The Real Cost of the Chained CPI

By on February 20, 2014 in Current Events, Retirement with 59 Comments

Who wants to lose money?  Nobody.  This is why the prospect of the chained CPI had so many people upset. “They are cutting my payment!  I will have less to live on!  They must be stopped!”  The upset is only aggravated by the alarming arithmetic that shows “losses” of thousands of dollars.  This arithmetic, however, is more than alarming – it is deceptive.  Let me explain.

First illustration.  Pensioner has been receiving $1,000 monthly.  His latest COLA, performed the usual way, is 2.0%.  His new payment will be $1,020.  This is $20 more.

If the chained CPI had been in effect, the COLA would have been 0.3% less.  If you increase $1,000 by 1.7% instead of by 2.0% his new payment becomes $1,017, which is $3.00 less. After whatever taxes apply, his net loss will be less than $3.00.  Spread evenly over a 30-day month, his loss – before taxes – is ten cents per day.

Annual loss.              (1,020 x 12) minus (1,017 x 12), or

12,240 (old) – 12,204 (new) = $36.00 loss in one year.

Second illustration.  Pensioner is receiving $2,000 monthly.  His latest COLA, performed the usual way, is 5%.  This will increase his monthly payment to $2,100.  This is $100 more.

If the chained CPI had been in effect, the COLA would have been from 0.3% less.  If you increase $2,000 by 4.7% instead of 5.0% his new payment becomes $2,094, which is $6.00 less.    After whatever taxes apply, his net loss will be less than $6.00.  Spread evenly over a 30-day month, his loss – before taxes – is twenty cents per day.

Annual loss.                         (2,100 x 12) minus  (2,094 x 12), or

25,200 (old) – 25,128 (new) = $72.00 loss in one year.

Above examples use 0.3%.  In reality, the chained CPI cut – we are told – will be anywhere from 0.25% to 0.3%.  Had I used 0.25% instead of 0.3%, the loss would have been less.

It is clear the chained CPI losses are small, but there will still be marginal cases in which pensioners will be genuinely hurt if the chained CPI is implemented. So, the new policy has “safety net” provisions which exempt disabled, super-old, and low-income pensioners.

Fortunately, our law-makers are looking out for us.  The news media, including FedSmith.com, have recently reported a group of congressmen wrote the President, stating, “Switching to a chained CPI would be devastating  for seniors, veterans, federal retirees, disabled individuals and others.” (emphasis added)

Are they sure this will be “devastating”?   Did they not read the President’s safety net provisions in his 2015 budget message?  Are they pandering for votes?  Would our congresspersons do such a thing?

So much for costs.  What are the benefits?  With millions of Federal pensioners contributing, the benefits will be billions of dollars to taxpayers in general.  Billions.  This will be used, in some form or other, to reduce the truly crushing national debt.

The $17 trillion debt calls for wide- spread, or “shared,” suffering, before it will be resolved.

I am a federal retiree.  My “devastating” loss due to the chained CPI will be slightly less than one pizza per month.  Small price to pay to help save a country!

My website is  www.fedbens.us

© 2016 Robert F. Benson. All rights reserved. This article may not be reproduced without express written consent from Robert F. Benson.

About the Author

Robert Benson served 35 years in various Federal agencies, as both a management analyst and IT specialist. He is a graduate of Northwestern University.

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