We were expecting a vote today on the budget. What we got was more fighting.
With the House and the Senate back to work for a change today (I guess a raise will put some pep in your step), many were hopeful that Congress might reach a deal on the budget. But that all changed when Democratic leaders accused Republicans of stalling the talks by offering a new plan as a part of the deal.
Specifically, the Republican plan would change the way that Social Security benefits are paid out which would result in less money over time to recipients, a move that Democrats are calling a nonstarter. Senator Majority Leader Harry Reid (D-NV) was said to be “shocked and disappointed” by the move, calling it a “poison pill.”
The Republican proposal would change the way that the government measures inflation for a number of benefits like Social Security. It’s an alternative version of the Consumer Price Index (CPI) referred to as the “chained” CPI. The idea behind the “chained” CPI is that it is a more accurate measurement by taking into account consumer responses to higher prices, rather than simply measuring the higher prices. Here’s a quick example:
Let’s say that last year, coffee was $10/pound and tea was $10/pound. And because I tend to drink more coffee, I bought 10 pounds of coffee and 2 pounds of tea. But this year, coffee jumped to $15/pound and tea went up to a mere $11/pound. Even though I love coffee, let’s say I switched to tea because it was cheaper (again, this is just a hypothetical – I am not, I repeat, not changing my coffee consumption) and bought 5 pounds of coffee and 7 pounds of tea.
Here’s how the “normal” CPI calculations would look:
(10 x 15) + (2 x 11)/(10 x 10) + (2 x 10) = 1.4333
But the “chained” CPI calculations would reflect the change in behavior and those calculations would look like this:
(5 x 15) + (7 x 11)/ (10 x 10) + (2 x 10) = 1.267
You can see that using the “chained” CPI results in a lower number for inflation since inflation is really supposed to be a measure of buying power. Using the “chained” CPI, however, also results in a lower payout for benefits – like Social Security – tied to the CPI over time. You can see why, then, that the AARP and similar organizations would oppose it.
It’s a big change and has a significant political and economic impact. It’s a bit confusing, then, why it would end up on the table as a bargaining chip in the 11th hour – unless the plan was to rush it through and hope that extending the tax cuts garnered enough press to bury it.
How does the President feel about it? President Obama had previously indicated that he was willing to consider the “chained” CPI even in the face of Democratic – and popular – opposition in order to move to a vote to extend tax cuts for most Americans. That was, however, in exchange for a bigger deal with Republicans for extending tax cuts for all but those at the top and continuing unemployment benefits, moves that, taken together, the Republicans have not publicly signaled they support. So far, nobody is blinking.
