Obama Wants to Cut Social Security
By Ben Strubel
Friday, 08 November 2013
What Cuts Are Being Proposed?
Obama is proposing, along with the support of Republicans and many Democrats, to change how annual increases in Social Security benefits are calculated. Obama wants to switch to a different formula, called Chained CPI. This switch would result in a benefit cut of $230 billion dollars over 10 years. All this is being done under the guise of “strengthening” the program and “securing it for future generations”. (See here, here, here, here and here)
Right now, annual increases in Social Security benefits are calculated using changes in CPI (Consumer Price Index) which measures the price increases in various goods and services. Chained CPI is a twist on regular CPI in that it assumes that when the price of one good goes up people will substitute a cheaper good. For instance, if the price of steak goes up people will switch to chicken. While this makes sense for some things, it doesn’t for others. For instance, if the price of natural gas goes up you can’t just change the heating system you have. If the prices of essential prescription drugs go, up you can’t just substitute something different.
So how much would Social Security payments change under Chained CPI? At first, it doesn’t seem like a lot. Using last year’s data, the change would amount to only $3 less for every $1,000 received. The problem is that the money lost compounds over time. If someone draws benefits at age 62, then by the time they reach age 92 they will be losing a full month of income!