Chained Consumer Price Index Means Lower Benefits

We have mentioned how members of Congress may alter Social Security benefits based on possible changes the way the Social Security Administration (“SSA”) measures inflation. This proposal appears to be gaining momentum, as the bi-partisan Super Committee looking for ways to trim the deficit reportedly supports the inflation change. The problem for Social Security beneficiaries is that the change would result in higher taxes and lower benefits.

The debate about inflation adjustment centers on the Consumer Price Index (“CPI”). Currently the SSA and the rest of the federal government use the CPI for all urban consumers. The Super Committee is considering switching to the chained CPI. The chained CPI calculates a lower level of inflation, because, as the price as something goes up, this calculation assumes you will switch to something cheaper. In this way, you avoid the increase in costs, and, thus, inflation appears lower.

The resulting lower inflation will have two big impacts. First, the changes in tax brackets will be smaller from year to year, since inflation adjustments will be lower. As a result, more people will be paying higher taxes as they move up brackets when their salaries exceed the new, smaller inflation rate.

Second, Social Security cost of living adjustments will be lower. The modest cost of living increase Social Security beneficiaries receive periodically is a big boost to those who depend on Social Security benefits. With the chained CPI, however, cost of living adjustments will be lower.

Some Congress members have expressed concern that this switch to a chained CPI is a hidden ploy that will have big consequences. Have you been keeping up on proposed changes to Social Security and other federal programs? How would this change affect your living situation as a Social Security beneficiary?

Troutman & Troutman, P.C. – Tulsa Social Security disability attorneys

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