Cost of Living Calculations: Chained CPI Would Affect SSD

No one is going to get rich receiving Social Security disability benefits. But such benefits can be a lifeline for those who receive them. In Southeast Michigan and across the nation, they are vital to helping people make ends meet after disabling conditions keep them from working.

It is therefore very important that SSD and SSDI benefits not be eroded by a failure to keep up with increases in the cost of living. But given the current budget battles in Washington, the possibility of this type of erosion has become a concern.

The concern centers around what sounds like a rather technical term: chained CPI. Many Americans have heard of something called the Consumer Price Index or CPI, which measure changes in the cost of living. But what is a “chained” CPI?

The term comes from economists who theorize that as inflation causes prices to rise, consumers will respond by making changes in their spending. According to the chained-CPI theory, consumers when faced with inflation tend to make substitutions in their spending. They start to choose less expensive products as alternatives to pricier ones.

For example, if the price of meat goes up, someone might buy less steak and more luncheon meat. As a result, inflation that is calculated using the chained-CPI method comes out less than it does when it is only accounting for increases in the original purchases.

Changing the calculation method for Social Security payments could therefore leave people who rely on disability payments with less money than before. The Obama administration is considering making the change. And both Congress and the president are under intense pressure to cut the federal budget.

Right now, the average monthly benefit for SSI is only $520. More than half of the people who receives these benefits have no other source of income. Using the chained-CPI calculation could result in less money for them, however, and lead to a greater struggle to make ends meet.

Source: “Obama’s Social Security proposal detrimental to people with disabilities,” McClatchy, 4-12-13

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