Obama proposes Chained CPI, Obama proposes an income tax increase on the back of working families [View all]

[FogerRox]

Most understand that the Chained CPI will hurt seniors, especially woman who earned less during their working days and live a little longer than their spouses while facing their last years living alone.

But what may not be well known is that Chained CPI would be used not just for calculating Social Security and Veterans Benefits..... If the Government adopts Chained CPI for adjusting Income Tax Brackets, & wages grow more than the Chained CPI, your income rises faster than the Income tax brackets would. Over time many families would be bumped into the next income tax bracket. Currently the Income Tax Brackets are adjusted to CPI-U.

According to Congress’ Joint Committee on Taxation, if individual income taxes were indexed to the Chained CPI starting in January 2013, by 2021, 69 percent of the gains in revenue would come from taxpayers with incomes below $100,000, while those in the highest income brackets would barely be affected. For example, workers with incomes between $10,000 and $20,000 would experience an increased tax burden of 14.5 percent, while those with incomes over $1,000,000 would just see an increase of 0.1 percent.

Seniors dont have the same buying patterns as working wage earners and clerical workers, which is what CPI-W is tracking. CPI-W can't possibly represent Seniors buying habits.


Seniors spend more on housing and medical care than people still in the workforce who maybe decades younger and in the prime of their health. Substituting Medical care may be impossible in some situations, and I can't imagine how one can substitute a Nursing Home. 2 out of 5 seniors rely on Social Security as 90% of their retirement income, while in 2012 the average Social Security benefit for those 65 and older was less than $15,000.

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In addition, there are fewer opportunities for substitution in these areas of consumption. Also, because the elderly are a less mobile population, they may find it more difficult to change their consumption patterns. If accuracy is the main concern to be addressed by altering the Social Security cost of living adjustment, then the BLS could construct a full elderly index that more accurately tracks the consumption patterns of the elderly. There is no basis for assuming that a Chained CPI more accurately measures the rate of inflation experienced by the elderly than the current measure,however there is no doubt that it will lead to a reduction in benefits.

Center For Economic And Policy Research

BTW, The Center For Economic And Policy Research was founded by Economist Dean Baker.

CNBC reported about a year ago:

If enacted for 2014, the change would reduce government borrowing by $223 billion over the next decade -- $158 billion in spending cuts and $65 billion in tax increases, according to the nonpartisan Congressional Budget Office.

CBO says its a 65 billion dollar tax increase over 10 years, as the Tax Policy Center notes, mostly on people with incomes between $30,000 and $40,000.

The Tax Policy Center looked at Chained CPI and its impact on income taxes:
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