TAMPA — Budget negotiations now underway in Congress apparently don’t include any changes to the federal program some say is the most important to Florida, Social Security, but a change in the way benefits are calculated — one that could cost the state billions — still looms as a possibility in future discussions.
The change, known as the “chained CPI,” for consumer price index, would affect how cost-of-living increases in Social Security benefits and other federal programs are determined. It would lower future increases in Social Security benefits by a small amount at first, but an amount that would grow over time.
President Barack Obama proclaimed during his 2008 campaign that he opposed reducing Social Security’s cost-of-living increases or raising the retirement age.
“Now let me be clear, I will not do either,” he said in a September 2008 speech to an AARP convention.
Many Democrats, including Florida Sen. Bill Nelson and Tampa Rep. Kathy Castor, oppose the change.
Nonetheless, Obama included the chained CPI in his 2014 budget proposal. The proposal called it a compromise to demands by Republicans and House Speaker John Boehner, “demonstrating (Obama’s) willingness to make tough choices and his seriousness about finding common ground to further reduce the deficit.”
However, Obama also included a feature intended to protect those most vulnerable to benefits reductions, the very old, by gradually increasing benefits starting at age 76.
Reducing Social Security cost-of-living adjustments, or COLAs, could affect the economy in Florida — the fourth most-populous state but the one with the largest percentage of retirees in its population, at 18.2 percent, and the second-largest actual numbers, 1.8 million, as of the 2010 census.
Critics say the chained CPI would cut veterans’ benefits as well, also affecting Florida disproportionately, and even cut growth of the standard income tax deduction — in effect, increasing taxes.
Proponents, on the other hand, say the chained CPI is simply more accurate.
“Probably a majority of economists who have thought hard about it think the current CPI formula overstates the change in the cost of living, so they favor moving to the index President Obama has proposed,” said Gary Burtless, an economist with the liberal-leaning Brookings Institution and an expert on Social Security.
The nonpartisan Congressional Budget office agrees, calling the chained CPI more accurate, and respected budget reform groups, including the bipartisan Simpson Bowles Commission created by Obama, have recommended it.
But with Republicans in Congress, including Florida Sen. Marco Rubio, demanding Social Security and Medicare reform to lower costs, chained CPI has become a political hot potato for Florida lawmakers, especially those with more elderly constituents.
The two congressional districts with the most retirees in the nation are Florida’s 11th, represented by Richard Nugent, R-Spring Hill, and 16th, represented by Vern Buchanan, R-Sarasota.
Asked their positions on chained CPI, Nugent said he opposes Obama’s proposal because it would reduce benefits, and Buchanan said in a written statement he thinks “both parties in Washington must work together to ensure the Social Security remains solvent for future generations and that current seniors continue to receive the benefits they have earned and deserved.”
Rubio responded in a written statement from a spokeswoman that he “won’t support any proposals that change the benefit structure for current retirees, like his mom, but is open to other reforms to help financially strengthen the system and preserve Medicare and Social Security for future generations.”
Both Castor and Nelson said benefits changes aren’t part of the current budget negotiations led by Sen. Patty Murray, D-Wash., and Rep. Paul Ryan, R-Wisc., that are intended to avoid another government shutdown.
Economists say the chained CPI is more accurate because it takes fuller account of what’s called “substitution”: When one product becomes more expensive, consumers may switch to another.
Applied to Social Security COLAs, the cut “isn’t a lot at the beginning, but it’s compounded each year, so it translates into a substantial money over a period of time,” as each year’s COLA is applied to a slightly smaller total from the year before, said Max Richtman, head of the National Committee to Preserve Social Security and Medicare.
Richtman, whose organization is considered a hard-line opponent of Social Security benefits cuts, said consumer substitution doesn’t work as well for the elderly. They may have less mobility for shopping and may depend more on items that are difficult or impossible to substitute, including health care.
“No one’s getting rich on Social Security,” with its average benefit of about $14,500 a year, he said. “We shouldn’t be talking about cutting benefits to keep the program solvent. We should look at fair ways to bring more revenue into the program.”
Burtless said that approach is most popular with the public.
Social Security taxes currently apply only to the first $113,700 in wages. Any wages over that, and all capital gains and other unearned income, are not subject to the Social Security tax. So while most workers pay the tax on their entire incomes, “millionaires and billionaires only pay it on a tiny percentage,” Obama told the AARP in 2008.
In polls, Burtless said, the public opposes cutting benefits or COLAs or increasing the tax rate, and prefers raising or eliminating the cap on the amount of income subject to the tax.
Richtman said eliminating the cap would solve Social Security’s long-term solvency problems far into the future. Castor is among several congressional Democrats now saying they favor lifting the cap.
The Social Security Administration has estimated that using chained CPI would reduce benefits for a retiree who turns 65 in 2015 or later by 3.7 percent at age 75, 6.5 percent at age 85, and 9.2 percent at age 95.
Obama’s proposal would give some of that back by phasing in a 5 percent increase in benefits over 10 years starting at age 76, followed by another phased-in increase over the next 10 years.
But Richtman’s organization has commissioned a state-by-state study that suggests the effect on Florida would still be substantial.
Even including Obama’s safety net proposal for the very old, use of the chained CPI would cut $110 million from the $62.4 billion in benefits expected to be paid to Florida recipients in 2015, it said.
That cut would increase to about $1.6 billion of the $98.5 billion expected in 2023.
The study says that would cost the state up to 1,900 jobs the first year, and up to 20,400 in 2023.