MY VIEW: Marc Goldwein

In an op-ed for The Atlantic, CRFB Senior Policy Director Marc Goldwein made the case for offsetting the costs of the payroll tax cut, AMT patch, and unemployment benefit extension with the chained CPI. He argued that using the chained CPI, which is widely considered to be the most accurate measure of inflation available, makes both technical and budgetary sense. He also noted that the areas of the budget that the chained CPI would affect correspond to the areas that these policy extensions would affect.

On the technical side of the chained CPI, he wrote:

Every year, wages and prices go up. The government wants to measure this inflation to index everything from Social Security checks to tax brackets. The government makes these measurements by focusing on a "basket of goods" to compile its so-called consumer price index, or CPI.

The weakness of regular CPI is that we don't account for when consumers start changing their relative buying habits. If the prices of apples skyrocket, the regular CPI assumes cost-of-living will go way up. But in the real world, most people just buy fewer apples and more oranges.

Moving to the "chained CPI" corrects for this technical flaw by trying to provide an honest assessment of each month's basket and creating a "chain" between them. Moving to a more realistic measure of inflation would save well over $200 billion over the next decade, including from Social Security, other inflation-index programs, and from the tax code.

Click here to the read the full article.

"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.

For more on the chained CPI, read the Moment of Truth Project's paper Measuring Up: The Case for the Chained CPI and CRFB blog posts here and here.

Correction on 12/22 to include statement that "My Views" do not reflect the entire organization as a whole.

Social Security COLA paying for Extending the Payroll Tax Cut

Cutting 2012's Social Security COLA to pay for 2012's Payroll Tax holiday is a bad idea. In principle, I agree with using the chained CPI for Social Security COLA's but only in the context of Social Security Reform that provides a minimum benefit for the truly needy and decreases the initial benefits for the less needy. We need to do this in the context of Simpson-Bowles or Domenici-Rivilin type reform. The payroll tax cut rewards all segments of society including the people who don't need it at the expense of seniors who struggle. This is not fair.

 

In fact, I would argue that the extending payroll-tax cut is a political idea, which will provide minimum impact to the economy.

 

We need entitlement reform and tax reform, not holidays or CPI band aids.

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