CRS – Inflation-Indexing Elements in Federal Entitlement Programs, Dawn Nuschler, Coordinator, Specialist in Income Security, April 24, 2013
“In recent years, various proposals have been discussed in the context of ways to reduce federal budget deficits. One of the proposals, for example, is the use of a different measure of consumer price change to index various provisions of federal programs, including cost-of-living adjustments (COLAs). For example, under current law, the Social Security COLA is based on the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W). Under the proposal, the Social Security COLA would be based instead on the Chained Consumer Price Index for All Urban Consumers (Chained CPI-U or C-CPI-U). Because the goal of the Chained CPI-U is to better reflect how consumers change their buying habits in response to changes in prices, supporters of the proposal argue that it is a more accurate measure for computing COLAs and making other automatic program adjustments. Opponents, however, view the proposal as a backdoor way of reducing benefits because the Chained CPI-U typically has risen more slowly than either the CPI-W or the traditional CPI-U. Some observers point out that the Chained CPI-U is published as a preliminary value that is subject to revision over a period of up to two years, and that it may not accurately reflect the cost of living for certain groups, such as the elderly population.”
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