One of the impacts that I hadn’t previously considered of switching from the standard CPI (Consumer Price Index) to the Chained-CPI (that consistently produces lower numbers) as part of a sneaky way to cut government benefits without calling it such is that tax collection will fall (all else being equal) since the tax tables are linked to the rate of inflation.
This story at USA Today fills in some of the details:
The switch to chained CPI wouldn’t just reduce benefits, including Social Security and Veterans’ benefits, but could also impact future federal tax rates paid by most people.
Various news reports have stated that the Obama administration plans to include cuts to Social Security benefits in its budget proposal. What is less frequently communicated is that such cuts would likely be accompanied by tax increases on the middle class, in violation of one of President Obama’s campaign promises to not increase taxes on those earning under $250,000 per year. These cuts would also impact retirement and disability benefits for veterans.
Many commentators and pundits will described the tax increases and cuts to Social Security and other benefits as a “tweak,” or “technical change,” an “adjustment” or, slightly more honestly, a “gimmick.” This is because the reported proposal will involve changing the calculation of the annual cost of living increase, one measure of inflation, by switching to a new formula known as “chained CPI” (chained Consumer Price Index). Supporters argue that this is simply a more accurate way to calculate changes in the cost of living over time.
Of course, it’s far less accurate in calculating the cost of living for retirees receiving benefits in the form of social security since they buy more of the stuff that’s going up in price (e.g., medical care), but that’s what passes for bipartisan policy making in Washington these days.
I suppose the logical next step here on our road to fiscal reform is to come up with a third version of the CPI that reads consistently higher than either the existing CPI or the chained-CPI for purposes of tax collection.