How high does senior poverty have to go?
It’s official: President Obama has proposed cutting Social Security by replacing the program’s current inflation adjustment with the stingier “chained” Consumer Price Index. As I’ve discussed before, this risks undoing all the progress made against senior poverty since the passage of Medicare and Medicaid in 1965. 25% of seniors were poor according to official poverty line in 1968, compared to just 9.4% in 2006. Note, however, that the Supplemental Poverty Measure, which includes things like out of pocket health care expenses which hit seniors disproportionately, already shows a 16.1% rate by 2009. And our senior poverty rate, measured by the international standard of 50% of median income, is already 25%, much higher than most developed countries, more than three times Sweden’s rate and over four times as high as Canada.
Why is Obama doing this? We just rejected the candidate who wanted to cut Social Security and Medicare. Perhaps, as Krugman (link above) suggests, he chasing the fantasy of “being the adult in the room,” but this is a losing proposition. As Brian Beutler points out:
Just like that, Chained CPI morphs from a thing President Obama is willing to offer Republicans into a thing Republicans dismiss as a “shocking attack on seniors.”
We’ve seen this game before. The Heritage Foundation’s health care plan became “death panels” when President Obama endorsed it. And, as Beutler’s title makes clear, we have plenty of examples of the President negotiating with himself to bad effect, most notably in the 2011 debt ceiling battle.
If this cut really happens, Social Security benefits will steadily fall in true inflation-adjusted terms due to the magic of compounding. Moreover, with 49% of the workforce having no retirement plan at work and another 31% with only a grossly inadequate 401(k), the cuts will worsen the coming retirement crisis. The only question will then be: how high will senior poverty have to go before we do something about it?
Cross-posted from Middle Class Political Economist.
doug short has Chained CPI Versus the Standard CPI: Breaking Down the Numbers from 2000 to the present; his chart compares the change in inflation for CPI, Core CPI, and the eight top-level components of CPI for both CPI-U and chained CPI…
you will find it interesting…
Obama claims the constitutional authority to kill any American he chooses. Mind you this absurdity comes from a man who was a 1991 Harvard graduate, J.D. magna cum laude.
After that it’s hard to not believe he is at best amoral. His principals not based upon law or tradition or some moral calculus but simply a belief in an operational sort of reaching middle ground approach. The middle as defined by the elites as found at Harvard and subsequently in Wall Street, the Pentagon, Langly, etc.
Find the sweet spot there and there is your principal.
Like all Presidents, Obama is no economist. IF he’s being told by those around him (who should know) that the chained CPI is a more accurate measure of inflation, he logically should conclude that his choice is to (a) continue using a flawed measure that increases real benefit levels over-and-above intended inflation adjustments, or (b) use a more accurate measure to inflation-adjust benefits as intended. I may be wrong, but the evidence suggests to me that the IF clause correctly describes the political situation. Experts who oppose the chained CPI have accepted that the fight will occur on the political battlefield rather than the more technical measurement battlefield. I’m not entirely sure why.
of course we have no principles.
we only have accountants who can “balance” a budget by completely ignoring the purpose of the budget.
sure, we can save social security by cutting benefits. too bad about the people social security was invented to save.
and of course as a country, as people, we are far, far too poor to find the eighty cents per week it would cost “us” to provide for the people… also us.
in the first place there is NO “technically more accurate” measure of inflation.
there are various ways of “measuring” inflation that give an approximation of “general price increases,” but which one you like is a political decision.
in the second place, since workers pay for their own social security it ought to be up to them whether they choose a measure that increases their benefits over time, or “saves them money” while they are working. the latter choice is usually the stupid one. as any financial planner will be happy to explain to you.
it is especially stupid when the offered “technically more accurate” measure will cut your Social Security on the order of a thousand dollars a year, while “saving” you about 30 cents per week per year.
rjs — Doug Short makes the following statement in the article that you reference,
“Over time the proposed switch to the Chained CPI for Social Security COLAs will substantially lower the cost to government … and the size of payouts to recipients.”
He is right, it will reduce payouts to recipients. He is wrong about it lowering the cost of SS COLAs to government. The cost of SS COLAs to government is already ZERO. It can’t get any less. SS and its COLAs are paid entirely by SS.
you’re right, jerry; in citing his post, i wasnt standing by its every nuance; i just thought his chart on how the various components of CPI change over time under chained CPI was enlightening…for instance, CPI recreation which has increased 13% over a decade only increases 3% under chained CPI…guess the old folks are expected to just play checkers if the cost of going to the movies goes up…
Unfortunately I have seen this misconception that SS COLA costs the government money all over the place.
”Like all Presidents, Obama is no economist.”
Right and he does not need to be in order to grasp that productive state spending and/or programs has proven to mitigate [not prevent or end] cyclic downturns even though they be within the Long Slowing and cost increasingly more [though this need not be the case].
He has not discovered how, in the old sense, to be a corporatist able to weigh vertical group against group and achieve determined balances.
[And in that sense he’s not even a politician but mere spectacle]