Fiscal cliff offers include switch to chained CPI

House Speaker John Boehner, R-Ohio, included the new inflation measure in his offer, as did President Obama. House Speaker John Boehner, R-Ohio, included the new inflation measure in his offer, as did President Obama. J. Scott Applewhite/AP

It’s looking more likely that federal retirees will see changes to the formula used to determine their annual cost-of-living adjustments.

House Speaker John Boehner, R-Ohio, reportedly has been pushing for a deal on the fiscal cliff that includes a switch to the “chained CPI” formula to determine cost-of-living adjustments for federal retirees and Social Security beneficiaries. Several news outlets, including CNN, reported on Monday that Boehner’s latest offer included a proposal to use the less generous formula.

President Obama's counteroffer to Republicans on Monday night also included a switch to the chained CPI, according to reports.

COLAs currently are determined using a formula that takes into account increases in the Consumer Price Index for Urban Wage Earners and Clerical Workers, but some experts argue that a chained CPI, which takes into account modifications in purchasing habits as prices change, provides a clearer understanding of inflation.

The result would be lower COLAs for retirees, including federal and military retirees, over time.

During the past few years, Obama reportedly has expressed support for switching to a chained CPI, at least in private deficit reduction talks. It also was considered by the joint congressional committee on deficit reduction, and endorsed by Simpson-Bowles.

This is how a 2010 memo from the nonpartisan Congressional Budget Office explains it: “The chained CPI grows more slowly than the traditional CPI does: by an average of 0.3 percentage points per year over the past decade. As a result, using that measure to index benefit programs and tax provisions would reduce federal spending (especially on Social Security and federal pensions) and increase revenues.”

And this is how a February article from the Center on Budget and Policy Priorities puts the issue into context: “Many of the federal government's retirement, disability and income-support programs -- including Social Security, federal civilian and military retirement, railroad retirement, [Supplemental Security Income], and veterans' compensation and pensions -- pay annual COLAs that are linked to the CPI.” The line was included under a subheading that read “Using Chained CPI Would Affect a Number of Programs and Save Significant Amounts.”

None of this is welcome news to retirees who already aren’t receiving an overly generous COLA in 2013. Federal retirees will receive a 1.7 percent cost-of-living adjustment in 2013, according to figures the Bureau of Labor Statistics released in October. And the COLA amount that recipients actually end up with is affected by Medicare Part B premiums, since those premiums are deducted from Social Security payments. The Centers for Medicare and Medicaid Services announced in November that the 2013 monthly premiums would increase 5 percent, so most retirees will end up with less than the 1.7 percent COLA.

Stay up-to-date with federal news alerts and analysis — Sign up for GovExec's email newsletters.
FROM OUR SPONSORS
JOIN THE DISCUSSION
Close [ x ] More from GovExec
 
 

Thank you for subscribing to newsletters from GovExec.com.
We think these reports might interest you:

  • Going Agile:Revolutionizing Federal Digital Services Delivery

    Here’s one indication that times have changed: Harriet Tubman is going to be the next face of the twenty dollar bill. Another sign of change? The way in which the federal government arrived at that decision.

    Download
  • Cyber Risk Report: Cybercrime Trends from 2016

    In our first half 2016 cyber trends report, SurfWatch Labs threat intelligence analysts noted one key theme – the interconnected nature of cybercrime – and the second half of the year saw organizations continuing to struggle with that reality. The number of potential cyber threats, the pool of already compromised information, and the ease of finding increasingly sophisticated cybercriminal tools continued to snowball throughout the year.

    Download
  • Featured Content from RSA Conference: Dissed by NIST

    Learn more about the latest draft of the U.S. National Institute of Standards and Technology guidance document on authentication and lifecycle management.

    Download
  • GBC Issue Brief: The Future of 9-1-1

    A Look Into the Next Generation of Emergency Services

    Download
  • GBC Survey Report: Securing the Perimeters

    A candid survey on cybersecurity in state and local governments

    Download
  • The New IP: Moving Government Agencies Toward the Network of The Future

    Federal IT managers are looking to modernize legacy network infrastructures that are taxed by growing demands from mobile devices, video, vast amounts of data, and more. This issue brief discusses the federal government network landscape, as well as market, financial force drivers for network modernization.

    Download
  • eBook: State & Local Cybersecurity

    CenturyLink is committed to helping state and local governments meet their cybersecurity challenges. Towards that end, CenturyLink commissioned a study from the Government Business Council that looked at the perceptions, attitudes and experiences of state and local leaders around the cybersecurity issue. The results were surprising in a number of ways. Learn more about their findings and the ways in which state and local governments can combat cybersecurity threats with this eBook.

    Download

When you download a report, your information may be shared with the underwriters of that document.