Federal Employees News Digest

Chained CPI absent from White House budget

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The White House’s upcoming budget proposal will not include the use of “chained CPI”—an increasingly controversial new method for calculating cost-of-living adjustments—a spokesman for the president said late last month.

The implementation of the formula—more formally known as the chained Consumer Price Index—would have produced smaller COLAs for federal retirees, veterans and Social Security beneficiaries, resulting in those recipients receiving thousands of dollars less in benefits over the long haul.

The proposed switch to the formula, which has been proposed by the president and others as a means to trim the cost of entitlements such as Social Security, raised a firestorm of criticism from labor groups, retiree organizations and many lawmakers.

Widespread outcry

The White House may have been nudged to its decision in part by a Feb. 19 letter to the president signed by 117 House members opposing any move to implement chained CPI.

"We recognize that additional measures are required to address our nation’s long-term budget challenges, and we appreciate the difficult choices you are wrestling with as you prepare a fiscal blueprint to promote economic growth," wrote the lawmakers, who were led in the effort by Rep. Allyson Schwartz (D-Pa.). "But, we respectfully ask that you not place the burden of additional deficit reduction on the backs of seniors, veterans, federal retirees, disabled individuals and others by including chained CPI in your Budget for Fiscal Year 2015."

Another heavily subscribed open letter against the plan came from more than 300 economists and Social Security experts, shepherded by the progressive nonprofit Economic Policy Institute.

“The battle is really about the idea that these are surgical cuts—or not. They are not,” Monique Morrissey, an economist at EPI, told FEND. “We at EPI are strongly opposed to the chained CPI plan. We of course helped organize the signature campaign where 300 [economists and other experts] explained why it’s a bad idea.”

Federal employee unions also have been against the idea of using chained CPI since its inception. The National Treasury Employees Union and the American Federation of Government Employees, two of the largest federal unions, have issued repeated statements against the plan, as has the National Active and Retired Federal Employees Association.

Reduction over time

“The chained CPI idea is generally understood now to be not a ‘correction,’ but an actual cut,” EPI’s Morrissey told FEND. “But the reason it lives on in policy circles is this: If you applied it across the board, and then also to income tax brackets, you could actually be raising income tax revenues while cutting [elsewhere]—it gets complex, but there has been support among some otherwise progressive organizations, and that makes it unusual.”

“But virtually everyone—economists—agree now that both the current version of inflation indexing and the chained CPI understate the inflation faced by seniors,” Morrissey explained. “They spend a lot more on health care than non-elderly consumers.”

“Also, although the difference imposed by the chained CPI proposal seems small, it is compounded over time,” Morrissey said. “The 0.3 percent per year becomes a lot more over a decade.”

Morrissey noted that this growth over time would likely have a huge impact on today’s retirees, because people live longer lives, often well into their 80s.

“The difference starts to accumulate after age 62,” Morrissey said. “If someone is in their 80s or early 90s, and this happens, their income is going to be a lot lower. Virtually no one thinks it’s a good idea for this with the oldest persons.”

“As a result of this problem, you used to get this weird thing in some programs where you get a lower COLA, but then at a certain age, say, age 80 or whatever, you get a rise—a birthday bump—and that helps to make up for the [ongoing underestimate of inflation’s impact on seniors].”

The bottom line, according to Morrissey, is that even the current index underestimates costs to seniors—so any index that would reduce federal benefits further would simply be adding more distortion.

“It started out years ago that the chained CPI was thought of by economists as a technical correction,” Morrissey said. “There is no perfect index out there that measures perfectly what seniors are spending. But actually both the existing index and the chained CPI underestimate the cost rises that seniors actually face,” she emphasized.

New arguments prevailed

“The facts were on the side of advocates—those against chained CPI—all along, and this became increasingly clear over time,” Morrissey told FEND. “When the issue first arose, proponents of chained CPI found it easy to say ‘economists agreed’ that their new idea was more accurate—but over time that became less possible as the facts caught up with them.”

“Also, another way those against the chained CPI got traction was that the proposal would really be a benefit cut right away,” Morrissey noted. “That got immediate opposition.”

“The chained CPI was also ineptly proposed,” she added. “It was part of a clumsy deficit reduction. It wasn’t even negotiated reluctantly—it was something the president offered preemptively.”

Morrissey told FEND that unions and certain other organizations are hopeful about going even further. “Advocates are now starting to talk up increases in Social Security and they getting some support—Sen. [Tom] Harkin and Sen. [Elizabeth] Warren, and others,” she said. “The middle ground is no longer to propose small cuts. The middle ground is starting to move toward 'we need some expansion.'”

Still 'on the table'

At the same time, the spokesperson who announced the absence of chained CPI in the upcoming budget proposal, Deputy White House Press Secretary Josh Earnest, told reporters at a press briefing last month that while a switch to chained CPI will not be in this budget proposal, it nonetheless "remains on the table."

"There is more that we can do, and that’s why the offer remains on the table," he said. "But over the last few years, the deficit in this country has reduced—has been declining at the fastest rate since the end of World War II."

Earnest said the president had originally put forward the chained CPI proposal as part of a larger deficit-cutting effort that also included other measures such as closing tax loopholes. But because those other measures failed to gain traction with congressional Republicans, Earnest said, chained CPI will not be included in this budget proposal.

Earnest said that the decision not to include the measure also is part of a recent return to a more normal budget process.

"We saw Democrats and Republicans on Capitol Hill get together, broker a budget agreement in which both sides had to compromise," he said. "Neither side got every single thing that they wanted, but we saw that piece of legislation passed with bipartisan majorities."

"So, the [new] budget submission that you’ll see from the president is really a return to regular order," he said.

AFGE National President J. David Cox Sr. reacted swiftly to the prospect that the plan remains on the table.

“Any action that would slash income for the poor and working class must be rejected,” Cox said in a statement Feb. 24. “White House statements that the proposal remains on the table, even though it’s been pulled from the upcoming budget, sends a conflicting message about how committed the president truly is to reducing income inequality in this country.”

See the EPI letter at: www.epi.org/files/2012/EPI_COLA_Letter.pdf.


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