Chained CPI and Social Security: Some Questions and Answers

Back in January I said I’d delve into the impacts of using the chained CPI (Consumer Price Index) to adjust Social Security benefits.

Then the President delivered a strong defense of “the commitments we make to each other,” including Social Security. So I put my draft post aside, figuring the chained CPI was off the bargaining table.

The more fool I. As you’ve probably read, it’s among the entitlement “reforms” in the President’s proposed budget.

The White House has taken great care to package it with other changes that would supposedly protect very elderly retirees and others who’ve relied on Social Security benefits for a long time. Also to shield programs that base eligibility on income.

But as economist/blogger Jared Bernstein said some time ago, the danger is that protections like these will all get swept aside, leaving only the benefits cuts.

Here then are some of the basic issues, as I see them. More to follow in a second post.

Why Do Anything About Social Security?

Our federal policymakers must do something about the Social Security retirement and disability insurance programs — and the sooner the better.

The Trust Fund will run out of money long about 2033. If nothing is done before then, the Social Security Administration will have to rely solely on what it continuously receives from payroll taxes.

That would be enough to pay about 75% of the benefits retirees would get if the Trust Fund still had reserves — a devastating loss for the nearly two-thirds who rely mainly or entirely on those benefits.

What Could Prevent the Shortfall?

At the risk of over-simplifying, our policymakers have two choices, not counting just letting the Trust Fund dry up. They could change the system to take in more or pay out less.

A switch to the chained CPI represents the latter approach because it rises more slowly than the currently-used index — the CPI-W. So, therefore, would the benefits that seniors, severely disabled former workers and eligible survivors receive.

Policymakers could instead “scrap the cap” on the amount of wage income subject to the tax that feeds the Social Security programs.

Or they could raise it enough to cover all but the top 10% of income, as it did in 1982 after Congress stepped in to shore up the program — not for the last time, incidentally.

High earners wouldn’t like this, of course. Nor perhaps would employers, since they’re responsible for half the payroll tax.

The National Federation of Independent Business has already said that its small business members “would violently oppose” it. These, as you know, are the “job creators” that our President and Congressional leaders are so fond of.

Is the Chained CPI More Accurate for Cost-of-Living Adjustments

Proponents of the chained CPI claim that it’s simply a more accurate cost-of-living measure because it reflects consumer responses to price increases. If the price of beef goes up, they buy less of it and more chicken. Etc.

Opponents argue that the index isn’t more accurate for seniors because they spend far higher portions of their income on items that aren’t amenable to switches, especially health care.

Even the CPI-W apparently understates their cost-of-living increases.

For some time now, the Bureau of Labor Statistics has maintained an experimental cost-of-living index specifically for the elderly. Over the long haul, it has risen somewhat faster than the CPI-W. And Social Security’s chief actuary expects it will in the future.

We’d probably see similar results from a cost-of-living measure for people with severe disabilities, since many of them also have disproportionately high health care costs.

So if accuracy were the real issue, Congress would give BLS the funds to fully develop its experimental index, as The New York Times, among others, has suggested.

What Other Objections Have Opponents Raised?

The over-riding objection to the chained CPI switch is that it would effectively cut benefits. The loss in any one year would be small. But losses would mount up over time because the base for each cost-of-living adjustment, as well as the COLA itself, would be lower.

The average earner, says the Strengthen Social Security Campaign, would lose a total of $4,631 by age 75 — more than three months of benefits. Another 10 years and the loss would mount to nearly a year’s worth of benefits.

We need to recall that retired workers now get, on average, only $1,261 a month — and former workers in the Social Security Disability Insurance program somewhat less.

For 36% of seniors, Social Security provides at least 90% of income — not surprising, given what we know about retirement savings. It’s the sole source of income for 29% of the most elderly.

As I mentioned earlier, the President’s budget includes a “benefit enhancement” — popularly known as a bump up. It’s supposed to restore the cumulative losses for people who live long enough to benefit.

Most who do would still get less, according to the SSS Campaign.

Those who don’t are just out of luck, of course. And they’re disproportionately lower-income people, for whom every Social Security dollar counts.

UPDATE: After I published this, the Center on Budget and Policy Priorities issued a brief that provides more detail on the impacts of the chained CPI on Social Security retirement benefits.

Reprieve for DC TANF Families (We Hope)

The DC Council came through for families in the Temporary Assistance for Needy Families program — as best it could, given that the budget itself was already set in stone.

After some lengthy and heated discussion, it approved an amendment to the Budget Support Act* that would delay further benefits cuts for families who’ve participated in the program for 60 months or more.

And a good thing too. As I (and others) have argued, these families shouldn’t be penalized because the program has egregiously failed to identify their strengths and needs and to link them to the appropriate mix of services.

The additional year before the cuts resume will supposedly give them an opportunity to benefit from program improvements the Department of Human Services is rolling out.

