Dec 17 U.S. President Barack Obama's latest
offer for a "fiscal cliff" resolution includes a change in the
way annual payment increases for Social Security are calculated
The following is a description of the "chained" consumer
price index switch and how the president's proposal could affect
the roughly 56 million Social Security beneficiaries.
* Social Security benefits are recalculated annually for
cost-of-living adjustments based on changes in the consumer
price index as measured by the Bureau of Labor Statistics.
* Some economists have argued CPI fails to accurately
measure inflation because it does not account for changes in
consumer buying habits. For example, if pork prices rise more
than beef prices, consumers might buy more beef. In 2002 the BLS
introduced a "chained" CPI measurement designed to reflect such
adjustments, as a complement to its traditional inflation gauge.
* Some lawmakers, including senators involved in the
bipartisan "Gang of Six" negotiations, have proposed that the
Social Security cost-of-living adjustment should be measured by
* But opponents including the AFL-CIO union say the chained
CPI calculation is a way to gradually reduce Social Security
* The Center for Economic and Policy Research, a think tank,
has said the chained CPI calculation would lead to a cut in
benefits for an average worker retiring at age 65 of $650 a year
by age 75, and $1,130 a year at age 85.
* The Congressional Budget Office in March 2011 estimated a
chained CPI calculation would save the federal government $112
billion from 2012 through 2021.
* The president's 2010 Simpson-Bowles deficit reduction
committee called for a switch to chained CPI calculations for
Social Security benefits.
(Reporting By Patrick Temple-West. Additional reporting by
David Lawder; Edited by Fred Barbash and Xavier Briand)