How Will Fiscal Cliff Solution Impact Social Security?

The latest in Obama’s fiscal strategies is the possibility of Congress adopting his change of calculating cost-of-living increases. This proposal referred to as ‘Chained CPI’ was a way of offering concession to the Republicans who accepted higher taxes for the wealthy citizens only to avoid the impending fiscal cliff.

This proposal adoption would essentially mean that the two million Pennsylvanians would have to contend with lesser benefits because Democrats view change in entitlements the same way as Republicans view higher tax rates.

A number of economists view this ‘chained CPI’ method to be accurate including bipartisan deficit reduction commissions which are planning to support it. The chained CPI method basically monitors consumer behavior including the switch to cheaper products in the face of rising prices and then adjusts this for inflation. Alan Simpson and Erskine Bowles, have revealed in a report that when calculated this way, the deficit would be reduced by $236 billion over a decade by 2014.

This is further explained by Virginia Reno, the vice president of income security at the non-profit and non-partisan policy organization based in Washington, National Academy of Social Insurance. If the CPI social security is recalculated and cost of living increases by 3 percent, then there would be a 2.7 percent increase in benefits which would accumulate over time. However, healthcare cost increases are pretty large and the seniors have to bear the brunt of this burden because they spend more on healthcare than any other age group.

On the other hand, Liberal Democrats don’t take the idea of deficit reduction impacting the benefits of Social Security very seriously. As a result, Democrats supporting this concept of chain CPI have been challenged by the Progressive Change Campaign committee. Spokeswoman Tali Caiazza for US representative Allyson Schwartz of Montgomery County, revealed that Schwartz believes in providing seniors with the healthcare they need including Social Security and Medicare. Other people who don’t wish to discard ruling of the chained CPI plan include US Senator Bob Casey. His spokesman, John Rizzo believed that only if safeguards for the seniors that will lead to balanced bipartisan agreements protecting the poor are included, is he willing to consider such proposals.

Social Security as well as Medicare are popular political programs but the proponents of chained CPI argue that the change will not impact benefits because it’s a technical one. In order to avoid fiscal cliff, other parties are holding their noses for the time being. The executive director of Pennsylvania Budget and Policy Center, Sharon Ward has called the CPI to be a much better alternative in the face of other options. Still, she believed that the best option is to raise revenue without affecting the seniors but nevertheless, the chained CPI is better than increasing the eligibility age of Medicare.

A number of conservatives are viewing Obama’s effort too weak to reform entitlements which is what is required to reduce real deficit. This scenario is pretty much similar to the Democrats viewing House Speaker John Boehner’s proposal to be too bleak to raise taxes on those earning above $1 million.

However, a retirement and healthcare policy scholar at the think-tank, American Enterprise Institute Joseph Antos, believes that mere budgetary motives are behind the idea of chained CPI rather than improving the program. He thinks that it is Congress’s idea of policy reform when in actuality, it really is not.

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