The president said it again: Our problem is with Social Security and Medicare.

[frazzled]

29. Only if you're trying to sensationalize what he said

Nice try with the scare headers.

First, we know what the president's position is on long-term deficits. There is no problem with short-term deficits. That's standard (liberal) economic positioning.

Second, the president ran on this position. Don't act shocked.

Third, let's take Social Security and the chained CPI question, which is the biggest issue for us here. Obama is not out on a limb on this one in terms of liberal policy. As you know, the two biggest liberal think tanks have endorsed it. We may disagree, but it's not some "conservative" plan that he's adopted (the conservative plan would be to kill Social Security). And there are arguments to be made for it. They are not about Social Security per se but about how we can raise revenues for the government in general, which benefit all, and can sustain other programs that help the poor. So unless you think we can get tax hikes from the Republicans to help fund everything the government does (in which case you are hopefully naive), one way to raise substantial revenues is through chained CPI, which affects many things in the codes. They argument--which I'm not asking you to buy (I may not buy it myself, and it's certainly not my preference) goes like this:

The case against moving to the chained CPI is easy to make: It represents a real cut to seniors’ Social Security benefits, which has so far been a non-starter. Even advocates of the switch acknowledge this. But since we may have to swallow it, it’s worth laying out the best progressive argument possible in favor of the chained CPI. We’re not saying it’s right, but it’s a case that should be made.

And the argument does exist. The Center for Budget and Policy Priorities, one of most well-respected liberal think tanks on policy analysis, has endorsed the change. As has the Center for American Progress, Washington’s most powerful liberal think tank, which recommended the chained CPI in its comprehensive Social Security reform plan.

...

On its own, the chained CPI is unquestionably bad, but as part of a deal to raise taxes, extend unemployment benefits and do the other good things Obama wants to do, and if it includes major mitigating tweaks, it can be made almost palatable.

First of all, it’s important to note that the CPI formula doesn’t affect just Social Security. Rather, it appears in hundreds of different places on both the revenue and spending side of government. Almost every government retirement, disability and income-support program pays annual cost of living adjustments that are linked to the CPI. On the tax side, dozens of elements, from the standard deduction to limits on contributions to 401K plans to the earned income and child tax credits, are adjusted every year based on the CPI.

The whole point of the CPI is make sure benefits keep pace with inflation on the one hand, and to ensure that people are paying enough taxes as inflation changes on the other hand. So while the chained CPI cuts benefits, it also raises revenues in a way that’s palatable to Republicans. The change is estimated to save about $220 billion over 10 years, $72 billion of which would come from increased tax revenue.

Moreover, both CBPP and CAP, along with many independent economists, believe the chained CPI is a more accurate measure of inflation than the current index, called the CPI-W. The CPI is calculated by measuring price changes in a basket of 250 common consumer goods, but only the chained CPI takes into account that people shift their buying habits in response to price changes. Adjusting for that, the chained CPI grows about .3 percent slower than the current rate.

Liberals rightly note that this substitution effect isn’t really true for the very poor and very old, who spend a disproportionate amount of their income on non-substitutable goods like healthcare and housing. That’s why the only acceptable way to shift to the chained CPI is to include exemptions for some of the most vulnerable groups.

There are two major changes necessary. First, add a bump in benefits to the very old, who are more likely to have high healthcare bills and to have exhausted their savings that supplemented their Social Security income. Second, exempt Supplemental Security Income, which serves the poorest, disabled and blind but still often leaves people below the poverty line. SSI benefits should actually be increased, but that would require a different effort, so it should at the minimum be exempted from the CPI change.

Obama has indicated that he will demand these changes.

http://www.salon.com/2012/12/19/the_progressive_case_for_the_chained_cpi/