The AP’s recent story on proposed changes in the derivation of Social Security’s cost of living (COLA) formula is the kind of explainer we have urged the press to write. The piece, written by Stephen Ohlemacher, lays out exactly what will happen to people—and not just seniors already on Social Security, but others who will be affected by a new way of calculating the COLA. The congressional supercommittee tasked with reducing the federal deficit may propose such changes in the next few weeks. “The proposal is gaining momentum in part because it would let policymakers gradually cut benefits and increase taxes in a way that might not be readily apparent to most Americans,” Ohlemacher wrote.
He went on to clearly explain how those changes would affect family pocketbooks over time. The reason for the cuts and increases is the chained CPI, which shows a lower rate of inflation than the current formula. By indicating that inflation is lower, the new formula would reduce benefits. Since those cuts compound, they could pinch seniors’ budgets as their savings dwindle.
The AP described it this way:
Under the chained CPI, the benefit increase for a typical 65-year-old would be about $136 less per year, according to an analysis of Social Security data. At age 75, the annual benefit increase under the new index would be $560 less. At 85, the difference would be $984 a year, and at 95, the annual income loss would amount to $1392.
These are not trivial amounts when you consider that seniors will also face higher out-of-pocket spending for medical care—also a proposal on the supercommittee’s table. Ohlemacher took his analysis one step further and reported on other fallout that would result from adopting the chained CPI. Once the government adopts it for Social Security, it could use it to determine eligibility for other programs and that would hurt those with lower incomes—a point that hasn’t been mentioned in what little reporting that has been done on the chained CPI. He reported that if the new method were adopted across the government, fewer people would be eligible for many anti-poverty programs, such as food stamps, Head Start, and home heating assistance. Because the poverty level also would increase at a lower rate each year, fewer people would have incomes below the poverty line. Thus, they would not qualify for those programs, even though their income remained the same.
Taxpayers would also feel the pinch. Adjustments to tax brackets would be smaller, which would mean more people bumping into higher brackets because their wages would rise faster than the new inflation measure. Furthermore, Ohlemacher noted annual increases in the standard deduction and personal exemptions would be lower, too. He cited a study from the Congressional Joint Committee on Taxation that revealed these CPI-related tax increases would hit low-income families the hardest:
The weathiest taxpayers already pay taxes at the highest marginal rate, currently 35 percent. By 2021, taxpayers making between $10,000 and $20,000 would see a 14.5 % increase in ther federal taxes with a chained CPI. Taxpayers making more than $1 million would get a tax increase of 0.1%.
This was not a political story, but woven throughout the piece were the political underpinnings of the push to change the COLA calculation. The piece explained how the supercommittee had to find a way to reduce the federal deficit by at least $1.2 trillion over the next ten years, and how changing the inflation index would get them one-sixth of the way there. Ohlemacher’s kicker was everything a good kicker should be—provocative and pointing to further reporting. It noted that Rep. Xavier Becerra, a liberal Democrat from California who had opposed the chained CPI, might have changed his mind: “If you’re going to simply try to save money by changing the CPI, you can do that. But then be up front and tell seniors what you’re doing. You’re throwing them under the bus to save money.”