnerable Social Security beneficiaries the hardest. For the average earner, the chained CPI would cut benefits by $560 a year at age 75 (a 3.7% cut), $980 a year at age 85 (6.5% cut), and $1,392 a year at age 95 (9.2% cut). These cuts would hit seniors hardest in late old-age when they are most economically vulnerable. Many individuals reaching this age have little to no retirement savings to rely on to make up the difference. Since elderly individuals living on modest fixed incomes spend, on average, $56 on groceries for a week, cuts of that size may mean foregoing food or needed medicine. Further, the inaccuracy of the current measure (CPI-W), disproportionately harms demographic groups with longer life expectancies--women, Asians and Latinos--and all seniors who live beyond their average projected life expectancies. The even more inaccurate chained CPI would impose additional harm. It would also hurt people severely disabled at young ages, such as soldiers wounded in combat. Additionally, the chained CPI would reduce means-tested Supplemental Security Income (SSI) benefits, imposing the greatest hardship on the poorest seniors and people with disabilities.

9) Shielding the most vulnerable populations from the impact of the chained-CPI, if it were to be enacted, underscores that it is a benefit cut. Some are proposing to shield some from the harsh impact of the chained CPI, but those ameliorations merely soften the blow to some, but by no means all, of the most vulnerable among us. For example, a bump-up in benefits after twenty years does nothing for those who are in their late seventies and early eighties. Even for those receiving the bump-up, most beneficiaries are never restored to where they would have been under current law. While exempting, or making off-setting changes in, the Supplemental Security Income program softens the blow for some very poor seniors and people with disabilities, the vast majority of Social Security beneficiaries, many of them with low or modest benefits, living in or near poverty, are not held-harmless.

10) The public opposes benefit cuts and believes that the majority of Members of Congress have promised that they will not cut benefits for anyone currently receiving Social Security benefits or aged 55 and over. Because current seniors are on limited, fixed incomes, the President, the Vice President and many members of Congress have assured the public that they would not cut Social Security benefits for today's seniors. Voting for legislation that includes the chained-CPI repudiates that promise. Those supporting the chained-CPI are implicitly saying that they consider Social Security benefits too high, and this year's 1.7 percent COLA adjustment too generous. Poll after poll shows that the American people strongly oppose reducing Social Security's cost of living increase.


NOTES
1. In November, 2012, benefits averaged just $1,132.86 for all beneficiaries. Social Security Administration, Monthly Statistical Snapshot, November 2012 http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/
2. Kingson, Eric, Testimony before U.S. Senate Committee on Health, Education, Labor and Pensions
Subcommittee on Primary Health and Aging, October 18, 2011 http://www.help.senate.gov/imo/media/doc/Kingson1.pdf
3. SSA, "Statement on Signing a Bill Extending Temporary Ceiling on National Debt and Increasing Social Security Benefits--July 1, 1972," Nixon's Statements on Social Security http://www.ssa.gov/history/nixstmts.html#debt
4. Social Security Administration (SSA), "Prior Cost-of-Living Adjustments. http://www.ssa.gov/cola/facts/index.htm
5. SSA (2012) Cost-Of-Living Adjustment Information for 2012. Available at http://www.ssa.gov/cola/
6. White House, "Seniors and social security," 2011. http://www.whitehouse.gov/issues/seniors-and-social-security
7. SSA, "Prior Cost-of-Living Adjustments." http://www.ssa.gov/cola/facts/index.htm
8. Bivens, Josh, Economic Policy Institute, "A Protection, Not A Windfall: Proposed Changes to Social
Security COLA Would Further Erode Retirees' Financial Security,"
July 1, 2011, pp. 1-2. http://w3.epi-data.org/temp2011/BriefingPaper320.pdf
9. Penner, Rudolph G., "Medicare's Premiums and Social Security's Cost-of Living Adjustments," Urban Institute, August 2011, http://www.urban.org/uploadedpdf/412377-medicare-premiums.pdf
10. Bureau of Labor Statistics (BLS), Kenneth J. Stewart, "The experimental consumer price index for elderly Americans (CPI-E): 1982-2007," Monthly Labor Review Online, May 2008, p. 1. http://www.bls.gov/opub/mlr/2008/04/art2full.pdf
11. Strengthen Social Security Campaign, "Social Security COLA Cut: A Benefit Cut Affecting Everyone," 2011. http://socialsecurity-works.org/wp-content/uploads/2011/07/CPI-fact-sheet-with-graphs-7-25-11-FINAL.pdf
12. Based on personal communication with Gerald McIntyre, Directing Attorney of the National Senior Citizens Law Center, March 2012. The chained CPI would hit SSI beneficiaries twice. The initial federal SSI benefit - just $698 a month in 2012 for an individual - is adjusted each year by the CPI-W for changes in the standard of living. So, even before they qualified for SSI benefits, future SSI beneficiaries would sustain the equivalent of a small benefit cut, each year, if the chained CPI was used, as opposed to the CPI-W. Then, once someone qualified for SSI, as would also be the case for Social Security beneficiaries, the chained-CPI would result in smaller benefit adjustments going forward each year.
13. "Public wants compromise on fiscal cliff, but specifics unpopular." Washington Post, December 20, 2012. http://www.washingtonpost.com/page/2010-2019/WashingtonPost/2012/12/18/National-Politics/Polling/release_186.xml