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DBudget Unchained
Author: BobR    Date: 04/11/2013 12:59:00

Yesterday, President Obama released his budget. It seemed to have something for everyone, which means it also had something for everyone to hate. Republicans love the chained CPI for Social Security, but hate the revenue increases and stimulus spending. For liberals and progressives, it's the opposite. It is truly bi-partisan - something everyone gives lip service to - so the reality is that it is dead in the water.

We'll get to the dreaded chained CPI in a moment. What does the budget have that has Republicans riled up? It cancels the sequestor cuts, and adds some tax increases and spending increases:
In other measures, Obama’s budget would raise the tax on a pack of cigarettes from $1.01 to $1.95 per pack to finance early childhood education schemes.

It would also provide $1.65 billion for the Global Fund to Fight AIDS, Tuberculosis and Malaria and $4 billion to allow security upgrades following the attack on the US consulate in the Libyan city of Benghazi last September.

The Pentagon said the budget would hold military spending steady but would not account for the cost of the war in Afghanistan — which is expected to surpass $80 billion in the current year.

The plan would also boost funding for major science, health and research programs and find room to sustain Obama’s challenge to NASA to send humans to an asteroid in 2025 and to Mars in 2030.

Among fiscal measures opposed by Republicans, the Obama budget would implement the “Buffett Rule,” which would mandate that households making more than $1 million a year pay at least 30 percent of income in taxes.

If the Republicans want the chained CPI, they will need to take these changes as well. Will President Obama give them the chained CPI and take these other things off the table? Not likely, says Allen Clifton at ForwardProgressives.com:
Since the Summer of 2011, soon after Republicans held the debt ceiling hostage, Obama took a new strategy when it came to dealing with them. He puts the decision on them. He makes them look radical and out of touch. He makes them look unreasonable.

He did it with his jobs bill in 2011. He took the rhetoric Republicans were pushing about jobs needing to be a focus, presented his American Jobs Act, and let Republicans sink when they refused to pass it. He did it with the extension of the payroll tax in December 2011. He did it more recently with the “fiscal cliff” (where he also had offered a chained CPI in his first proposal). Now he’s doing it again.

His first proposal is meant to stir anger in liberals. Get them going. Get them outraged. You know why? Because that’s a great tool for him to say, “See, I proposed something that angered even my own base—and still Republicans were too busy playing politics to accept my deal.”

He knows Republicans won’t accept this deal. Hell, why would they? It calls for tax increases for the wealthy and spending for programs that help the poor—two things Republicans have overwhelmingly opposed in the past few years. But what are they supposed to do? For years they’ve slammed President Obama for not proposing a budget (which is a lie)—now he’s proposed one that can’t be mistaken for anything radically left-wing, because it’s actually angered liberals.

Now they’re stuck. Obama proposed a budget, and it’s pissed off liberals.
But they’ll never support it, because he’s the one who proposed it—Obama knows this.

So there is the possibility that this yet another political move by the President to give the Republicans enough rope to hang themselves. They've already shot it down, so it seems like his budget is DOA. What comes next is anyone's guess, but I suspect it will be a budget that originates and passes in the Senate, then is passed by Dems and a handful of Republicans in the House, and then makes it to the president's desk. I sincerely doubt it will contained chained CPI.

So just what the heck is this dreaded chained CPI? It's simply a different way to calculate cost of living increases:
Chained CPI is shorthand for “Chained Consumer Price Index for All Urban Consumers.” In short, it’s a way to index spending and taxes — including Social Security benefits — to the rate of inflation, or the rise in prices over time. But it’s not the only way.

What’s important in the context of the debate over Obama’s budget is that chained CPI would mean Social Security benefits would increase at a slower rate than they do using the current index.

As our friends over at Wonkblog pointed out last year, Social Security benefits are currently calculated using CPI-W, or the Consumer Price Index for Urban Wage Earners and Clerical Workers. (Yes, that’s a mouthful.) Over time, benefit levels tick up based on CPI-W, to keep up with the fact that a dollar twenty years ago is not worth what it is today.

Here’s the bottom line: Using chained CPI instead of CPI-W means the rate at which those benefits tick up would be slower, because the former reflects substitutions consumers would make in response to rising prices of certain items.Therein lies the “chained” part of the name. The metric utilizes a basket of goods and services that are measured changes from month to month; much like a daisy chain. If the cost of a certain form of transportation goes up, for example, people might switch to another kind. This kind of “substitution” is part of what is factored into chained CPI.

So any talk of this being a "cut" to benefits is not exactly accurate - it's more like a slower increase, which - over time - might make it a little harder to enjoy the same level of living. How much have the benefits increased? It certainly depends on the timeframe, but because of the recession, they have not increased very much over the last 5 years, because the cost of living (based on their calculations) has remained largely stagnate.

There's also the reality that if the Democrats retake the House in 2014, they can change the Social Security index back, and very little effect would have been felt.

That's assuming the President's budget will be passed, which it won't, which makes all this moot.

50 comments (Latest Comment: 04/11/2013 21:14:36 by livingonli)
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