October 14, 1995 in Nation/World

Plan Puts Squeeze On Social Security

Associated Press

The nation’s 43 million Social Security recipients will get a 2.6 percent boost in benefit checks starting in January, the second-smallest increase in the 21 years of annual cost-of-living raises.

But next year’s typical increase of $18, triggered by national inflation figures released Friday, would be $7 smaller under one budget-cutting proposal and senior citizens groups are upset about that prospect.

Opponents of the proposal contended that Democrats and Republicans scrambling to come up with enough spending cuts to balance the budget were trying to sneak through changes in the cost-of-living adjustments under the smokescreen that the current calculation overstates inflation.

“If the Congress wants to cut the cost-of-living adjustment, let them say so up front. I don’t think the American people want to see Social Security COLAs cut for the sake of reducing the deficit,” said Evelyn Morton, congressional lobbyist for the American Association of Retired Persons.

The planned 2.6 percent increase for 1996 will mean that the average monthly Social Security benefit of $702 will increase to $720, starting with the Jan. 3 checks.

The increase is based on the change in the Labor Department’s Consumer Price Index for the 12-month period ending Sept. 30.

The idea of reducing the cost-of-living adjustment has been floated by House Speaker Newt Gingrich, Senate Majority Leader Bob Dole and Sen. Daniel Patrick Moynihan, top Democrat on the Senate Finance Committee.

Moynihan is pushing a proposal to limit cost-of-living adjustments to 1 percentage point below the CPI increase, citing comments by various economists including Federal Reserve Chairman Alan Greenspan that the current CPI overstates inflation.

If Moynihan’s plan were adopted, the average monthly benefit increase would be $11 instead of $18.

While the White House has not endorsed Moynihan’s proposal, it has left the door open to trimming the COLA by some amount to compensate for its overstating inflation.

The deficit savings would be huge. A 1 percentage point cut in the CPI adjustment would produce $281 billion in savings over seven years. That would be nearly one-third of the $894 billion that Republicans say they need to balance the budget by 2002.

The CPI is used not only to adjust government benefit payments such as Social Security but also personal income tax brackets. Reducing the CPI adjustment by 1 percentage point would raise an additional $19.2 billion in income taxes over 10 years because more income would be taxed at higher rates.

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