Depending on how the fiscal cliff negotiations end, Social Security benefits might wind up in chains.
House Republicans have proposed indexing federal benefits, most notably Social Security, to a slower inflation rate known as the “chained Consumer Price Index (CPI).” That would slow the growth of Social Security benefits, which increase periodically with Cost of Living Adjustments (COLAs), the next of which is scheduled for January.
The president has countered with his own inflation offer, a “superlative CPI” that the White House says would shield the neediest beneficiaries from the change. Liberals have cried foul about all of it.
So how would benefits change under a different calculation of inflation?
The best number to know is $130: That’s how much a typical 65 year-old would lose in yearly benefits, three years from now, under the GOP’s “chained CPI” proposal.
The GOP’s “chained CPI” proposal has been around for a while, and in 2011 the Social Security Administration’s chief actuary found that the change would mean retirees at age 65 in 2015 or later would see their benefits drop by 0.9 percent. Democrats on the House Ways & Means Committee applied that to the typical Social Security beneficiary, finding that it would mean a decrease of “about $130 a year in annual benefits for a typical 65 year-old.”
Over time, beneficiaries would be lose more compared to current law, as the smaller increases added (or subtracted) up. “By the time that senior is 95, the annual benefit cut will be almost $1,400 (9.2 percent),” Ways and Means Democrats wrote in a statement.
Different analysts have come up with slightly different numbers. The left-leaning group Strengthen Social Security found that beneficiaries would lose slightly more, $1,611 per year, at age 95.
Now that the GOP and the White House have both offered plans to change how inflation is calculated, it appears likelier than ever that some new CPI formula–and some cuts to Social Security benefits–will be included in a final deal.