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Beware 'chained CPI'

Published February 23, 2013 1:01 am

This is an archived article that was published on sltrib.com in 2013, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.

Just how large a safety net is Social Security for Utahns 65 and older? Although the average benefit is only $14,200 per year, 57 percent of this population relies on Social Security for 50 percent of its income. Thirty-three percent of older Utahns would live in poverty without it.

Younger beneficiaries receive survivors' benefits if a parent dies while they are still dependent on their income. And Social Security benefits poured $4.4 billion into Utah's economy, truly making it "too big to fail."

Social Security has become even more important at a time when seniors are living longer and trying to cope with rising costs for health care, drugs and utilities. That's why it pays to be vigilant and well-informed about attempts to cut people's hard-earned Social Security checks. Right now a plan is circulating in Washington that would reduce benefits substantially.

This plan goes by the confusing name of "chained CPI" (consumer price index) and it is described by proponents as simply a technical adjustment to calculate the cost-of-living adjustment, or COLA.

A chained CPI doesn't increase as fast as the measure of inflation that the government now uses, so if the government switched to a chained CPI to calculate Social Security benefits, they would increase more slowly over time.

Why? Because a chained CPI makes different assumptions about how people spend money. A chained CPI is based on the theory that when the price of one good rises, people are more likely to buy a similar yet cheaper good, such as chicken instead of beef. The current measure of inflation assumes that you'll just keep on buying beef, raising your cost-of-living faster. A chained CPI calculation "chains together" groups of goods such as meat instead of looking at price increases for a specific product.

But a chained CPI represents a significant benefit cut. Over the course of a lifetime, it would cost the average senior thousands of dollars. The cut would grow deeper each year because the base benefit would grow more slowly.

A 92-year-old woman or man receiving Social Security would lose a full month's worth of benefits. It's likely this is not a time in anyone's life when health costs are declining and income is increasing.

Supporters of the chained CPI portray it as a more accurate reading of the cost of living, yet that reflects a misunderstanding of the real-life choices most seniors confront to make ends meet.

First of all, the current CPI does not even recognize that seniors spend more on health care, which grows faster than overall inflation. And second, the chained CPI assumes that when the cost of something you normally buy rises, you can simply switch to a lower-cost substitute.

But for most people, it is not simply a matter of comparative shopping at the supermarket. They already choose less-costly options, and they also spend much of their money on basic goods such as health care and utilities that don't have lower-cost substitutes.

Social Security is a program that provides earned benefits. It didn't cause the deficit and it shouldn't be cut to fix Washington's budget problem. Next time you hear an elected official in Washington talk about the great value of Social Security, or how the middle class is the backbone of America, ask that official's view on the chained CPI.

To reach AARP's "protect Social Security" hotline to President Obama, call 1-877-224-6699. To reach your members of Congress, call 1-866-584-3909. This is the place where the soothing sounds of support for seniors meet the real-life record of those who represent us.

Make no mistake, we will be watching closely.

Alan Ormsby is Utah director of AARP. He lives in Midvale.