The Reason Chained CPI Hits Seniors So Hard Is The Same Reason It's So Good At Deficit Reduction
John Moore / Getty
The move is a concession to factions in the GOP that want to see some form of entitlement reform before coming to the table for a budget negotiation.
Still, the move has alienated the president from former allies, campaign supporters and progressives on the left. The decision to shift to chained CPI is, unquestionably, a major cut to benefits.
On the same token, slowing the rate of cost of living adjustments is definitely a way to reduce the deficit.
According to the Congressional Budget Office, on average the rate of chained CPI growth is 0.25% less than the rate of CPI growth. While this might not seem like much, the way CPI is used to calculate the annual cost of living adjustment is compounded annually.
For instance, if the annual growth rate of the current CPI metric — CPI-W — is 3 percent, then the average annual growth rate of chained CPI would be 2.75 percent.
Over time, the compounding effect of annual cost of living adjustment increases will show a major difference between what a person earns under CPI and what a person earns under chained CPI.
As simplified example of this compounding effect, compare the
The blue line is the total annual payment with CPI — an example inflation rate of 3% — and the red line is the total annual payment with chained CPI — at the example inflation rate of 2.75%.
Walter Hickey BI
You'll notice that — as intended — the annual payments grow more slowly with our sample chained CPI than they do under CPI. The thing is, that really adds up over time.
Here's the chart of the cumulative losses for the individual in this hypothetical scenario:
In short, a shift to chained CPI means increasing, compounding losses over time for Social Security beneficiaries.
Still, consider this from the government's perspective. Under the White House plan, here's how much the government saves annually through the move to chained CPI, for mandatory spending alone:
Walter Hickey / BI
Each year, the government benefits more and more from the change to COLA.
This is why, despite the benefits it strips from seniors on Social Security, the cost of living adjustment change is so enticing for
Targeting cost of living adjustments is a way to cut benefits without looking like they're cutting benefits, while at the same time cutting benefits in such a way that the cuts compound and grow.
The compounding effect — the part of the plan that makes this so difficult for beneficiaries — is the exact reason Washington policymakers love the idea as a form of deficit reduction.
- Scooch over magic mushrooms, toad venom could be the next big psychedelic for depression and anxiety!
- TBO Tek IPO allotment – How to check allotment, GMP, listing date and more
- RBI likely to transfer ₹1 trillion to government in FY25
- India's forex reserves jump by USD 3.66 bn to USD 641.59 bn: RBI
- Tata Motors Q4 consolidated net profit jumps over 3-fold at ₹17,528.59 crore
- Nothing Phone (2a) blue edition launched
- JNK India IPO allotment date
- JioCinema New Plans
- Realme Narzo 70 Launched
- Apple Let Loose event
- Elon Musk Apology
- RIL cash flows
- Charlie Munger
- Feedbank IPO allotment
- Tata IPO allotment
- Most generous retirement plans
- Broadcom lays off
- Cibil Score vs Cibil Report
- Birla and Bajaj in top Richest
- Nestle Sept 2023 report
- India Equity Market