Tuesday, November 8, 2011

Proposal to Adopt a New CPI Formula Gains Momentum in Congressional Supercommittee

The Obama administration is pushing for a new and improved CPI called the Chained Consumer Price Index- which takes into greater account consumers' reaction to price increases (such as changing from filet mignon to ramen noodles as a filet now costs $75, and from keeping their house heated at 76 degrees to sleeping in the locker room at the 24 hour fitness) .

In other news, we are happy to report there has been no net price increase in gold since 1999, as investors are now purchasing the less expensive alternatives of silver and copper in greater quantities.

The proposal to adopt a new Consumer Price Index was floated by the Obama administration during deficit reduction talks in the summer. Now, it is one of the few options supported by both Democratic and Republican members of a joint supercommittee in Congress working to reduce government borrowing.

If adopted across the government, the inflation measure would have widespread ramifications. Future increases in veterans' benefits and pensions for federal workers and military personnel would be smaller. And over time, fewer people would qualify for Medicaid, Head Start, food stamps, school lunch programs and home heating assistance than under the current measure.
Taxes would go up by $60 billion over the next decade because annual adjustments to the tax brackets would be smaller, resulting in more people jumping into higher tax brackets because their wages rose faster than the new inflation measure. Annual increases in the standard deduction and personal exemptions would become smaller.
Despite fierce opposition from seniors groups, the proposal is gaining momentum in part because it would let policymakers gradually cut benefits and increase taxes in a way that might not be readily apparent to most Americans. Changes at first would be small -- the Social Security increase would be cut by just a few dollars in the first year.
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