Dec 19 2012

Chained CPI is a Cut. You Either Care About People or You Don’t.

(10 am. – promoted by ek hornbeck)

And when one make excuses for chained CPI without doing any research because they’ll blindly follow whatever a politician proposes regardless of the consequences, that is a choice of action taken. Action that actually shows how one does not care about people. It can be witnessed. It can be read and it can be judged, so I will be doing so now.

Pointing this out harshly will not hurt seniors like the action of cutting their SS income while their cost of living of has risen roughly 0.27 percentage points faster per year than the CPI-W which is what is used now for their COLA. When one is defending this action orally or in writing because of their perceived party loyalty, though it’s not really party loyalty because this isn’t what FDR envisioned whom defined the modern Democratic party, that shows disdain for the most vulnerable in our society and that is a fact.

All of those actions, not party labels, show whether one cares about the most vulnerable in our society or not. There are a lot of great people on this site, and I love the many here who absolutely care, but there are too many people here who just don’t and it shows. Many of them have denied this was on the table based on what this Democratic Rep said or what that Democratic Senator said, but here we are.

Regardless of the specifics we won’t know about until after the cuts are made, everyone in D.C is talking about this. Focusing on the lack of specifics those in D.C never reveal until their dirty deeds are done is a favorite derailing tactic employed by some bringing this up to deny it is taking place. However, let’s indulge this fantasy that everyone in D.C is misrepresenting this plan and we will wake up on New Year’s Day with Medicare for All and the SS age lowered to 55. Let’s pretend for a second that there were many negative trial balloons that have not been born out. Let’s pretend there was a public option which was dead when it was reported as such back then to now.

Let’s also pretend there was or is real financial reform instead of the Frankly Odd giveaway to Wall St keeping TBTF. In that case, wouldn’t one say that spreading harmful rumors about the merits of austerity right now is still a big part of the problem? It is if one knows anything whatsoever about framing and how that drives political action across the political spectrum and board.

After all, who could have imagined the White House would put SS cuts on the table after we were supposed to take heart in all the selective statements from Democrats that this was never going to happen? I for one, but not just I. Others in the real reality based community predicted this whole self made debacle a long time ago when this whole mess started in 2010 as I predicted it would.

And it is self made. Despite Markos’s front page piece having some good points, I have to disagree with him in calling it capitulation. This isn’t something the President has to do. This isn’t really something he is being pressured to do. He wants to do this.

No one forced him to keep from doing nothing and letting the Bush tax cuts expire. No one forced him to put the full faith and credit in John Boehner’s hands in 2010 where it will stay after only an extension of a few years until we go through this austerity game again. President Obama chose to have full faith in the hostage taker Speaker Boehner taking the full faith and credit of the US as a political hostage. Now because of the mess he created for us, President Obama is choosing to cut SS by adopting a lower metric for COLA by adopting chained CPI in this grand betrayal, but maybe that was the plan all along.

And because he actually believes in neoliberal Robert Rubinomic deficit terrorist craponomic lies, he is counting on your scared sacrifice and demise of your future and your grandparent’s safety net. That’s what we get. Not the war profiteers, Wall St. CEOs, and Oil Barons that will keep that 93% of this so called “recovery.” I find this unacceptable because of morals, ethics, and sound economics, but how does that make the rest of you feel?

For those wanting to gild the dead lilly, the first step is probably denial as I heard last week. The second step is anger and name calling directed towards those that have been consistently right about all of this calling them “conspiracy theorists.” I know this is partly what Friedrich Nietzsche described when he said that sometimes people don’t want to hear the truth because they don’t want their illusions destroyed, but it’s even worse when it’s the lives of our most vulnerable citizens that suffer from those illusions.

Dylan Mathews has a decent Chained CPI primer. He explains how a cut of over 5 percent, and more as it compounds as you go further into the future for those retiring at 65 is actually painful and significant.

Everything you need to know about Chained CPI in one post

Here’s how it works: Numerous government programs, most notably Social Security benefits and the income thresholds for tax brackets, are indexed for inflation. But inflation can be measured in a number of ways. The tax code, for instance, uses CPI-U (Consumer Price Index – Urban), which measures prices for consumers in urban areas, to adjust the income cutoffs for different tax brackets. Social Security uses CPI-W, which is like CPI-U but only counts prices paid by urban wage-earners, not all consumers.


