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Social Security: New Pawn in Debt Ceiling Battle

Liberal groups are gearing up to fight a potential change in the Social Security cost-of-living adjustment, which deficit hawks are pushing to include in the budget and debt-ceiling deal currently being negotiated between the White House and Republican and Democratic congressional leaders. A recent report from the successor organization to the president’s deficit reduction panel says the move, if applied to all beneficiaries, could save the system $300 billion over the next decade.

While the nation’s senior citizen retirement income program has taken a back seat to Medicare in the entitlements debate, virtually every conservative plan and even a liberal one for closing the long-term Social Security funding gap included a call to tinker with the benefit plan’s COLA. The proposal would shift the basis for the annual inflation adjustment for the retirement benefit from the consumer price index (CPI) for urban consumers, the standard measure of inflation reported each month by the Bureau of Labor Statistics, to an alternative measure from BLS, known as the chained CPI. Chained CPI adjusts reported inflation by assuming consumers will substitute less expensive goods when the price of a particular item increases significantly, such as substituting chicken for steak.

“That will come out of the beneficiaries of the future and there’s no justification for it,” said Eric Kingston, co-director of Social Security Works, a labor-backed coalition of 270 national and local organizations representing 50 million people. “To sell this as a technical adjustment to the American people would be a lie. If you [project] out 20 years, you’re looking at a 7.7 percent cut in benefit levels.”

Opposition to changing the COLA isn’t only going to come from the left. Conservatives are likely to see it as a tax increase, since moving to chained CPI would affect a number of preferences in the tax code, leading to about $70 billion a year in increased income taxes.

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