For months, the high-stakes stand-off over raising the debt ceiling and cutting the deficit has proceeded from two basic premises — that Republicans would take their toys and go home the minute Democrats proposed significant new tax revenues, and that Social Security’s long-term shortfall would not be on the table in this round of negotiating.
Two weeks ago, that first assumption proved true: Democrats proposed a few hundred billion in new tax revenues (a small fraction of the trillions of dollars in spending cuts Republicans are demanding) so GOP principals threw up their hands and abandoned the discussions. But the second assumption isn’t built on bedrock. And in recent weeks, congressional aides, strategists, and advocates have been floating, or warning of, a stealth change to the Social Security benefit structure that has quietly been placed on the negotiating table.The proposal wouldn’t just impact Social Security benefits. It would also shave off yearly increases in federal pension payouts, and result in somewhat higher tax revenues. But the ratio would be skewed toward benefit cuts by a factor of about 2-to-1 and would represent a financial hit to even the poorest retirees unless they were exempted.
The idea is to change the way Cost of Living Adjustments (COLAs) are calculated across the federal government. Currently, the COLAs for tax brackets, pensions, and Social Security are tied to different measures of the Consumer Price Index (CPI). Because spending habits change when living costs increase, some experts think these measures are too generous, and want to change all of the COLAs to a different, smaller measure of inflation: the so-called “chained-CPI.”
On the tax side, this would likely draw more revenue: Tax brackets would rise more slowly than incomes, so people would get kicked into higher brackets more quickly and, voila, more income subject to taxation.
But on the benefits side, this means money out of people’s pockets, even current retirees and pensioners. Responding to a letter of concern from House Democrats’ top Social Security guy the program’s chief actuary explained that moving to “chained-CPI” would constitute an immediate 0.3 percent benefit cut. That may sound small, but the effects would compound, and “[a]dditional annual COLAs thereafter would accumulate to larger total reductions in expected scheduled benefit levels of about 3.7 percent, 6.5 percent, and 9.2 percent for retirees at ages 75, 85, and 95, respectively.”
In a recent brief, the National Women’s Law Center, which opposes reducing the Social Security COLA, turned similar numbers from an earlier SSA memo into a handy chart.
Over the course of a retirement, that can add up to many thousands of dollars. And that’s why advocates and interest groups all the way up to AARP are sounding their alarms.
“Let me be clear – AARP will not accept any cuts of any kind to Social Security as part of a deal to pay the nation’s bills,” said AARP CEO A. Barry Rand in a statement late last month, “and specific proposals such as the chained CPI should not be considered as part of the debt ceiling or deficit reduction negotiations.”