If you have been following the news, you are probably familiar with the term “chained CPI.” The President’s budget (and others) includes switching the Social Security COLA basis to the chained CPI. This would mean slightly lower COLA increases in future years.
To get an accurate understanding of the difference between the two measures, take a look at this explanation from the Congressional Budget Office.
QUINNSCOMMENTARY 
I read about the chained CPI versus other CPI.I guess the savings over an extended period could be a fair amount of dollars but would not result in a”major” savings for Social Security. This would not be enough to get the system on a solid financial basis without other changes like modifying the eligibility age or raising taxes. And who wants to raise taxes again in this environment?
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Here is what the CBO says about chained inflation.
If all uses of the traditional CPI in mandatory programs and the tax code were switched to the chained CPI starting in calendar year 2014, mandatory spending would be reduced by a total of $216 billion between fiscal years 2014 and 2023, and federal revenues would be increased by $124 billion. (The President’s budget for fiscal year 2014 includes a related but less comprehensive option that would use the chained CPI for Social Security and some other spending programs as well as for the tax system. CBO is currently reviewing that and other proposals in the President’s budget.)
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Essentially, as things get too expensive for an individual they switch to a less expensive substitute. Something akin to use of generics I suppose… from steak to hamburger. Is this a bad analogy?
What I don’t understand is why they don’t simply lower the Social Security starting point and then actually increase the CPI calculation for those later in life… We all fear running out of money. So for those that outlive the mortality tables, so to speak, the CPI would be higher but the numbers of people lower.
The politicians could capitalize by saying that they would help to alleviate some of people’s fears, etc.
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I agree there are many options to deal with this. For example, delay any COLA for the first few years collecting SS or no COLA before the year a person reaches age 66, or, COLA every other year for people starting with the maximum SS benefit – meaning they were earning over $100k at the time of retirement and should have savings of their own.
Dick
Richard D Quinn Editor
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