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New War Declared on Social Security Beneficiaries

The increasing problem of national debt and the latest policies to solve the issue is going to affect the average citizen of the society drastically. For this reason, most of the people believe that there are better ways to solve the issues rather than burdening the people further.

On the government level, discussions are going on about changing the current cost of living adjustment (COLA) formula for social security calculations. These calculations were originally done using the current consumer price index (CPI) but now the new formula that is expected to be implemented soon will use chained consumer price index (C-CPI) instead. How exactly is this different?

The Bureau of Labor Statistics collects price changes in 80,000 goods of everyday use by contacting various stores and shops; these changes in turn determine the CPI. The social security administration uses this CPI to compare with the changes in prices from last year and then determines the social security benefits based on inflation and other key factors.

On the other hand, the chained CPI will also take into account the changes in preferences because of a change in price. For example, if the price of a T-bone has increased over a period of time, it will automatically affect the preferences of the people i.e. they will stop buying T-bone and shift towards cheaper piece of meat.

So with C-CPI the pattern of inflation is ignored; rather, consumer spending pattern is taken into account and as a result, very little or no inflation will be observed according to the government. This is the same as assuming that since the prices of gasoline has gone up, people have started walking to work more often rather than using their vehicles. In addition, as we grow old, the increased cost of health care will not be taken into account with the new CPI calculation method.

However, the government forgets the fact that the changes in preferences could be the result of factors other than price as well. As a whole, this new formula is nothing more than a clever way of reducing spending and raising tax without tagging the actions. It can be considered as a spending cut because the entitlement programs like social security, veteran benefits, government pensions and a couple of others linked to national debt are tied to this new policy.

Similarly, by connecting taxation bracket to it, a larger amount of tax can be collected easily since more people will fall in the higher tax brackets and even fever people will receive tax exemptions.

According to the estimates, the switch in CPI calculation formula will cause the social security benefits of a 65 year old to fall by $136 annually. This gap will be further widened by $560 per year at the age of 75 and if anyone ends up living above 85 years of age, the social security gap would have increased by $984 per year.

Although it is said that social security might not be in a very good shape in the coming few years, it is difficult to understand why the government gave a tax holiday to payrolls for almost two years. This holiday has resulted in a loss of a lot of funds by the social security. The government needs to focus more on their own spending cut if they really want to effectively deal with the national debt problem.


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