Sunday, May 29, 2011

This is pretty remarkable:

File this one away. Here is an editorial in the Washington Post:
Benefits for programs such as Social Security and civilian and military pensions, and eligibility levels for other programs, are indexed to inflation. As the cost of living rises, benefit checks grow, too. ...

Indexing makes sense, but the measurement is inaccurate. ...

An alternative measure, known as the Chained CPI, adjusts for change in consumer behavior and provides a more accurate inflation measure. The difference is small — a fraction of a percentage point annually — but the effect compounds over time.

Over the decade, switching to the Chained CPI would save $112 billion in Social Security alone, $33 billion in other federal retirement programs and $23 billion from other programs with eligibility or benefit levels pegged to the cost of living, according to a new paper from the Moment of Truth Project, the successor to Simpson-Bowles.
Dean Baker comments:
Today [the Washington Post's] lead editorial told readers that reducing the annual cost of living adjustment for Social Security by 0.3 percentage points won't hurt. This would come as news to most seniors who rely on Social Security for most of their income.

This 0.3 percentage point cut is cumulative. After a person has been retired for 10 years benefits would be roughly 3 percent lower than would otherwise be the case. Benefits would be almost 6 percent lower after 20 years, and almost 9 percent lower after 30 years, when most beneficiaries will be in their 90s.
Dean Baker was referring to the headline for the editorial at a different URL (but with the same content -link) that reads: This cut won’t hurt


$112 billion over 10 years would cover about one month of deficit spending at current rates. It's too late for this sort of stupid tinkering around the edges.

By Anonymous Anonymous, at 5/30/2011 10:21 AM  

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