Here's a great opening:
Here is a sentence you won’t hear politicians or policy wonks saying
in the next few weeks: “We should pay Social Security beneficiaries less
in the future and push a lot of people into higher tax brackets.” Here
is a sentence you almost certainly will hear: “Let’s adopt chained CPI.”
Welcome to the dark art of obscurantist deficit reduction. Of course,
the only ways to cut the deficit are by increasing tax revenue (either
through higher rates, fewer deductions, or faster growth) or cutting
spending. But both of those methods are unpopular. So, to get any
support for their plans, politicians who insist on cutting the deficit
have to find ways to cut spending or raise taxes that don’t look like they’re doing just that. Perhaps the most popular option along these lines is adopting “chained CPI.”
Then the author decribes the different ways inflation can be measured and the struggle over which to apply to Social Security:
Here’s how it works: Numerous government programs, most notably
Social Security benefits and the income thresholds for tax brackets, are
indexed for inflation. But inflation can be measured in a number of ways.
The tax code, for instance, uses CPI-U (Consumer Price Index – Urban),
which measures prices for consumers in urban areas, to adjust the income
cutoffs for different tax brackets. Social Security uses CPI-W, which
is like CPI-U but only counts prices paid by urban wage-earners, not all
consumers.
Various deficit-reduction frameworks, including Bowles-Simpson, Domenici-Rivlin and the Gang of Six plan,
would convert all programs using CPI-U or CPI-W to a third measure —
called C-CPI-U, or chained CPI. Most inflation measures, including CPI-U
and CPI-W, track the price of a certain basket of goods. That basket
could include, say, a year’s supply of propane. When propane costs go
up, CPI-U and CPI-W include that as an increase in the cost of living.
But some people would just stop using propane if its price went up.
They’d switch to electric heating, or a geothermal system, or a wood
stove. So their actual heating costs wouldn’t go up as much as CPI-U and
CPI-W would suggest. Chained CPI attempts to take “substitution
effects” like this into account. Thus, its number generally rises more
slowly than other metrics.
