Tuesday, September 6, 2011

New paper: "Implications of a 'Chained' CPI"

The Center for Retirement Research at Boston College has released a new Issue in Brief:

"Implications of a 'Chained' CPI" by Alicia H. Munnell and William M. Hisey

The brief's key findings are:

  • Recent commissions have proposed a "chained" consumer price index to adjust Social Security benefits.
  • The chained index, which allows spending patterns to shift as prices change, would rise more slowly than the current index.
  • But the current index likely understates the inflation faced by the elderly, and the low-income elderly may have little flexibility.
  • An alternative way for current retirees to bear some of the burden of a Social Security fix would be a one-time delay in the inflation adjustment.

The brief is available here.


WilliamLarsen said...

It still amazes me that politicians, analysts and those proposing changes to Social Security are doing so without regard to how the formula works or how much revenues are collected. There never was and still is not any relationship between taxes paid and the benefits drawn/paid to beneficiaries.

This would be like Boeing building a plane without first determining if the weight to lift ratio is good, power supplies are good, fuel capacity is enough to go the stated distance and in the end just hoping that it will fly.

It is not that difficult to determine what it takes in terms of taxes to pay a benefit some time in the future. Yet, every decade when Social Security faces problems they put band aids on it without looking at the design.

Why do we even pay COLA? It was not part of the initial program? When it was added no one did a cost impact study and the required tax increase to pay for it was never done. Now we have people fooling around with COLA suggesting Chained CPI.

I certainly hope we are not going to attempt to increase Beneficiaries benefits faster than the work force can support. My father told me more than 35 years ago that it was a mistake to add COLA that would automatically increase based on a variable that was not part of the increase in workers wages.

At 55, I support scrapping the entire program. Who are we really trying to save if for? Those under 46 overwhelming hate it.

I think it is just plain greedy beneficiaries and those who are close to retirement.

Too bad we cannot vote on it at election time like a ballot initiative.

Arne said...

"It is not that difficult to determine what it takes in terms of taxes to pay a benefit some time in the future. "

Mr Larsen should try looking at the reports the SS Administration issues each year. It takes only small adjustments to keep SS in balance, but adjustments are necessary because people are living longer. Fooling around with COLA is one way to make smal changes, but since SS is immensely popular with people who understand how much it helps, simply raising rates along with increases in life expectancy would make a lot of sense.