That adds up to a big cut in Social Security benefits. Imagine, for example, a person born in 1935 who retired to full benefits at age 65 in 2000. According to the Social Security Administration, people in that position had an average initial monthly benefit of $1,435, or $17,220 a year. Under the cost-of-living-adjustment formula and 2012 inflation, that benefit be up to $1,986 a month in 2013, or $23,832 a year. But under chained CPI, the sum would be around $1,880 a month, or $22,560 a year. That’s a cut of over 5 percent, and more as you go further and further into the future:


The results by using chained CPI for taxes are also striking. The Tax Policy Center calculated the income tax increases that would be caused by a switch to chained CPI. They’re not big – a little more than $100 a year for most families – but they’re oddly regressive:

You can now see through all the crap we hear about middle class tax cuts being the holy grail worth destroying our safety net; after all, although small, there will be regressive tax increases within this flawed metric. That’s right, switching the chained CPI would lower the indexing of tax brackets to inflation as well as push people with lower income into higher brackets taxing them more. The hoarders of capital under this plan do not have much higher to be bumped up and now that only those above $400,000 will have the Bush Tax Cuts expire this adds to that point.

For instance, I’ll go further; those great middle class deductions we always hear the POTUS and Congress boast about will also be reduced:

In 2012, Many Tax Benefits Increase Due to Inflation Adjustments

By law, the dollar amounts for a variety of tax provisions, affecting virtually every taxpayer, must be revised each year to keep pace with inflation. New dollar amounts affecting 2012 returns, filed by most taxpayers in early 2013, include the following:

The value of each personal and dependent exemption, available to most taxpayers, is $3,800, up $100 from 2011.

The new standard deduction is $11,900 for married couples filing a joint return, up $300, $5,950 for singles and married individuals filing separately, up $150, and $8,700 for heads of household, up $200. Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.

Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $70,700, up from $69,000 in 2011.

Credits, deductions, and related phase outs.

For tax year 2012, the maximum earned income tax credit (EITC) for low- and moderate- income workers and working families rises to $5,891, up from $5,751 in 2011. The maximum income limit for the EITC rises to $50,270, up from $49,078 in 2011.The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.

You see, if the indexing is lower as it would be by chaining CPI-U or CPI-W those deduction indexes would be lower causing an effective regressive tax hike as well.

I don’t think Dylan Mathews focused enough on what a crock the substitution effects are with Chained CPI so I’ll let David Dayen show how flawed this cat-food instead of steak metric is.

What Chained CPI Means, and Why a Cut in a Time of Inadequate Social Security Benefits Makes No Sense

What Matt Yglesias leaves out of his discussion of the various inflation-measuring indexes is the CPI-E, measured by the Bureau of Labor Statistics on what they call an “experimental” basis, even though it has been measured since 1987. This measures the consumer price index based on goods most commonly purchased by the elderly. That seems like the most logical way to measure the cost of living for, well, the elderly. And it reflects the fact that the largest cost for Americans as they age comes from health care, the costs of which have risen faster than inflation:

Price change for each major expenditure group varied by population because the distribution of expenditures on the products and services within the major groups varied among the three index populations […] This is especially true within the medical care group. For example, the CPI-E population devoted a substantially larger share of their expenditures to health insurance (see table 2) than did the CPI-U and CPI-W populations, largely because of the availability of employer-provided health care benefits to the latter groups.

A more detailed examination of the indexes shows that the CPI-E had the highest rate of price increase of the three populations for four of the seven major groups. Medical care prices rose in excess of two times the rate of the average for all items in each population group during this 5-year period. Analysis of the relative importance data for the CPI-E, the CPI-U and CPI-W populations indicate that older Americans devote a substantially larger share of their total budgets to the medical care. Because of this, and because the medical care component of the CPI showed the largest price increase, medical care accounts for most of the difference between the higher rate of increase in the CPI-E experimental index-as compared to the CPI-U and CPI-W indexes-during the 1990-95 period.

Incidentally, the idea of chaining medical treatment, as if you can just substitute a hip replacement with something cheaper, is silly. Overtreatment does exist, but the concept of a senior citizen shopping for cheaper medical care is actually kind of cruel.

That’s right, this White House and this Congress are not really interested in better metrics; they’re only interested in regressive ones that make no sense and will hurt the most vulnerable. Not to mention seniors incomes also go more to rent and utilities. Economist Dean Baker’s house at the CEPR also has a good explanation of why the chained CPI is a cut. Particularly because if we had gone to chained CPI in 2001 the reduction in benefits would have effectively wiped out the entire 2012 COLA. This is important for anyone that loves facts and hates stupid austerity.

The Chained CPI: A Painful Cut in Social Security Benefits and a Stealth Tax Hike

The Chained CPI Would Result in Benefit Cuts for Retirees and Other Vulnerable Americans

Social Security benefits are already quite modest. In 2012, the average annual benefit forbeneficiaries aged 65 and older was less than $15,000. (2)Any additional reduction of benefits would have serious repercussions for retirees, 2-out-of-5 of whom rely on Social Security for 90 percent of their retirement income.

