If President Obama and House Speaker John Boehner do reach a broad deal to avert the fiscal cliff, Obama’s up front concession to Boehner will very likely be to make the Social Security cost of living adjustment formula less generous.
The quasi-technical term for the new index is called chained CPI. It’s been kicking around in policy circles for years, and loomed large in budget negotiations between Obama and Boehner in 2011.
Supporters like to describe it as a technical fix to the way the government calculates inflation. But in practical terms, it will effectuate a genuine Social Security benefit cut. If it’s applied across the board, it will also reduce food stamp benefits and veterans benefits, and function as a modest but regressive tax increase, as brackets grow more slowly and taxpayers find themselves pushed across income thresholds more quickly than in the past.
Chained CPI differs from the way the government currently calculates inflation by taking a broader view of the behavioral changes consumers make when prices rise. It factors in a propensity to substitute cheaper, but similar products for ones that have become more expensive. And it has been criticized by advocates for being a less accurate measure of inflation for the products seniors rely on than Social Security currently uses.
But Obama allies and and some liberal economists have identified it as the least-bad entitlement benefit cut and have given it their blessing provided it’s one piece of a broader, balanced debt reduction plan, and includes protections for poorer seniors. Though the Congressional Budget Office has cautioned that indexing Social Security to chained CPI would be technically complicated, the liberal Center on Budget and Policy Priorities backed it under those circumstances. So did the progressive Center for American Progress, which has close ties to the White House.
Progressive activists and members of Congress have taken a hard line against cutting Social Security benefits (or any major social insurance program benefits) in fiscal cliff negotiations. But as Obama and Boehner zeroed in on a deal, some are asking whether it would be an acceptable concession if Obama walks away with higher taxes on the wealthy and some new stimulus next year.
“Is this rumored deal better than no deal?” asked Paul Krugman, articulating the internal conflict liberal Democrats will grapple with if the deal takes shape. “I’m on the edge. It’s not clear that going over the cliff would yield something better; on the other hand, those benefit cuts are really bad, and you hate to see a Democratic president lending his name to something like that. There is a case for refusing to make this deal, and hoping for a popular backlash against the GOP that transforms the whole debate; but there’s also an argument that this might not work.
If Boehner can hold his conference, Krugman says, “there will be some serious agonizing for progressives, yours truly included.”
Brian Beutler is TPM's senior congressional reporter. Since 2009, he's led coverage of health care reform, Wall Street reform, taxes, the GOP budget, the government shutdown fight, and the debt limit fight. He can be reached at firstname.lastname@example.org.