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Monday, December 17, 2012

 
Chained CPI of fools

by digby

Dylan Matthews at the Washington Post gives us a good primer on the Chained CPI being contemplated for the "fiscal cliff" deal:

That adds up to a big cut in Social Security benefits. Imagine, for example, a person born in 1935 who retired to full benefits at age 65 in 2000. According to the Social Security Administration, people in that position had an average initial monthly benefit of $1,435, or $17,220 a year. Under the cost-of-living-adjustment formula and 2012 inflation, that benefit be up to $1,986 a month in 2013, or $23,832 a year. But under chained CPI, the sum would be around $1,880 a month, or $22,560 a year. That’s a cut of over 5 percent, and more as you go further and further into the future.

The results by using chained CPI for taxes are also striking. The Tax Policy Center calculated the income tax increases that would be caused by a switch to chained CPI. They’re not big — a little more than $100 a year for most families — but they’re oddly regressive:

The group getting the biggest tax hike is families making between $30,000 and $40,000 a year. Their increase is almost six times that faced by millionaires. That’s because millionaires are already in the top bracket, so they’re not being pushed into higher marginal rates because of changing bracket thresholds. While a different inflation measure might mean that the cutoff between the 15 percent and 25 percent goes from $35,000 to $30,000, the threshold for the top 35 percent bracket is already low enough that all millionaires are paying it. Some of their income is taxed at higher rates because of lower thresholds down the line, but as a percentage of income that doesn’t amount to a whole lot.

All told, chained CPI raises average taxes by about 0.19 percent of income. So, taken all together, it’s basically a big (5 percent over 12 years; more, if you take a longer view) across-the-board cut in Social Security benefits paired with a 0.19 percent income surtax. You don’t hear a lot of politicians calling for the drastic slashing of Social Security benefits and an across-the-board tax increase that disproportionately hits low earners. But that’s what they’re sneakily doing when they talk about chained CPI.

That’s why watchdog groups like the Center for Budget and Policy Priorities argue that the only fair way to do chained CPI would be to pair it with an increase in Social Security benefits, and to exempt Supplemental Security Income, which provides support for impoverished elderly, disabled and blind people. Otherwise, it’s just a typical “raise taxes, cut benefits” plan, and an arguably regressive one at that.

This is the deal I most worried about: chump change from millionaires in exchange for painful cuts to vital government programs that help average people. They'll call it a tweak, a little accounting change. And no doubt the Democrats will tout the tax hikes as the holy grail that shows the kind of tough, deficit cutting. But the only people who will really sacrifice and sufferare the people at the lower end of the income scale. The top 1% will be "paying a little bit more" which they will not even notice. That's wrong.

Especially because if you believe that deficit reduction is the be all and end all, there's a better way:

Several high-profile defense think tanks from across the political spectrum are on relatively the same page, in terms of what kind of financial hit the Pentagon should take in the coming decade, according to a recently released report.

The study, compiled by Washington-based National Security Network, found the average spending reduction to DOD coffers recommended by these think thanks came to just over $510 billion over the next ten years.

That number dwarfs the $100 to $300 billion top defense industry leaders proposed in early December as the most budget reductions the Pentagon could handle, while maintaining national security priorities worldwide.

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