President Obama, to balance his budget, proposes cutting Social Security cost-of-living adjustments by adopting the “chained” Consumer Price Index (CPI) formula. That plan would cut the buying power of more than 2.1 million Social Security beneficiaries in Ohio.
The President’s budget will not be voted on and is so much posturing for now. But there is cause for concern that a “grand bargain” between the White House and Congress on the budget would include similar cuts and affect retirees significantly.
Retirement income security in Ohio got less so with this proposal, on top of pension reductions or elimination in corporate bankruptcies, the precipitous loss of 401(k) plan values since 2007, and the unstable financial markets that have eroded other retirement savings instruments.
The proposed chained-CPI formula for Social Security cost-of living adjustments assumes that retirees and seniors can always get things cheaper. Because it does not accurately reflect the economic activity of seniors, it would amount to immediate benefit cuts for current beneficiaries as well as those in the future.
Someone who retires this year would lose an estimated $6,000 or more in benefits over 15 years if chained CPI were in effect. The plan would decrease already low cost-of-living inflation protections.
The Social Security system, by law, cannot borrow money. It has not contributed to our nation’s deficit. To the contrary, Social Security’s $2.6 trillion trust fund is a major means of financing the federal deficit and debt.
Cutting benefits by adopting chained CPI in the name of deficit reduction is just another way that retirees, disabled people, and surviving spouses and children are used in a shell game to finance the deficit and debt. It asks seniors to pay for a fiscal debacle they did not create, out of their very modest Social Security benefits. That is wrong.
The current cost-of-living adjustment vastly underestimates inflation that seniors and people with disabilities experience. Chained CPI would take it a step further. That is bad policy.
Social Security benefits are modest by virtually any measure. The average Social Security benefit in Ohio is less than $13,200 a year.
Beneficiaries who live on very modest means cannot easily absorb such a large cut to their benefits, in addition to cost-shifting in Medicare and non-negotiated price rises for prescription drugs. Our nation faces a retirement income crisis, and cutting Social Security will make it even worse.
The economic theory behind chained CPI goes something like this: Your doctor tells you that you need triple heart bypass surgery. You will opt for the cheaper alternative — a double bypass.
Chained CPI assumes that a lower cost-of-living adjustment is acceptable because consumers substitute cheaper products when prices go up. But health care costs consume a large amount of seniors’ income, and a cheaper version simply cannot substitute for these costs.
Seniors must spend more of what we have on health care, prescription drugs, and energy than the general population. Chained CPI does not take these facts into account.
Our elected officials should not play with the well-being of seniors in such a blasé manner. Chained CPI is a flat-out cut for Social Security beneficiaries. There are better ways to strengthen Social Security that do not involve throwing seniors under the bus.
Norman Wernet, of Bexley, Ohio, is president of the Ohio Alliance for Retired Americans Educational Fund.