Millions of Seniors Feel Back Door Benefit Cut, More on Way

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Millions of Seniors Feel Back Door Benefit Cut, More on Way

CBO Makes Massive Revision to Inflation Estimates

The Congressional Budget Office (CBO) recently made the most massive downward revision to its assumptions of the rate of growth in the Consumer Price Index (CPI) in the past seven years. The revision confirms the effect of on-going changes that the government has been making to how it calculates the CPI. Virtually all the changes tend to slow the growth of the index that critics, like Federal Reserve Chairman Alan Greenspan, say tends to overstate inflation. The effect of slowing the growth of the CPI is to effectively cut Cost-of-Living Adjustments (COLAs) for retirees.

Since 1998, the CBO has announced “technical” revisions to its CPI assumptions three times. In this year’s January report, the CBO revised estimates of the CPI for year 2005 downward by seven-tenths of a percentage point. When added to the CBO’s two earlier revisions that also covered 2005, the rate of growth in the CPI is now estimated to be about 1.5% lower than it would have been using pre-1995 methodology.

In 2001, the Social Security Administration estimated for The New York Times that an average-wage worker who retired in 2002 at age 65 and collected Social Security checks until he or she died at age 82 would receive $318,000. If the index were cut by just 1.1%, that retiree would get $277,000, or $41,000 less, over his or her lifetime.

For a government in deficit, such a reduction in the index means billions in savings in lower spending on Social Security, Supplemental Security Income program, military and civil service retirement benefits. The CBO estimates slower growth in inflation will mean $115 billion less in Social Security outlays alone over the next 10 years.

TSCL has been out front in warning seniors and policymakers about the dire consequences these changes will have on senior benefits, and has been lobbying for a more fair COLA. TSCL supports legislation (H.R. 2262) that would calculate COLAs by using a “seniors-only” index, the Consumer Price Index for Elderly Consumers (CPI-E). The CPI-E better takes into account the higher percentage of income that seniors must spend on health care, which is rising several times faster than regular inflation.

Sources: “The Budget and Economic Outlook: Fiscal Years 2005 to 2014,” The Congressional Budget Office, January 26, 2004. “The Economic and Budget Outlook: An Update,” Congressional Budget Office, July 1, 1999. “The Economic and Budget Outlook for Fiscal Years 1999-2008: A Preliminary Update,” Congressional Budget Office, July 15, 1998. “An Economic Speedometer Gets an Overhaul,” Jolie Solomon, The New York Times, December 23, 2001.

May 2004