Tilly: Chain of fools

BY ZACH TILLY | APRIL 12, 2013 5:00 AM

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On Wednesday, President Obama released a 2014 budget proposal that includes one very prominent signal that he may be ready to negotiate with Congressional Republicans on a long-term deficit-reduction package: a glorified accounting trick called the Chained Consumer Price Index.

It’s not a deficit-killing silver bullet by any stretch of the imagination, but it’s an indication that Obama is willing to trade modest reforms to Social Security and Medicare — major drivers of the federal budget deficit that are usually off-limits for Democrats — in exchange for increased tax revenue.

Here’s how the Chained Index works: every year the government increases Social Security benefits as the cost of living rises. This annual cost-of-living adjustment is determined by the rate of inflation; as products get incrementally more expensive over time, benefits are increased proportionally so that Social Security recipients have roughly the same purchasing power every year.

Currently, the government uses a measurement that I will call the Unchained Consumer Price Index to estimate cost-of-living inflation. It basically works by totaling up the goods and service a person needs to live and monitoring changes in the cost of all those goods and services. The problem is that the Unchained Index assumes that when the price of coffee rises, for example, people will continue to buy coffee instead of opting for some cheaper drink such as tea or Pepsi.

Because it doesn’t allow for economic substitutions such as the coffee-for-Pepsi switch, many people believe that the Unchained Index overestimates the rate of inflation, causing the government to make overly generous adjustments to Social Security payments.

The Chained Index changes the way the government measures cost-of-living inflation by factoring in that economic substitution. Switching to the Chained Index would mean that the government would produce more conservative inflation estimates, and, as a result, Social Security benefits would grow more slowly.

Peter Orszag, the former director of the Congressional Budget Office, estimates that adopting the Chained Index would subtract about $150 billion from the federal deficit over a decade.

So it’s not much, but it certainly seems like a good-faith effort to start building a bipartisan agreement — the Republicans previously asked Obama to adopt the Chained Index during the fiscal-cliff negotiations that rang in 2013.

As with any attempt at compromise, though, Obama’s Chained Index proposal has drawn criticism from both ends of the political spectrum.

But Orszag and Robert Greenstein of the Center on Budget and Policy Priorities believe that the Chained Index would have a relatively small effect on Social Security beneficiaries — even after 20 years, Social Security benefits would only be reduced by about 2 percent, Orszag projects.

On the right, where the Chained Index is typically well-received, the reaction was unexpectedly mixed.

Speaker of the House John Boehner tepidly praised the president’s budget for its commitment to “incremental entitlement reforms,” but other party members were not so supportive.

Rep. Greg Walden, R-Ore., the chairman of the National Republican Congressional Committee, called the Chained Index “a shocking attack on America’s seniors.”

Walden, whose committee is charged with supporting the re-election of the Republican House majority in 2014, is blatantly attempting to pin the blame for the Chained Index benefit cut on Obama.

And here we find again the Republican cowardice that colors so much of the interminable budget debate in Washington.

They, the party of abstract spending cuts and deficit reduction, raise hell about out-of-control “entitlements” and creeping socialism, but they recoil at the thought of having to defend even the most arcane reform to Social Security.

Yes, the party that lionizes Paul Ryan for his plan to convert Medicare to a “premium support” voucher program is threatening to lay the blame for the Chained Index at Obama’s feet.

It’s clear that the Republican-initiated budget conflicts of the past few years have been more about obstruction than reform. But now that Obama is ready to come to the table, it remains to be seen whether the Congressional Republicans will set aside their fantasies and join him.

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