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Dropping 'Chained CPI' from President's Budget a Mistake

Feb 21, 2014

From an Office of Management and Budget Fact Sheet, 2013, "Chained CPI Protections":

The Budget contains the President’s compromise offer to Speaker Boehner from December. As part of that offer, the President was willing to accept Republican proposals to switch to the chained CPI. 

That was then, this is now. From The Washington Post, an editorial posted today, "Mr. Obama backpedals on entitlement reform": 

PRESIDENT OBAMA has not released his budget for fiscal year 2015, but he has already let it be known that one good idea won’t be in it: Unlike last year, Mr. Obama will not propose the use of a more accurate inflation factor, “chained CPI,” in the government’s annual adjustments to Social Security and other benefits.

The Post's editorial board calls this decision "a huge disappointment," and Business Roundtable agrees. If the case for moving to a more accurate measure of inflation was persuasive last year, it's even more persuasive this year. The federal government has done little since the President's budget proposal last April to restrain entitlement spending; the long-term finances of Social Security and Medicare remain untenable.

Business Roundtable praised the inclusion of this reform when President Obama proposed it in last year's budget. BRT President John Engler said:

The move toward a chained CPI is an important step toward protecting Social Security and Medicare while bringing needed fiscal discipline to the federal budget. The proposal to expand means-testing would also strengthen Medicare’s viability and is consistent with Business Roundtable’s principles on entitlement reform.

By taking into account changes in people's behaviors in response to higher prices of goods and services, a chained CPI measure of inflation is indeed more accurate than the traditional measure of inflation.  It grows slightly more slowly than the standard CPI but can still produce impressive savings over time: $162.5 billion over the next decade, according to the Congressional Budget Office. 

One more citation from 2013:

I realize that tax reform and entitlement reform will not be easy. The politics will be hard for both sides. None of us will get 100 percent of what we want. But the alternative will cost us jobs, hurt our economy, visit hardship on millions of hardworking Americans.

That's President Obama last February, delivering his State of the Union address. He was right then. So what has changed?

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