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What is Chained CPI? Another Government Lie About The Costs Of Inflation

With ideas like Chained CPI receiving a friendly response in political establishment circles, we have more reason to distrust government.

Early this year the Pew Research Center informed Americans, “Our Jan. 2013 survey found only 26% saying they can trust government always or most of the time, while 73% say they can trust the government only some of the time or never. Majorities across all partisan and demographic groups express little or no trust in government.”

With ideas like Chained CPI receiving a friendly response in political establishment circles, we have more reason to distrust government, and the establishment leaders of both parties who work against the interests of the American people.

For starters, what is Chained CPI? Essentially, it’s a way to measure the cost of living, and to disguise the true levels of price inflation faced by the American people. Reported inflation rates would drop under Chained CPI because it adjusts for less expensive substitutes that people could buy to reduce the impact of inflation.

For instance, if the price of butter rises, some people might buy less-expensive margarine in response. Government bureaucrats would declare there therefore is little or no inflation. Imagine the mischief government bureaucrats could do arbitrarily determining substitutes for items that go up in price – substitutes that many people really might not want because we consider them to be lower in quality, more inconvenient to use, or just not desirable because when we use “I Can’t Believe It’s Not Butter,” we can in fact believe it’s not butter. Our standard of living and enjoyment of life would decline because of inflation even as bureaucrats declare there is little or no inflation.

As I noted shortly after Obama introduced his budget last spring, following the logic of Chained CPI, if the price of steak goes up, we can buy hamburger; if the price of hamburger goes up, we can buy chicken; if the price of chicken goes up, we can buy eggs. Eventually we’re down to no inflation as long as there are dead possums along the side of the road that we can collect for dinner.

So why push for it? Well, with lower reported inflation, Social Security and other benefits increases, which are pegged to inflation, would in turn be lower. The Congressional Budget Office estimates using the Chained CPI could save the government $340 billion over 10 years by reducing Social Security, veterans and other benefits, and by increasing revenues. More than half of this amount – $127 billion – would come from Social Security alone.

The Social Security Works organization notes, “The important thing to know is that this change would cut the benefits of all beneficiaries, including current retirees, disabled workers, and others – even after politicians promised repeatedly that any changes to Social Security would not affect current beneficiaries.”

Perhaps even worse, if the government goes to Chained CPI, American workers could expect lower pay raises. Employers usually factor inflation into their pay. With lower reported inflation, workers would have less room to bargain and could end up with raises that are lower than true inflation.

The harm would not stop there. Personal exemptions and standard deductions in the personal income tax are also indexed for inflation. With lower reported inflation rates, increases in the personal exemption and standard deduction would slow, leaving us with higher tax bills. This is where the CBO comes up with increasing revenues from Chained CPI. Even lower-wage workers who receive the Earned Income Tax Credit would be hit, because adjustments in the credit would shrink under Chained CPI.

Advocates of Chained CPI say it will more accurately reflect price inflation. Don’t you believe it. Rather than accurately reflect inflation, it will give the government numbers crunchers a way to disguise inflation. And the established leaders of both parties agree this is a good idea.

Consider: President Barack Obama is arguably the most Left-wing president of the last 50 years. The Heritage Foundation is arguably the most influential Right-wing think tank in the nation. They agree on Chained CPI. They both endorse it, demonstrating that the Left and Right wings of the political establishment lift the same bird of prey.

This is another reminder that the sound and fury emanating from the Democrat and Republican establishments is mostly just noise. On major issues, the arguments are rarely over fundamentals. Tea Partiers and Independents have been the rebels in the fight against ObamaCare. The Republican establishment would be happy to make peace with it. Now the establishment wants to reduce Social Security and other entitlement spending, and have glommed on to Chained CPI as a way to do it without making the American people too angry about it.

Obama has already shown his willingness to cut entitlements, as long as he can shift the money to other entitlements he values more. Don’t scoff. Obama has already admitted to diverting money from Medicare to fund his signature health insurance law, formally known as the Patient Protection and Affordable Care Act and informally known as ObamaCare. In fact, during the 2012 election, that was the only big problem Mitt Romney seemed to have with ObamaCare.

This would not be the first time the Left-wing and Right-wing political establishments have seen eye-to-eye. That individual mandate to buy health insurance that offends so many opponents of ObamaCare? That idea originated with Heritage Foundation’s Stuart M. Butler, who in 1989 issued a report called “Assuring Affordable Health Care for All Americans.” A centerpiece of that proposal, as with ObamaCare, was a provision to “mandate all households to obtain adequate insurance.”

In 1993, two different Republican bills requiring an individual mandate to buy health insurance were introduced in Congress. In 2006, Romney, then the Republican governor of Massachusetts, signed into law his signature achievement as governor. It’s a law known as RomneyCare, which includes an individual mandate to buy health insurance and virtually every other major facet of ObamaCare.

This was by design – literally. Here’s Obama acknowledging the fact about one month before the November 2012 president election in which he defeated Romney for the presidency. Here’s one of those advisors, Massachusetts Institute of Technology economist Jonathan Gruber, who worked with Romney to help design RomneyCare, and then worked with the Obama administration to help design ObamaCare, echoing the idea.

Just as the Republican and Democratic establishments found common cause in the mandate-based approach to health insurance, today they would be happy to make peace with the mendacious Chained CPI.

Some in Congress get it. Earlier this month, Social Security Works and the Alliance for Retired Americans joined about 20 members of the Congressional Progressive Caucus for a “Human Chain” press conference near the U.S. Capitol building. Their press release said the event was held “in opposition to the Chained CPI Social Security benefit cut.” But even now, Chained CPI is rumored to be on the docket for the upcoming budget committee talks.

Rather than lie about inflation, people in government should declare the truth: The government cannot sustain these entitlement programs as they are structured, so they’re going to be cut. This would be a form of default, but at least it would not be a form of deception.

Steve Stanek is a research fellow at The Heartland Institute.

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