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What Is Chained CPI?

What Is Chained CPI?

The sneaky plan to cut Social Security and raise taxes by changing how inflation is calculated.

By Matthew Yglesias
Posted Sunday, Dec. 30, 2012 | 3:30 PM ET

As fiscal-cliff negotiations continue, reports indicate that the two sides are still at an impasse on Sunday afternoon because the GOP insists that "chained CPI" be included in any deal. What is chained CPI? Matt Yglesias explained back in December how using this method to calculate Social Security will result in lower benefits. The article is reprinted below.

On Wednesday I wrote about one of the most widely discussed and high-profile ideas for reducing federal spending on the elderly—raising the eligibility age for Medicare. It’s a simple idea to understand and a pretty terrible one. The other idea that comes up constantly in negotiations and rumors of negotiations and hypothetical grand bargains, by contrast, languishes in obscurity. It involves indexing Social Security benefits to the Chained Consumer Price Index for All Urban Consumers (C-CPI-U) rather than the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) that’s currently in use.* This change shows up in all kinds of think-tank plans and unofficial sketches, and it has at various times secured the endorsement of everyone from Dick Durbin to Eric Cantor.

Conservatives love this idea because it cuts Social Security benefits. Deficit hawks love it because it might also raise taxes. And negotiators love it because nobody understands what it means. But don’t let people fool you. Even though the details are technical, this is a political question, not a technical one—a benefit cut, perhaps paired with a tax increase, and not an effort to make inflation calculations “more accurate.”

Read more: http://www.slate.com/articles/business/moneybox/2012/12/chai...

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