Clinton May Not Tinker With Cpi Political Considerations Make Change Difficult To Sell

After sounding out members of Congress, the Clinton administration is backing away from any immediate tinkering with the official inflation rate to help balance the federal budget.

Gene Sperling, a senior economic adviser to President Clinton, said Wednesday that any quick moves to reduce the consumer price index (CPI) may backfire politically.

The index - which many economists believe overestimates inflation - is used to adjust Social Security benefits and taxes every year. Reducing it would slow the growth of retiree benefits and increase income tax collections, thus narrowing the budget gap by tens of billions of dollars a year.

“A lot of people feel there is some danger that at this time (it) could end up being more counterproductive than productive,” Sperling, director of the National Economic Council, said at a lunch with Knight-Ridder reporters and editors. “The politics … have been difficult.”

Leaving the index alone would place a roadblock on a tantalizing shortcut to a balanced budget. It would force lawmakers to more intensely debate such thorny basics as the generosity of tax cuts and the depth of Medicare savings.

Both the administration and Congress say they want to balance the budget by 2002. Adjusting the inflation yardstick has been an option from the beginning. But because it would cut Social Security and raise taxes, it is the kind of thing that can only be done if the two parties collaborate.

Last December, an expert panel told Congress that the CPI consistently overstates inflation by about 1 percentage point. That’s a big error, considering the index is rising by about 3 percent a year.

Federal Reserve Chairman Alan Greenspan and Senate Majority Leader Trent Lott, R-Miss., have urged appointment of an expert commission to make CPI reductions while a new index can be crafted. A group of fiscally conservative Democrats known as the Blue Dogs also favors reducing the CPI. As recently as two weeks ago, President Clinton himself seemed keen on the concept.

But last week, senior congressional Democrats warned Clinton against naming a commission. Groups representing the elderly object to any outside interference with the Labor Department statisticians who compile the CPI.

“Nine million widows live on Social Security,” said Rep. Jim McDermott, D-Wash. “Changing CPI would affect a whole bunch of people who are just getting by. Before I bite off a chunk of what they live on, I would want to make damn sure it was right.”

Meanwhile, House Republican leaders warned their rank and file that an inflation adjustment leading to higher taxes and lower Social Security benefits could open them to attack by Democrats and their allies. A commission would not offer enough political cover.

House Budget Committee Chairman John Kasich, R-Ohio, a strong proponent of reducing the CPI, lamented that the issue has gotten politicized.

“I have encouraged, I’ve pleaded, I’ve waxed long and often and told them how important it is to adjust this index,” Kasich said Wednesday. “But I’ve also said all along that demagoguery is the greatest threat to doing it. … I said to the demagogues who want to scare people that I want them to go and say their prayers and reflect very deeply on this.”

But caution seems to be the watch-word at the White House.

“A technical commission at this point could be seen by some as having been driven more by budgetary and political issues than by a desire to find the best technical accuracy,” Sperling said.

Ultimately, Sperling’s concerns seemed to have more to do with timing than with substance.

He did not rule out the idea of changing the inflation index at a later date. Lowering the CPI could help extend the life of the Social Security trust fund by slowing annual cost-of-living increases.

“If there is an overestimation, what’s truly important is making sure that this is corrected for the long term and for the financial stability of Social Security,” Sperling said.

Despite an initial period of bipartisan hopefulness, the budget process seems to have reverted to the usual trench warfare.