"Chain, chain, chain, chain of fools." --
Aretha was singing about a cruel lover. But her complaint applies equally well to another kind of foolish chain that's become a household word during this summer of federal budget battles: the "chained CPI."
That's shorthand for a policy idea kicking around
Seniors have been hearing about the chained CPI lately in the context of
A 1.1 percent COLA is forecast for 2012 by the Congressional Budget Office (CBO).
But in the meanwhile, the debate in
Several of the key federal deficit reduction plans that have been advanced recommend replacing the CPI-W with a chained CPI. A chained index reflects changes that consumers make in their purchasing across dissimilar items in response to price changes; the theory is that a spike in gasoline prices will prompt consumers to spend less on fuel, perhaps more on food. (Or, as a reader of an earlier story I wrote on this subject quipped in an online comment: "Sure, when the price of steak goes up, people switch to chicken. And when the price of chicken goes up, old folks will switch to cat food.")
The chained CPI could be applied to federal benefit programs and to the income tax code -- although it stands to generate far more benefit cuts than revenue gains.
On the benefit side, a chained CPI would impact
According to the CBO, benefit adjustments could yield
Here's what makes the chained CPI especially controversial insofar as
The chief actuary of the
That takes us in exactly the wrong direction on COLA policy. If anything, the current CPI-W measure understates the living costs experienced by the elderly -- especially healthcare costs. Healthcare inflation has far outpaced general inflation for several decades.
Since 1988, the
"Since most of the deficit reduction (that would result from using the chained CPI) comes from cutting benefits for elderly and disabled Americans, it does point one back to the question of whether the chained CPI is more accurate for elderly and disabled Americans," says
Proponents of a chained CPI usually describe it as a technical correction to make COLAs more accurate -- and a geeky topic only an economist could love. But it actually will have major implications out in the real world. So, no matter where this summer's fiscal debate goes in
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