“Supposedly” because DHS still has a long way to go before completing the assessments that will form the basis for individually-tailored training and supportive services plans. Only 25% completed now, according to Councilmember Jim Graham, who introduced the amendment.

At the current rate, some of the at-risk parents won’t have anything like a full year to benefit from their plans. Whether even a year would be enough to enable some of them to secure — and retain — living-wage jobs is another question.

All but three Councilmembers voted for the amendment — a tribute to some very fine advocacy. That plus an evident desire on the part of a couple of Councilmembers not to be on the losing side of a cause that obviously had majority support.

The Council also unanimously rubber-stamped then-Chairman Kwame Brown’s substitute for the BSA it passed in mid-May.

This too is good news for TANF families and those who care about them because the revised BSA folds in some additional provisions that were part of the proposed TANF Time Limits Amendment — or rather folds in something akin to them.

Most would expand eligibility for POWER (Program on Work, Employment, and Responsibility) — thus shifting some parents out of TANF and shielding them, at least temporarily, from the 60-month time limit.

These are parents who can’t reasonably be expected to meet the TANF program’s regular work activity requirements — those who, for example, are receiving services to help them recover from the trauma of domestic violence, caring for a severely disabled family member or still in their teens and enrolled in school.

Another provision could give parents an additional 24 months to continue their postsecondary education or participation in a training program leading to a certificate or the equivalent.

Smart move since enabling these parents to get those degrees and certificates is the very best thing the program could do to help them achieve self-sufficiency.

Still another provision would prohibit DHS from counting toward the 60 months time that a child received benefits while living with an adult or adults who didn’t.

These so-called child-only cases are often exempt from the standard time limit — as they surely ought to be since one can hardly expect a child to engage in direct preparation for work.

So the Council did the right thing.

But (why is there always a but?) the benefits cuts will go forward as scheduled unless the Chief Financial Officer projects more revenues than the budget assumes.

Specifically, the estimated $3.8 million cost of the delay will be carved out of the additional $14.7 million for TANF job training that’s second on the list of priorities that will get funded if revenue estimates are higher.

In other words, the fate of more than 6,100 families — including nearly 14,000 children — hinges on a projected revenue increase of at least $10.8 million.

The exemptions and exceptions also hinge on higher revenue projections and would be paid for by another carve-out from the job training pool — this one about $1.75 million, according to the BSA.

As some disturbed Councilmembers observed, the time limits delay will eat into additional funding needed to provide appropriate job training and other services — assuming the hoped-for revenues materialize.

So will the exemptions, though no one mentioned it.

The end result is thus a tad perverse, but the Council chose it by not grappling with the timing and coverage of the benefits phase-out earlier.

Or perhaps I should say the former Council Chairman chose it since the BSA was largely an artifact of his private dealings with Mayor Gray’s staff, and both he and the administration apparently underestimated the support the benefits delay would have.

I have nothing like the expertise that would be needed to comb through the Fiscal Year 2013 budget and identify funds that could obviously have been better spent on benefits for the very poor families who rely on them — and on training that would enable many of them to be off “welfare,” which they want as much as the Mayor and Council do.

I’ve just got a hard time believing that everything in the $9.4 billion budget is more important.

As things stand now, we’ve just got to keep our fingers crossed.

* The Budget Support Act is the package that makes whatever legislative changes the Budget Request Act, i.e., the budget proper, requires.

DC Mayor’s Budget Would Punish TANF Families for Program’s Failures

How would you like to try living on $275 a month — and in the District of Columbia no less? Inconceivable for a single person. What then for a single mother with two kids?

Under Mayor Gray’s proposed budget, more than 6,100 families in the Temporary Assistance for Needy Families program will lose a fifth of their meager cash benefits come October — this on top of the same sized-cut imposed last April.

The figure I led off with is what a family of three would be left with. Additional benefits cuts would follow until the family got nothing at all.

More than 11,000 children under thirteen would be plunged into even deeper poverty. Some of them, as the Children’s Law Center warns, would be put into foster care simply because their parents couldn’t afford adequate housing.

The families who’ll suffer are those who’ve spent 60 months or more in the program — not necessarily consecutive.

In many cases, the affected parents haven’t gotten the services they need to overcome severe work barriers, e.g., mental and physical health problems, domestic violence trauma, minimal or no marketable job skills.

Some were expected to engage in what passed for work preparation activities — sessions on workplace behavior, writing a resume, interviewing, etc.

Then, as one participant said, “[t]hey have you on the computer all day,” searching the online listings and pressured to take the first job offered.

Many have cycled back into the program because they didn’t have the skills for the jobs they’d found — or hadn’t gotten the help they needed to overcome other barriers. Others, I suppose, returned when they lost their jobs due to the recession.

Not all the parents whose benefits will be cut were required to engage in work activities for their whole term in the program. Some were excused for awhile because their barriers made work activities wholly unrealistic. But the time off is being counted toward their 60-month maximum anyway.

