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Deficit Reduction: It’s a Matter of Priorities

The billion dollar anti-Social Security and Medicare lobby has been working in overdrive for years to convince Washington that the only way to cut deficits is to cut middle-class benefits.  They really don’t want to talk about the true drivers of our budget deficits, and they usually completely ignore the long-term impact that sky-rocketing health care costs (not just in Medicare) have on our economy.  They certainly don’t want to acknowledge current trends which show a slowing in health cost growth.  To do so, would completely undermine their "sky is falling" strategy.  Economist Jared Bernstein explains:

While our approach at CBPP has been to point out what’s needed to stabilize the debt over the next decade—and stress that the extent of further-out-in-time budget pressures depend on health care costs and the impact of new policies to curb them—the basic approach taken here (in the Peterson report) is to get people worried enough about post-2022 projections that they’re willing to pass “entitlement reforms” now.

That is both unwise and unnecessary.  First, as mentioned, we need to see the trajectory of health costs that have slowed in recent years.  If that sticks, the forecasts will be improved.

Second, this Congress is the wrong Congress with which to engage in such reforms.  They cannot be trusted to do so in such a way as to protect economically vulnerable beneficiaries.  They will fix social insurance by breaking social insurance.

That “we have to destroy it to fix it” approach is most evident in the Wall Street and CEO arm of the anti-entitlement lobby called Fix the Debt and bolstered by the Business Roundtable.  These multi-millionaire CEO’s (many representing companies which pay zero in corporate taxes) are preaching “shared sacrifice” while also fighting to protect their trillion dollars in millionaire tax breaks and corporate boondoggles.  

We don’t have to slash benefits to middle class families to reduce the deficit.  Here is a breakdown of just some of the common sense options America’s multimillionaire CEO’s and Wall Street don’t want to talk about:


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2013 Cola Demonstrates Why Proposed Social Security “Tweaks” Are Actually Benefit Cuts for Millions

Today’s announcement that the Social Security cost-of-living adjustment will be just 1.7% means that millions of seniors who rely on their Social Security for the basics like fuel, groceries and medical bills will once again find their expenses far outpacing their Social Security benefit.  For the average senior, this COLA will mean about a $21 monthly increase, which could mean little to no increase at all once next year’s Medicare premium increases are announced.  

“Seniors know all too well, their living costs often far outpace the COLA increase, yet incredibly many politicians are proposing a new formula that will erode this inflation protection even more.  While they try to minimize this backdoor benefit cut, the truth is replacing the current COLA formula with the chained CPI will mean the typical 65 year-old, who filed for benefits at 62, would lose about $130 per year in benefits. By the time that senior reaches 95, the annual benefit cut will be almost $1,400, which is a 9.2 percent cut. 

Given that the average senior currently receives just over $14,000 a year in Social Security, it’s hard to imagine how anyone can argue the current COLA is too generous. Yet this is exactly what is being proposed in closed door meetings on Capitol Hill and on the campaign trail nationwide. I’ve asked seniors at town hall meetings nationwide how many think the COLA is too large -- laughter is always the response. Contrary to claims by those who hope to use Social Security benefits cuts as a bargaining chip in debt discussions, the Social Security COLA is clearly not too generous. Today’s announcement is even more proof of that fact.”…Max Richtman, President/CEO

The National Committee believes we should move to a COLA formula that takes a more accurate measure of seniors’ expenses, which is the CPI-E. It was developed in 1982 to reflect the different spending patterns of consumers age 62 and older. The CPI-E has reflected a rate 0.3 percentage points higher than inflation as measured under the current method.

The National Committee agrees it is critical that the COLA be calculated based on an accurate formula.  But if accuracy is really the goal, Congress should adopt the CPI-E which factors in the large health care expenses most seniors face.  Adopting a formula that cuts already modest benefits for generations of retirees, as does the proposed chained CPI, would be devastating for millions of middle-class Americans who can not afford this back-door benefit cut of $1,400 a year. 

