WASHINGTON (AP) — President Barack Obama's offer to limit the growth of Social Security benefits would cost the average retiree less than $50 in the first year. But the cuts would grow over time, and that has advocates for seniors worried that Democrats in Congress will break their promise to shield the massive retirement and disability program from cuts in deficit reduction talks.
Both Senate Majority Leader Harry Reid, D-Nev., and House Minority Leader Nancy Pelosi, D-Calif., pledged not to touch Social Security as part of negotiations to avoid the year-end fiscal cliff. Reid, however, is backpedaling now that Obama and House Speaker John Boehner, R-Ohio, have agreed to a new measure of inflation that would reduce annual cost-of-living adjustments, or COLAs, for Social Security and other government programs.
Obama and Boehner continue to haggle over how much to raise taxes and cut spending but both have agreed to the new inflation measure formula, making it increasingly likely the proposal would be part of an eventual deal. Boehner proposed the change earlier this month in talks with Obama, and the president included it in a counteroffer this week.
White House Press Secretary Jay Carney called the new inflation measure a technical adjustment designed to make inflation estimates more accurate. Obama did not directly address the issue at a White House news conference Wednesday. But, he said, a deal will require difficult choices by all sides.
"What I've said is that in order to arrive at a compromise, I am prepared to do some very tough things, some things that some Democrats don't want to see and probably there are a few Republicans who don't want to see either," Obama said.
The inflation measure under consideration is called the Chained Consumer Price Index. On average, the measure shows a lower level of inflation than the more widely used Consumer Price Index because it assumes that as prices rise, consumers turn to lower-cost alternatives, reducing the amount of inflation they experience.
If adopted across the government, the change would have far-reaching effects because so many programs are adjusted each year based on year-to-year changes in consumer prices.
Taxes would slowly increase because annual adjustments to income tax brackets would be smaller, pushing more people into higher tax brackets. Over time, fewer people would be eligible for anti-poverty programs like Medicaid, Head Start, food stamps and school lunches because annual adjustments to the poverty level would be smaller, leaving fewer people under the official poverty line.
On average, annual increases in Social Security payments, government pensions and veterans' benefits would be about 0.3 percentage points smaller each year. Next year's COLA is 1.7 percent, or about $21 a month for the average Social Security retiree. If the new measure of inflation were in effect, the COLA would be about 1.4 percent, or a little more than $17 a month. That's $4 less than the current system, or about $48 less during the course of a year.