Chained Consumer Price Index (CPI) and the Future of Social Security
The United States government has recently been involved in a hellacious battle over deficit reduction and budget cuts. One of the items debated is Social Security. However, some believe that Social Security will be safe from the automatic budget cuts set to take place if Congress does not reach an appropriate agreement.
Many legislators are concerned that Social Security (which was created during the Roosevelt Administration to help those during the Great Depression) was only created as a temporary program and is predicted to run out in the 2030’s. Millions of seniors depend on Social Security every year as their main source of income.
Chained Consumer Price Index (CPI)
Currently, the 2013 cost-of-living adjustment will allow for Social Security benefits to be increased by 1.7 percent. Recent talks between legislators and economists have examined a switch from the standard cost-of-living adjustment to what is called chained consumer price index, or chained CPI.
Like the cost-of-living adjustment, chained CPI is a statistic used to measure inflation created by the Bureau of Labor. The notion behind this statistic is, as inflation occurs and the price of goods increases, consumers will buy cheaper goods. In other words, as the price of one item increases, consumers will turn to cheaper, more affordable alternatives of the same value.
Despite the fact that Social Security benefits may equal out to less money initially with the switch to chained CPI, the funds in Social Security will not be exhausted as quickly. Many economists believe that chained CPI is a better way to assess and measure inflation. The goal is to preserve Social Security funds for the millions of Americans who depend on them most.
As the talks in Washington continue over the automatic budget cuts, Social Security will be spared from the guillotine. The trick for legislators is to make sure the funds do not run out in the coming years. Many believe the solution is switching from cost-of-living adjustments to chained CPI.
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