Entitlements–Social Security Fixes

After yesterday’s outing of “entitlements bankrupting the West” being spewed by one side of the isle, I ran across a good piece on EconoMonitor posted by Ed Dolan titled Is the Chained CPI the Right Fix for Social Security?

He puts up a great analysis of wealth distribution among seniors and discusses the impacts of the CPI adjustments to Social Security. He reaches beyond face value on the data being used among policymakers to justify the cuts. Part of his summary:

“When all is said and done, the economic arguments for switcing from the CPI-W to the chained CPI for inflation adjustment of Social Security benefits is a good deal weaker than it is often represented to be. We cannot really be confident that the chained CPI is a better approximation to changes in the cost of living of the elderly population than the CPI-W. In addition, switching to the C-CPI-U without adjusting benefit floors and caps could very well increase the inequality of income distribution among the elderly, which is already greater than for the population as a whole”

“The fact is, the proposal to switch Social Security to the chained CPI has much more to do with politics than with economics. In the current phase of the budget debate, the White House appears eager to assume the role of the reasonable party by offering to cut entitlements, in order to set up a contrast with a conservative opposition that is unwilling to consider even small increases in revenue. The administration apparently hopes that it can minimize the backlash from its core supporters by passing off the C-CPI-U a purely technical adjustment.”

After reading I see the biggest impacts of CPI adjustment being a negative one regarding income inequality…a theme becoming too common within todays policymaker options. Some great data in the article, good charts depicting poverty rates among age groups, tearing down much of the fiction behind support for the CPI adjustments.

As mentioned yesterday, there are a few pretty simple solutions for SS making it solvent for the long haul without enacting the CPI proposal. Recall that among the “entitlements” Social Security has a miniscule 1.6% projected growth relative to the GDP over the 74 year period studied…4.8% of GDP in FY2011 to 6.4% of GDP by FY2085” Radical changes are just not needed to fix a 1.6% shortfall.

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