What’s wrong with a measure that would reduce federal spending by about $300 billion over 10 years? The answer, of course, depends on whom you ask.
The current push by conservatives to reduce the national debt and the budget deficit by cutting spending is largely focused on two of the three largest items in the federal budget: Medicare/Medicaid and Social Security. (The third is defense.) One of the proposals under consideration would reduce Social Security payments by estimating smaller increases in the cost of living.
Currently, the Consumer Price Index (CPI-W) determines the annual Cost Of Living Adjustment (COLA), which usually increases the Social Security benefit to keep pace with inflation. The CPI-W represents changes in the prices of all goods and services purchased by urban households for their consumption. If the price of a commonly used item increases, the CPI-W reflects that increase.
The Chained-CPI proposed by the reformers of Social Security differs in that it takes into account the availability of a lower-priced substitute. If, for example, you love apples, and are used to buying some every week, what do you do when their price spikes because a drought has greatly reduced the crop? Do you keep buying apples regardless of cost, or do you switch to pears and bananas until the price of apples comes back down? Since most people, and especially seniors on fixed incomes, would eschew the pricey apples and buy cheaper fruit instead, the C-CPI allows for that and calculates a lower increase in the COLA.
That sounds reasonable until you realize that seniors and people with disabilities have spending patterns that differ from those of other segments of the population. They spend substantially more on health care, a sector of the economy whose cost continues to rise and which offers very few lower-priced alternatives. According to the Bureau of Labor Statistics, the cost of health care has risen an average of 5.5 percent per year since the 1970s, while non-medical costs have grown by an average of 3.1 percent. The CPI-W understates this inflationary effect on seniors, but the effect of the C-CPI would be considerably worse: it would slow the rate of increase of Social Security payments such that beneficiaries would collectively receive an estimated $108 billion less over 10 years than they would with the CPI-W.
Any reduction in Social Security payments would affect women more severely than men. In the first place, there are more women in the program. Fifty-seven percent of all Social Security beneficiaries age 62 and older are women, and because they live longer, they represent approximately 69 percent of all beneficiaries at age 85 and older. Second, women earn less than men, so they receive smaller benefits. (In 2008, the average annual Social Security income received by women 65 years and older was $11,377, compared with $14,822 for men.) Elderly women are also less likely than men to have significant income from other sources. In 2008, Social Security comprised 50 percent of the total income of unmarried women age 65 and older, but only 38 percent of the income of unmarried elderly men. The Social Security benefits received by 46 percent of all unmarried women represented 90 percent or more of their income.
Anita Black is in her 80s, and she depends on Social Security. Referring to the benefit cuts being offered in exchange for votes to raise the debt ceiling, she said, “There is nobody [in favor of the cuts] who is willing to even acknowledge that they’re not looking at the impact that’s going to occur.” She knows that “the Social Security fund is still collecting money. As fast as the fund collects the money, the government comes along and takes the money out and gives us in return Treasury bonds. Which are paying no interest. So don’t tell us that we’re taking the money out, that we’re costing the budget money. We didn’t cause the debt,” she said. “You’re screwing us.” Black was recently notified that her housing cost has been raised by 10 percent. “Where am I supposed to get the extra income to deal with the decrease in benefits while my cost of living is increasing?” she asked.
The C-CPI in particular would adversely affect women. Its effect is compounded, so that the decrease in the annual benefit would accelerate over time. Since women live longer, they would experience deeper cuts in their benefits. The Social Security payment is a larger proportion of their income, so a smaller benefit would be more significant.
“This proposal is a stealth attack on the economic security of older women,” said Joan Entmacher, vice president for family economic security at the National Women’s Law Center. “That is a shameful way to solve our nation’s deficit problem.”
A. Barry Rand, chief executive of AARP, also assailed the C-CPI. “Let me be clear,” he said, “AARP will not accept any cuts of any kind to Social Security as part of a deal to pay the nation’s bills, and specific proposals such as the chained CPI should not be considered as part of the debt ceiling or deficit reduction negotiations.”
Why not find the money elsewhere? Why not pare the considerable bloat from the defense budget? Ah, but then corporate America would be the loser. Seniors and the disabled don’t have millions to contribute to election campaigns or lobbyists to represent their interests.
Not all economists agree that the national debt and the annual budget deficit are nearly so scary as conservatives make them out to be. The federal debt, Paul Krugman points out, is a substantially smaller percentage of Gross Domestic Product than it was at the end of World War II. Like other economists, Krugman also believes that “running big deficits in the face of the worst economic slump since the 1930s is actually the right thing to do. If anything, deficits should be bigger than they are because the government should be doing more than it is to create jobs.” And deficit spending and increases in the debt limit were regularly approved by the Republican majority over the last decade.