The Chained CPI is relatively new and has only been calculated by the BLS since 2002. It has shown a rate of inflation 0.3 percent lower than the current index used to calculate Social Security’s annual cost-of-living adjustment. Over time, changing to the Chained CPI would result in significant cuts to Social Security benefits: a cut of roughly 3 percent after 10 years, about 6 percent after 20 years, and close to 9 percent after 30 years. In addition, lower-income retirees would lose much larger proportions of their income than wealthy ones.(3)

As shown in Figure 1, if the switch to the Chained CPI had been made in 2001, the reduction in benefits would have effectively wiped out the entire 2012 Social Security cost-of-living adjustment.(4)


This is of particular note as the rise in the retirement age has already resulted in a decrease in benefits relative to lifetime earnings. The full-benefits retirement age increased from 65 to 66 between 2003 and 2008, and it is scheduled to rise further to 67 from 2017 to 2022. These retirement age increases are cuts in benefits, since beneficiaries have to work more years before receiving them. Early retirees who begin collecting benefits at 62 between the years 2005-2016 are already seeing a decrease in benefits relative to lifetime earnings of 5 percentage points. For those retiring at 62 after 2022, when the retirement age reaches 67, the decrease in benefits will be 10 percentage points. Figure 2, below, illustrates the benefit cuts for these retirees as a result of the prior CPI changes and the scheduled increases in the eligibility age for full benefits.(8) Adopting the Chained CPI would mean additional benefit cuts, further eroding the retirement security of Social Security beneficiaries.

You See? The 1983 grand bargain on SS the President thinks was so awesome he agreed with Mitt Romney about it during the first 2012 Presidential debate has already weakened SS enough. Chained CPI also affects all government pensions and veterans’ benefits which will get a smaller increase. Also the already embarrassing federal poverty threshold upward adjustment will be even worse while reducing the number of people eligible for programs such as Medicaid, Head Start, food stamps, school lunches and home heating assistance. This is not smart. This is not pragmatic. This is a betrayal I and others warned everyone about and now it is on the table.

The factual data I provided for those actually interested enough to read it should be enough to know that everything I said in this diary is true, but now I have to explain a very simple rudimentary economic concept that really should have to be explained. I have to explain it because we hear from some people that the chained CPI is not a cut but “only a decrease on the increase,” in other words a cut but this goes straight over their head. Let’s be real clear about this; if you don’t think the chained CPI is a cut, you don’t understand inflation, the CPI-U, CPI-W, or why former President Nixon added the COLA to SS because it had to keep up with inflation. Period.  

So if you believe this is not a cut to SS you don’t need to be commenting about it or writing diaries about it. It just makes people less smart. I can’t be kind about this. Anyone who doubts this needs to study the difference between real versus nominal value.

Chained CPI cuts Real Dollars from Real People who are really the most vulnerable to this idiotic austerity you are excusing. So let’s make this real simple. This is a good simple explanation of what real dollars are versus nominal dollars.

What are “real dollars”? What is the definition of the term “real dollars”?

Yesterday we talked about “nominal dollars”.

Nominal dollars are the amount of money that you paid for something in the past, without accounting for inflation.

For instance, a twelve-pack of Coca-Cola may have cost $1 in “nominal dollars” in 1965.

“Real dollars”, on the other hand, account for inflation.

So, that twelve-pack of Coca-Cola that count $1 in 1965 dollars? Adjusted for inflation, it might cost you $6 or $7 today.

“Nominal dollars” = dollars of the day (say, 1965).

“Real dollars” = dollars of today

One more example – a car purchased in 1941 may have cost just $100 in the “dollars of the day” (or, nominal dollars).

However, that same purchase, when adjusted for inflation? Something in the neighborhood of $1,464, or $1,464 in “real dollars”.

To recap:

Real dollars = dollars that have been adjusted for inflation.

Maybe a few of you don’t think seniors deserve real dollars to buy the real resources they need keeping up with the real price level. Tell me, can you walk out of the store with a product that has risen in price with the nominal dollars you don’t think equal a cut put on the counter? No, you would be arrested and those resources cut from your very loins. It’s a cut. Get over it. After all, you’re already over the vulnerable this would hurt if you try to deny this.

Trust me. You’re alone on this. You don’t know what you are talking about if you think this is not a cut. This is true whether you like me or my tone. Sorry. Actually I’m not the least bit sorry. When I find out people are excusing cuts to the disabled which Chained CPI would hit hard, it pisses me off. I’m funny that way.

So I will be taking action that shows I care and we need to contact the White House and Congress.

Even though most of Congress will do whatever the President wants because there are no more Democratic Senator Eugene McCarthys out there that criticize their own party leader in a significant way, we must try to show we care anyway.

That is how we will know who cares and who doesn’t. Your actions below will also show this as well.

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