WASHINGTON, April 8 (Reuters) - U.S. President Barack Obama
is expected to formally propose this week for the first time a
controversial change in how the government calculates inflation
for Social Security and other federal benefits, in a bid to lure
Republicans into a broad deficit-cutting deal.
The switch, due to be included in the president's 2014
budget proposal, also affects how tax brackets are calculated,
so that they rise more slowly. That would impact taxpayers by
moving them into higher tax brackets more quickly as their
Below are some facts about how moving to the new measure of
the consumer price index, known as 'chained' CPI, works.
* The Social Security retirement program and other
government benefits are recalculated annually for cost-of-living
adjustments based on changes in the consumer price index as
measured by the Bureau of Labor Statistics.
* Some economists argue that CPI does not accurately measure
inflation because it does not account for changes in consumer
buying habits. For example, if pork prices rise more than beef
prices, consumers might buy more beef.
* In 2002 the BLS introduced a 'chained' CPI measurement
designed to reflect such adjustments, as a complement to its
traditional inflation gauge.
* Obama and Republican leaders in the House of
Representatives both backed the idea during last year's fiscal
* Opponents including the AARP seniors group say the chained
CPI is a backdoor way to reduce Social Security benefits.
* Vulnerable populations will be exempted from the change
under the White House plan, an administration official said.
* The Congressional Budget Office in March 2011 estimated a
chained CPI calculation would save the federal government $112
billion from 2012 through 2021.
* The president's 2010 Simpson-Bowles deficit reduction
commission called for a switch to chained CPI calculations for
Social Security benefits.
* On the tax bracket side, the Tax Policy Center estimates
that three-quarters of households would see a tax hike in moving
to chained CPI. The switch hits middle-class taxpayers most
harshly, with taxpayers making between $30,000 and $40,000 a
year seeing the biggest tax bump.
(Reporting By Kim Dixon and Patrick Temple-West; Editing by
(For complete coverage of U.S. budget negotiations, click on)
Copyright Thomson Reuters 2013. All rights reserved.
The copying, republication or redistribution of Reuters News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Reuters.