First Public Hearing Underway on Chained CPI
Proposed to Slow Future COLA for Senior Citizens
Republican chair of House Ways and Means subcommittee
on Social Security issued news release blasting Treasury secretary; in
opening says reducing COLA only would be called ‘benefit cut’ in
April 18, 2013 – The first congressional hearing on
the budget cuts to Social Security proposed by President Obama is
underway. Rep. Sam Johnson (R-Tx), chair of the Social Security panel of
the House Ways and Means Committee, released his opening statement and
the prepared testimony of witnesses. The Texas Republican also released
a news release this morning accusing Treasury Secretary Jack Lew of
making “conflicting statements” about the Chained CPI before the full
(See today's news release attacking Treasury
Secretary Lew below this news report on the hearing.)
The hearing today is the first public hearing on
the Chained CPI proposed by President Obama as a means of reducing
future cost-of-living adjustments for seniors.
Following are the prepared remarks by Rep. Johnson
as the hearing began this morning.
Welcome to the first in the Committee’s
hearing series on the President’s and other bipartisan
entitlement reform proposals.
Americans deserve action to protect and
preserve Social Security.
According to the Social Security Board
of Trustees, beginning in 2033, Social Security will be
unable to pay full benefits. In other words, when today’s
47-year-old workers reach their full retirement age in 2033,
they and everyone else already receiving benefits face a 25
percent benefit cut unless Congress does its job and fixes
The inclusion of using a more accurate
measure of inflation in President Obama’s budget is a
welcome acknowledgement that we must take action to make
sure that Social Security is there for future generations.
The purpose of this hearing is to have
a full discussion of a policy with wide bipartisan support –
more accurately measuring inflation in order to help fix
Congress passed the first benefit
increase in 1950 and later increased benefits 10 other times
before passing a law in 1972 that created a formula to
determine cost of living adjustments or COLAs
The Social Security COLA increases
benefits each year that there is inflation. If there is no
inflation, there are no COLAs as was the case in 2009 and
2010. But if prices should fall, benefits cannot be
At the time automatic COLAs were
enacted, the Bureau of Labor Statistics or BLS, only
produced one measure of inflation, which remains the
inflation measure used to determine Social Security COLAs
today. However BLS has since developed other measures
including the chained consumer price index or chained CPI,
which we will discuss today.
The President’s own budget says, “Most
economists agree that the chained CPI provides a more
accurate measure of the average change in the cost of living
than the standard CPI.”
In testifying before the full Ways and
Means Committee last week, Treasury Secretary Jack Lew
stated, “The chained CPI is a more accurate measure of
inflation in that it does a better job of reflecting the
substitution of goods in response to relative price
Today, we will hear from the
Commissioner of BLS why that is.
Some say using the Chained CPI to
measure inflation would result in a benefit cut, but that’s
just plain false.
The truth is that benefits will
continue to grow, only more slowly than under the current
less accurate measure. Only in Washington, would that be
called a benefit cut.
That said, I fully recognize and am
sensitive to the impact this change could have on some
beneficiaries’ pocketbooks, especially those who receive
benefits for a long time. But the fact of the matter is the
current measure overstates inflation, and ignoring that is
simply unfair to our children and grandchildren who rightly
expect us to make sure that Social Security will be there
Let me be clear: determining the
adequacy of Social Security benefits, especially for those
who are most vulnerable, is an important discussion to
have. And we will as part of this hearing series on
bipartisan entitlement reforms.
The President likes to say that if we
agree on a policy, then we should act and not let our
differences hold us up.
We owe it to every American to carry
out our responsibility and carefully examine each bipartisan
policy option. And we will through this hearing series.
Focus Of The Hearing
The hearing will examine proposals by the President
and bipartisan groups to more accurately measure inflation.
Witness List and Testimony
Following is a list of witnesses for the hearing
with links to their prepared testimony
Honorable Erica L. Groshen,
Commissioner, accompanied by Michael W. Horrigan, Ph.D., Associate
Commissioner, Office of Prices and Living Conditions, Bureau of Labor
Statistics, Department of Labor
Jeffrey Kling, Ph.D.
Associate Director for Economic Analysis, Congressional Budget Office
Conflicting Statements on Chained CPI – an Example of What's Wrong in
If it is “better” policy, then let’s do it, Mr.
April 18, 2013Included in the President’s budget
proposal was a change to the way Social Security measures inflation –
moving from the current measure to the chained Consumer Price Index. As
Treasury Secretary Lew stated during his
before the Ways and Means Committee on the President’s budget, “The
Chained CPI is a more accurate measure of inflation in that it does a
better job of reflecting the substitution of goods in response to
relative price changes.” Additionally, he noted that this provision was
included in the President’s compromise offer to Speaker Boehner during
discussions on the fiscal cliff.
Unfortunately, Secretary Lew also noted that the
President “is not prepared to do something like chained CPI” unless
taxes are increased above and beyond the tax increase at the start of
According to the Social Security Administration
actuaries, using the chained CPI to determine Social Security cost of
living increases would solve 20 percent of the Social Security shortfall
and allow Social Security to pay full benefits for an additional two
years. If this policy is good for the long-term health of the Social
Security program, it should not be held hostage for more political
Chained CPI has broad bipartisan support and is not
a Republican idea or a Democratic idea. In fact, the Washington Post
that, “Mr. Obama too often casts entitlement reform as a concession to
extract Republican assent to higher taxes, rather than a worthy end in
itself. This is especially odd regarding his proposed new
cost-of-living measurement for Social Security: Mr. Obama’s own budget
documents say that it’s ‘more accurate’ than the measurement now in
use. Isn’t ‘more accurate’ better?”
Americans expect that Congress and the President
work together and provide solutions to strengthen and preserve Social
Security for current beneficiaries and future generations. The
President has repeatedly called on Congress to act on policies we can
agree on. We must take action now, and enact meaningful reforms to
secure the future of this vital safety net. That is why this morning,
the Ways and Means Social Security Subcommittee will hold a
examining the use of the chained CPI to measure inflation.
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