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Finally Some Good News for Seniors

According to news from the Centers for Medicare & Medicaid Services today, beneficiaries over 65 who have been paying $96.40 a month in Medicare Part B premiums, will see their premiums rise next year to $99.90. This is significantly less than the increase predicted by CMS for 2012.  New Medicare enrollees who have been paying $115.40 a month will actually see their premiums go down. The Part B deductible decreases as well, by $22, and premiums for Medicare's Part D prescription benefit will remain unchanged for 2012.   Today’s Medicare announcement follows news last week that seniors will receive a 3.6% Cost of Living Adjustment (COLA) in their 2012 Social Security checks.  That means the average retiree will receive a nearly $40 per month increase in their Social Security checks even including the Part B premium increase. “Today’s Medicare announcement is truly welcome news for millions of seniors worried that healthcare costs would once again eat away at this year’s COLA. For the first time in many years, most retirees can count on actually seeing an increase in their monthly check.  We’ve said all along that healthcare reform was vital to strengthen and improve Medicare for seniors and that given time the benefits would be undeniable.  Today’s announcement is further proof of exactly that.  Rather than trading away benefits in a so-called ‘grand bargain’, Congress should heed the lessons provided in today’s announcement.  Instead of cutting seniors’ benefits in the name of deficit reduction, we should be building on the successful reforms already passed to continue improving Medicare efficiencies while reducing costs.  The Affordable Care Act has shown we don’t have to cut benefits to seniors to save money in Medicare. The question is -- is the Super Committee even paying attention?” Max Richtman, President/CEO

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Ripping off Needy Seniors

At least the Los Angeles Times gets it...

Ripping off needy seniors through the 'chained CPI'

Basing Social Security cost-of-living increases on the chained consumer price index, which presumes people will trade down to cheaper goods as costs rise, would force elderly people on fixed incomes to forgo essentials.

Michael Hiltzik July 13, 2011 Of all the ways policymakers in Washington show they have absolutely no conception of how their tinkerings with the federal budget affect average Americans, one stands alone. That's the proposal to change the formula that determines annual cost-of-living increases for people on Social Security. At the heart of this particular change is an inflation indicator known as the chained consumer price index. You may have heard the term bandied about, along with the claim that it's more accurate at measuring inflation than the plain-vanilla versions of the CPI used today for inflation adjustments in Social Security, the income tax and other federal programs. First published by the Bureau of Labor Statistics in 2002, the chained CPI was designed to adjust for the ways real-life consumers compensate when a product or service gets more expensive: They buy less of it, or find a cheaper brand, or find something different, or go without. The phenomenon is known as "substitution." Economists fear that an inflation index that ignores substitution might overstate the real cost of living because it will include products in its market basket that consumers have tossed out of theirs. The example favored by BLS analysts is ice cream — as it rises in price, the analysts observe, consumers will buy a pint instead of a quart, or buy a store brand instead of Breyers, or shop for it at Costco instead of Ralphs. For budget cutters, the charm of the chained CPI is that it consistently rises at a lower rate than the traditional CPI, differing by two- to three-tenths of a percentage point per year. Social Security's own actuaries have calculated that pegging cost-of-living increases to the chained CPI would cut seniors' benefits by nearly 10% over any 30-year span, compared with the current formula. For the average retiree reaching age 85, the change would amount to an annual cut of nearly $1,000; by age 95, the reduction would rise to nearly $1,400. Over the next 10 years, according to the nonpartisan National Academy of Social Insurance, the change would cut total Social Security benefits by $112 billion. The idea of using the chained CPI to cut Social Security benefits has built up a dangerous head of steam in Washington. It even came up during President Obama's news conference on Monday, though he nimbly dodged the issue. In the GOP-controlled House of Representatives, it's the flavor of the month in all budget debates. It came up last week at a House Ways and Means Committee hearing on Social Security, for instance. Asked to illustrate how the chained CPI works, the eminent economist Sylvester Schieber skipped over the BLS' ice cream model and went with this one: "If the price of a Mercedes goes up … maybe you don't buy the Mercedes, you switch and you buy an Audi or something." It's hard to say whether this was a real-life event for Schieber, who works for the corporate consulting firm Watson Wyatt Worldwide, or whether he thought that a parable about substitution in the luxury car market would hit the potentates on the Ways and Means Committee where they lived. But here's the punch line: Schieber was wrong, or at least wildly misleading. The sort of substitution he was talking about, within categories of goods such as new cars, is already baked into the standard CPI and has been since 1999. The chained CPI addresses the more painful substitutions that occur across categories — a more accurate example might be that if the price of gas or medical care goes up, you cut back on food. But since members of Congress are often transported at government expense, receive government medical coverage and have lobbyists to pick up their restaurant tabs, maybe Schieber knew his audience. A more important issue is whether the chained CPI really is the best measure of the cost of living for Social Security recipients. There are grounds to doubt that it is. It's not at all certain that elderly persons on fixed incomes can make the sort of lifestyle changes contemplated by the chained CPI, or even the standard CPI, as easily as other consumers. That's because a larger portion of seniors' spending is concentrated in medical goods and services, which aren't as amenable to substitution as, say, oranges for apples; it's not as though you can forgo a prescribed heart bypass operation and opt for a cheaper hernia operation instead. Indeed, the BLS has recognized that elderly consumers are a special case by developing an experimental CPI, known as the CPI-E, just for those 62 and older. Among other differences, the index overweights medical care as a factor in seniors' spending. That component, which has risen in cost at nearly twice the rate of overall inflation over the last couple of decades, counts for more than twice as much of the CPI-E as it does of the standard CPI used to calculate Social Security cost-of-living raises today. That helps explain why the CPI-E rose nearly 7% faster than the standard CPI from 1998 through 2009, according to government estimates. It also tells you why, from the standpoint of seniors' real cost of living, the chained CPI is a rip-off. When you factor in that two-thirds of our retirees get most of their income from Social Security — and for one-third of retirees the program accounts for 90% of their income — you can see that the chained-CPI proposal is nothing but a stealth benefit cut aimed at the neediest Americans, and one that weighs ever more heavily as people grow older, and needier. But the sad truth is that the proposal to link Social Security inflation protection to the chained CPI isn't really about making annual cost-of-living increases more "accurate." That's mere window dressing. The goal is to cut benefits and thereby cut government costs. As has been the case throughout the discussion in Washington about the budget and the federal deficit, the guiding principle here has been to preserve benefits for the wealthy at the expense of everyone else. How do we know this? If you use the chained CPI instead of the standard CPI for the annual adjustment in income tax brackets, over time that will create an effective tax increase, especially for wealthier taxpayers. (That's because the bracket thresholds will rise more slowly relative to inflation than they do now.) The gain for the Treasury would be about $72 billion over 10 years, according to the congressional Joint Committee on Taxation. What do the agents of the wealthy say about that? Let's ask the right-wing Cato Institute, which cherishes both a sedulous admiration for free enterprise and a long-standing hostility to Social Security. Cato last year called switching to the chained CPI for Social Security a "sound and overdue reform." But when it came to using the chained CPI to adjust tax brackets, Cato called that "a very bad idea." One would think it only fair that if you change the inflation index for one government program, you should do so for all of them. It's a measure of the cynicism that guides debate in the nation's capital that an "overdue reform" that would take $112 billion from the needy can be regarded as "a very bad idea" if it costs the rich $72 billion — and that no one pauses to ponder the rank injustice involved. Must be that they can't make out their own words over the purring of those Mercedes engines. Michael Hiltzik's column appears Sundays and Wednesdays. Reach him at, read past columns at, check out and follow @latimeshiltzik on Twitter.

