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  • A Constructive First Step to Reform Social Security

    Congressman Dave Camp, MI 4th


    Dave Camp (R–MI), chairman of the House Ways and Means Committee, has announced a series of hearings on bipartisan entitlement reform proposals, the first of which is using the chained Consumer Price Index (CPI) for Social Security. In advance of these hearings, Camp has issued a request for public input.

    This provides a unique opportunity for policymakers, individuals, and organizations to publicly evaluate the merits and implications of the proposal, propose modifications, and offer advice on factors such as implementation.

    The current, inadequate inflation measure, CPI-W, fails to account for how people respond to changes in prices and has resulted in excess benefit adjustments. The highest income earners receive the largest excess benefits.

    In contrast, the chained CPI encompasses a much larger population and incorporates consumers’ responses to changes in prices. As such, the Congressional Budget Office (CBO) reports that the chained CPI “provides a more accurate estimate of changes in the cost of living from one month to the next.” Under the chained CPI, Social Security benefits would still increase significantly over time, but they would increase in a way that effectively prevents inflation from eroding benefits without generating excess benefits.

    Eliminating these excess increases through the chained CPI would disproportionately affect higher-income earners. A Heritage Foundation analysis shows that the change in monthly benefit payments resulting from the chained CPI would be nearly three times as large for retirees who earned the maximum wage as for those who earned the minimum wage.

    Many proposals that seek to implement the chained CPI would also increase benefits for the eldest retirees. The issue of augmented benefits for certain groups (such as the especially elderly) is a separate issue from shifting to a more accurate inflation adjustment. However, if policymakers merge the two issues and determine that certain groups are in need of additional Social Security income, those added benefits should be provided based on need rather than a broad classification such as age.

    Chairman Camp’s actions to examine the chained CPI for Social Security is a constructive first step toward protecting Social Security for future generations. More steps will be needed to ensure full solvency.

    The Heritage Foundation, in Saving the American Dream, offers a comprehensive Social Security reform proposal that would eliminate the payroll tax as part of an overall tax reform plan; provides a single, flat Social Security benefit equal to 140 percent of the poverty level; limits Social Security benefits for retirees with significant non-Social Security income; and increases and indexes the early and normal retirement ages to changes in longevity.

    Posted in Economics [slideshow_deploy]

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