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May 21, 2013

Social Security Benefits and the Impact of the Chained CPI

By and

Show references in this report

[1] The chained CPI is commonly abbreviated C-CPI-U.

[2] Rob McClelland, “Differences Between the Traditional CPI and the Chained CPI,” Congressional Budget Office, April 19, 2013, http://www.cbo.gov/publication/44088 (accessed April 23, 2013); The Concord Coalition, “‘Chained CPI’ Represents a Balanced Approach,” 2013, http://www.concordcoalition.org/publications/budget-reports/updates/2013/0424/%E2%80%98chained-cpi%E2%80%99-represents-balanced-approach (accessed April 29, 2013); and Marc Goldwein, Jason Peuquet, and Adam Rosenberg, “Measuring Up: The Case for the Chained CPI,” Committee for a Responsible Budget, March 19, 2013, http://crfb.org/document/measuring-case-chained-cpi (accessed April 29, 2013).

[3] Social Security Administration, “Historical Background and Development of Social Security,” http://www.ssa.gov/history/briefhistory3.html (accessed May 9, 2013).

[4] Social Security Administration, “Cost-of-Living Adjustments,” October 2012, http://www.ssa.gov/cola/2013/factsheet.htm (accessed May 1, 2013).

[5] U.S. Department of Labor, Bureau of Labor Statistics, “Consumer Price Index: Frequently Asked Questions (FAQs),” http://www.bls.gov/cpi/cpifaq.htm (accessed April 23, 2013).

[6] McClelland, “Differences Between the Traditional CPI and the Chained CPI.”

[7] Stephen C. Goss, letter to Representative Xavier Becerra, June 21, 2011, http://www.ssa.gov/oact/solvency/XBecerra_20110621.pdf (accessed April 23, 2013).

[8] Romina Boccia, “CBO Report Echoes Trustees on Medicare, Social Security,” Heritage Foundation Issue Brief No. 3638, June 14, 2012, http://www.heritage.org/research/reports/2012/06/cbo-long-term-budget-outlook-on-the-nations-fiscal-future.

[9] Congressional Budget Office, “Preliminary Estimate of the Budgetary Effects of Using the Chained CPI for Mandatory Programs and the Tax Code Starting in 2014,” March 1, 2013, http://www.cbo.gov/sites/default/files/cbofiles/attachments/Government-wide_chained_CPI_estimate-2014_effective.pdf (accessed April 23, 2013). This estimate assumes that the difference between Social Security’s current measure of inflation and the chained CPI will amount to 0.25 percentage point. The Social Security trustees estimated the difference in Social Security COLAs at 0.3 percentage point. This report uses the trustees’ estimate to compute its results. The 0.05 percentage point difference between the CBO and Social Security trustees’ estimate arises because the CBO projects that the CPI-W and the CPI-U will grow at about the same rate, contrary to the historical 0.05 difference between the two measures. The trustees compare the chained CPI with the CPI-W, arriving at a 0.3 percentage point historical difference. Goss, letter to Representative Xavier Becerra.

[10] Lawmakers should also be cautious concerning the budgetary savings. As recent analysis by the former Office of Management and Budget director shows, the difference between the chained CPI and the standard CPI has been diminishing in recent years. See Peter Orszag, “Chained CPI’s Diminishing Returns for U.S. Budget,” Bloomberg, April 7, 2013, http://www.bloomberg.com/news/2013-04-07/chained-cpi-s-diminishing-returns-for-u-s-budget.html (accessed April 23, 2013).

[11] U.S. Office of Management and Budget, Budget of the U.S. Government, Fiscal Year 2014 (Washington, DC: U.S. Government Printing Office, 2013), p. 210, Table S-9, April 10, 2013, http://www.whitehouse.gov/omb/budget/Overview (accessed April 15, 2013).

[12] U.S. Department of Labor, Bureau of Labor Statistics, “Current Price Topics: The Experimental Consumer Price Index for Older Americans (CPI-E),” Focus on Prices and Spending: Consumer Price Index, Vol. 2, No. 15, February 2012, http://www.bls.gov/opub/focus/volume2_number15/cpi_2_15.htm (accessed April 30, 2013).

[13] Stuart M. Butler, Alison Acosta Fraser, and William W. Beach, eds., Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending, and Restore Prosperity, The Heritage Foundation, 2011, http://www.heritage.org/research/reports/2011/05/sang-the-american-dream-the-heritage-plan-to-fix-the-debt-cut-spending-and-restore-prosperity.

[14] Social Security Administration, “Latest Cost-of-Living Adjustment,” October 16, 2012, http://www.ssa.gov/oact/cola/latestCOLA.html (accessed April 23, 2013).

[15] Goss, letter to Representative Xavier Becerra.

[16] Orszag, “Chained CPI’s Diminishing Returns for U.S. Budget.”

[17] For a description of benefits calculations for workers beginning retirement benefits in 2013, see Social Security Administration, “Your Retirement Benefit: How It Is Figured,” January 2013, http://www.ssa.gov/pubs/EN-05-10070.pdf (accessed May 8, 2013).

[18] Social Security Administration, “Monthly Statistical Snapshot, January 2013,” February 2013, http://www.ssa.gov/policy/docs/quickfacts/stat_snapshot/2013-01.html (accessed April 23, 2013).

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