Tags: chained CPI | CPI | benefits | inflation

Report: Chained CPI Is Simple Solution to US Budget Problems

By    |   Friday, 05 April 2013 08:19 AM

Here’s a simple solution that some people say could solve our budget problem, or at least largely solve it.

Instead of increasing taxes or cutting entitlement benefits like Social Security, change how the cost-of-living increases for these benefits are calculated.

Changing how inflation is computed would change cost-of-living adjustments for Social Security as well veterans’ benefits and government military and civilian pensions.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

Currently, the government uses the consumer price index (CPI) to measure inflation and decide how much to increase Social Security and other benefits. But the chained CPI, also known as the superlative CPI, is more accurate, according to a report from the Moment of Truth Project, which is co-chaired by former Republican Senator Alan Simpson of Wyoming and former Clinton White House Chief of Staff Erskine Bowles.

The chained CPI typically reports lower inflation, 0.25 to 0.3 percent less than the CPI. That small difference adds up over time. For instance, the CPI says prices rose 34 percent between 2000 and 2011, while the chained CPI says they rose 29 percent, according to the report.

The Movement of Truth Project argues that besides being more accurate, the chained CPI would cut the deficit by about $390 billion over the next decade if implemented in 2014.

The CPI’s problem is substitution bias, it argues. In other words, if the price of something increases, consumers will buy something else instead — for instance, substitute chicken for beef — to soften inflation’s blow.

“Addressing our fiscal challenges will require many tough choices and policy changes, but switching to the chained CPI represents neither,” the report states.

“Such a change offers policymakers the rare opportunity to achieve significant savings spread across the entire budget by making a technical improvement to existing policies.”

The Moment of Truth Project asserts that the chained CPI has broad bi-partisan support and that many economists believe it is more accurate.

Others say the chained CPI is simply a benefit cut.

It is not just a technical change, and there are “no grounds” for the claim that it is more accurate, writes Michael Hiltzik write in his column for the Los Angeles Times.

“The paper makes a lot of questionable claims.”

There’s no evidence seniors make the sort of substitution changes the project talks about, he says, adding that the regular CPI already incorporates this sort of substitution.

“If cars get more expensive, do you put your money into a flat-screen TV instead?”

The Moment is Truth Project, he notes, is linked to Peter G. Peterson, the hedge fund billionaire known for backing efforts to cut Social Security and Medicare.

Editor's Note: Economist Warns: ‘Money From Heaven a Path to Hell.’ See Evidence.

© 2019 Newsmax Finance. All rights reserved.

   
1Like our page
2Share
Economy
Here’s a simple solution that some people say could solve our budget problem, or at least largely solve it. Instead of increasing taxes or cutting entitlement benefits like Social Security, change how the cost-of-living increases for these benefits are calculated.
chained CPI,CPI,benefits,inflation
456
2013-19-05
Friday, 05 April 2013 08:19 AM
Newsmax Media, Inc.
 

Newsmax, Moneynews, Newsmax Health, and Independent. American. are registered trademarks of Newsmax Media, Inc. Newsmax TV, and Newsmax World are trademarks of Newsmax Media, Inc.

NEWSMAX.COM
MONEYNEWS.COM
© Newsmax Media, Inc.
All Rights Reserved