Social Security: Future benefit hikes to be cut?
Social Security benefit increases would be reduced gradually if Congress opts for a new measure of inflation. Social Security advocates mounting big effort to protest the measure.
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A report by the Moment of Truth Project, a group formed to promote the deficit reduction package produced by President Barack Obama's deficit commission late last year, supports a new inflation measure. "Rather than serving to raise taxes and cut benefits, switching to the chained CPI would simply be fulfilling the mission of properly adjusting for cost of living," it argues.Skip to next paragraph
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The new measure would reduce Social Security cost-of-living adjustments, or COLAs, by an average of 0.3 percentage points each year, according to the Social Security Administration. Next year's increase, the first since 2009, will be 3.6 percent, starting in January.
Under the chained CPI, yearly benefits for a typical 65-year-old would be about $136 less, according to an analysis of Social Security data. At age 75, annual benefits under the new index would be $560 less. At 85, the cut would be $984 a year, and at 95, the annual income loss would amount to $1,392.
"For someone in the first year, it may not seem a lot," said AARP's David Certner. "But as people get older and then they get poorer and more reliant on Social Security, the cut gradually gets larger and larger."
In all, adopting the chained CPI would reduce Social Security benefits by $112 billion over the next decade. Federal civilian and military pensions would be $24 billion lower, according to the nonpartisan Congressional Budget Office.
If adopted across the government, fewer people would be eligible for many anti-poverty programs because the poverty level also would increase at a lower rate each year. That would result in fewer people living below the official poverty line, despite having the same income.
The tax increases would hit low-income families the hardest, while high-income taxpayers would see smaller changes. The wealthiest taxpayers already pay taxes at the highest marginal rate, currently 35 percent.
For example, by 2021, taxpayers making between $10,000 and $20,000 would see a 14.5 percent increase in their federal taxes with a chained CPI, according to an analysis by the Joint Committee on Taxation. Taxpayers making more than $1 million would get a tax increase of 0.1 percent.
Despite the political backlash, some lawmakers see the new inflation measure as a way to help break the deadlock in Washington over tax increases and cuts in benefit programs. Most Republicans adamantly oppose tax increases, while Democrats have said they won't support benefit cuts without a substantial increase in revenue.
Rep. Xavier Becerra, a California Democrat who serves on the supercommittee, helped lead the fight over the summer against adopting the chained CPI. But in an interview last week, he wouldn't rule out supporting a package that included it.
"If you're going to simply try to save money by changing the CPI, you can do that," Becerra said. "But then be up front and tell seniors what you're doing. You're throwing them under the bus to save money."