By George Smith, Chairman, TREA Senior Citizens League
Elected officials are often quick to promise that Social Security reform will not cut the benefits of current retirees. What they don’t talk about are changes that cut your benefits right now. Changes that slow the growth of the Consumer Price Index (CPI), cut your Cost-of-Living Adjustments (COLAs). They also don’t tell you that the revisions that cut your COLA don’t cut the COLA they receive. Members of Congress are likely to receive a COLA in 2003 of 3.3% rather than one that’s likely to be less than 1.1% that seniors will receive. That’s because their COLA is tied to an entirely different index, the Economic Cost Index, which tracks increases in wages.
Allowing the Bureau of Labor Statistics to make changes to the CPI provides political cover for politicians. COLAs can be cut without calling it a cut because only the CPI is revised, not the COLA directly. The result is the same. You lose buying power.
COLA cuts are likely to get worse. In August, the government released data from a totally new CPI called the Chained Consumer Price Index. Referred to as a “superlative index” because of the mathematical formula used, the Chained CPI does NOT measure the percentage of change in the cost of goods and services. It measures change in consumer spending behavior when prices go up or down.
For example, say the price of theater movies goes up 50%, but the price of home video rentals stays the same; the Chained CPI measures the change in the overall amount you spend on your total movie budget, not the 50% price increase of theater movies. If you rent more videos but go to fewer movies, and continue to spend about the same amount on your movie budget, the index will show very little, if any change in this category.
TSCL believes that the Chained CPI will thus grossly understate real cost increases. It would be an especially poor choice to use this CPI for calculating senior COLAs. Although maintained as a separate index for now, Social Security reform legislation introduced in 2001 would tie COLAs to this “superlative” Chained CPI.
On the other hand, the current CPI does not fairly represent senior costs and does need to be changed. TSCL strongly supports and lobbies for H.R. 2035, “The Consumer Price Index for Elderly Consumer Act,” introduced by Representative Bernard Sanders (I-VT). This bill would provide a more fair COLA by calculating it using the Consumer Price Index for Elderly Consumers (CPI-E) rather than the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) as currently used. The CPI-E gives greater weight to health care and prescription drugs costs and thus would more accurately reflect senior costs. Over the past 18 years, the CPI-E has increased about 15% more quickly than the CPI-W.
Seniors should remain vigilant over the coming months for news about CPI changes and legislation that could cut your COLA. In the meantime, we urge you to find out how candidates stand on this issue, and exercise your VOTE. If you haven’t registered yet, click here to do so: http://www.tscl.org/NewContent/101344.asp.
Source: “An Introductory Look at the Chained Consumer Price Index,” Bureau of Labor Statistics, March 14, 2002.
For more information on this issue, read “Government Launches New CPI” at http://www.tscl.org/NewContent/101553.asp and “Superlative CPI Could Cut COLAs” at http://www.tscl.org/NewContent/101493.asp.
October 2002
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