Off the Table for Now: Using the Chained CPI to Reduce Social Security Payment Calculations
The change in the way Social Security payments are calculated for Cost of Living Adjustments (COLA) is a moot point in 'Fiscal Cliff' problem-solving for now, but we thought we'd offer a 2010 CBO (Congressional Budget Office) post that could explain the Chained CPI — now being referred to as a budget-cutting approach.
We are also including some FAQs from the Social Security Administration concerning 2013 monthly payments.
Using a Different Measure of Inflation for Indexing Federal Programs and the Tax Code; A blog post by the Congressional Budget Office February 24, 2010
Federal laws try to protect taxpayers and recipients of government benefits from the effects of rising prices by specifying that dollar amounts in many parts of the tax code and in some programs be automatically adjusted or indexed for inflation. Without such indexing, a rise in the general level of prices would alter the effects of federal policies even in the absence of action by lawmakers.
For example, if a Social Security beneficiary's payment remained the same over time (in other words, not indexed for inflation), the value of goods and services that the beneficiary could purchase would go down.
Many federal programs and parts of the tax code are currently indexed to increases in the consumer price index (CPI), a measure of inflation calculated by the Bureau of Labor Statistics (BLS). According to many analysts, however, the CPI overstates increases in the cost of living because it does not fully account for the fact that consumers generally adjust their spending patterns as some prices change relative to other prices.
Social Security Administration Photograph: Cardpunch operators SSA employed throughout the late 1930s and into the 1950s to maintain Social Security records in the days before the advent of computers.
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