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Social Security COLA Vote Coming Up-Call Congress Today!

Congressional leaders have put emergency COLA legislation on the calendar—with a vote expected as early as tomorrow.  Unfortunately, its passage is far from certain.     Which makes it more than just ironic (you could say it’s actually infuriating) is that many of the same fiscal hawks who fought hard to keep $4 trillion dollars in tax cuts for the wealthy, will blithely argue on the floor of the Senate and House this week that America can’t afford to give seniors--who will go without a cost of living increase for two consecutive years--$250.     Contrary to the “greedy geezer” mythology preferred by these Washington’s fiscal hawks, the truth about this COLA legislation has absolutely nothing to do their us-versus-them, young-versus-old propaganda.  In fact, these $250 one-time payments have been proven to be effective economic stimulus  and a job creator, as was the case in 2009:  While its share of the overall Recovery Act spending was very small, this lump-sum payment was one of the quickest-acting components of the overall package—the majority of payments were received just months after the Act was passed (by the end of May 2009). This Social Security and SSI payment by itself likely boosted GDP by roughly 0.5% in the second quarter of 2009, which would roughly translate to about 125,000 jobs created or saved due to these payments.”“Downpayment on Economic Recovery,” September 2010 Ask your representatives in Congress… 

”Where do you stand on COLA relief legislation for millions of retirees?”  

and then 

“Where do you stand on extending $4 billion in tax cuts to the wealthy?” 
The answers to these questions will tell you a lot about Washington’s current fiscal priorities.  Pushing tax cuts for the wealthy while rejecting any COLA relief and even proposing benefit cuts in Social Security are not America’s fiscal priorities.  This Washington disconnect is not good for our nation or our economic recovery and it’s time we deliver that message loud and clear.   Use our 24-hour Legislative Hotline to connect directly to your members:


Or send an email from our Legislative Action Center.  You can see a sample email message there and personalize it with your own message to Congress.  

Tell Congress – it’s time to get their priorities straight!  

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