What’s happening here is that part of the Department of Human Services’ TANF redesign is barreling ahead — the part that gives parents a stronger incentive to engage in required work preparation and work search activities.

Nothing like facing a penniless future to get one moving — unless, of course, one’s too ill, disabled or occupied with other responsibilities, e.g., caring for a severely disabled child, to move on the work front, even knowing the hardships awaiting.

The administration could exempt up to 20% of such “hardship cases” from the 60-month limit and still use federal funds for a share of their cash benefits. But it’s chosen not to.

The other part of the TANF reform — in-depth individual assessments to identify their individual strengths and needs — is lagging behind. Thus also appropriate agreements on what they should do to fulfill their responsibilities for striving toward self-sufficiency.

As of late February, DHS had completed only 12% of the assessments needed for families at immediate risk of cash benefit loss.

At the reported rate of 150 assessments a week, it won’t get through them all until months after the next 20% cut kicks in.

It might if the rate applied only to parents subject to the phase-out rather than to all parents who show up when they’re told to. Some at immediate risk haven’t heard, don’t understand or perhaps figure it’s futile because they’re going to lose their benefit anyway.

Councilmembers Jim Graham and Michael Brown have introduced a bill that would temporarily stave off the benefits cuts and mandate reasonable time-limit exemptions, such as many states provide.

Advocates have suggested ways the bill could be strengthened, including a longer reprieve period. But it’s a whole lot better than what’s coming down the pike.

Why didn’t Mayor Gray fold a version into his proposed budget? Surely he knows that TANF families will lose benefits because the program failed them.

For the same reason he put the benefits phase-out into last year’s proposed budget. Savings to help close the budget gap. This year he expects to save more than $5.6 million.

Well, the DC Council could do what the Mayor wouldn’t. The Human Services Committee took a step in this direction last week with a vote (4-1) in favor of the Graham-Brown bill

Now comes the need to find funds to substitute for the Mayor’s proposed savings — and to get at least three more Councilmembers on board.

Maybe we should launch a TANF Challenge along the lines of the popular Food Stamp Challenges.

Who knows what might happen if our elected representatives had to try living on $275 for a month?

DC Council Makes Bad TANF Benefits Cut Worse

Talk about robbing Peter to pay Paul!

DC Council Chairman Vincent Gray has pushed through a budget gap-closing plan for this fiscal year that takes cash assistance away from families in the District’s Temporary Assistance for Needy Families program to fund adult job training — maybe some other things as well.

I say pushed through because Councilmembers didn’t get the final plan until the wee small hours of the morning the vote was scheduled. No time for them — or the public — to work through the details or come up with vote-ready alternatives.

I, for one, am feeling hampered by the lack of a clear account of the total package. But the stepped-up raid on TANF is clear enough.

As I previously wrote, Mayor Fenty seized on Councilmember Marion Barry’s now-repudiated proposal to impose a five-year lifetime limit on TANF benefits for poor D.C. families.

Under his gap-closing plan, maximum benefits would have been cut by 20% for all families who’d been in the program for more than five years, whether consecutive or occasionally over a long period of time.

Gray’s version adopts this cut for the current fiscal year, then increases it by 20% each year so that post-five year benefits are fully phased out in Fiscal Year 2015.

No circuit breaker if the planned improvements in the TANF program don’t get fully implemented on schedule or deliver sufficient results. No exemption for victims of domestic violence or other singular hardships, though the District could still have used federal funds to support many, if not all of them.

Half the money saved will be invested in job training programs that target TANF recipients. Maybe Gray used some of the rest to restore the mayor’s proposed cuts to the adult job training programs operated by the Department of Employment Services.

But it’s hard to know how funds freed up in one area have been shifted to undo or mitigate proposed cuts in another.

Not hard at all to know that the phase-out of TANF benefits will work extraordinary hardships on for families who, for various reasons, can’t achieve sustained self-sufficiency. Or to know that it would never have materialized if Gray had decided to balance the budget by a reasonable mix of spending cuts and revenue raisers.

By the time of the vote, Councilmembers had a range of revenue-raising proposals in hand. Councilmembers Michael Brown and Jim Graham reportedly favored the single new top income tax bracket advocated by a large number of local organizations.

Councilmember Tommy Wells had a new income tax reform plan that would have created three new top tax brackets, the first beginning with a minimal increase at $75,000.

Councilmember Barry wanted to revive last year’s proposed expansion of the sales tax — anathema to the health club crowd, but still, I think, a good idea.

He’d also picked up on Councilmember Graham’s thoughts about increasing the tax on commercial parking fees. To these, added an increase in the District’s egregiously low minimum franchise tax.

But Gray decided to postpone any consideration of any sort of tax increase until next spring, when he has to produce his proposed budget for Fiscal Year 2012.

Fat lot of good that will do the TANF families who’ll be pushed out of the safety net.