Chained CPI: Time for a Grown-Up Conversation

by John Lawrence

The budget that President Obama will send to Capitol Hill later this week has only the slimmest relevance to the actual spending plan for the next year.  The House and Senate have their own budget resolutions, which will never be reconciled and wouldn’t be sent to the President if they were.  The appropriations process and, likely, sequestration, will govern spending for Fiscal 2014.

 

The Obama budget appears to be the latest example of the ever-hopeful President who is determined to include congressional Republicans in an  elusive “grand bargain” to reduce long-term budget deficits.  As with many Obama initiatives, Hill denizens and other observers are again wondering about the President’s strategic game plan in light of past Republican obstinance.

 

As with the 2009 stimulus bill, the health care bill, the 2011 debt ceiling debacle and numerous other unhappy experiences, the White House seems still to hold out hopes that Republicans will engage in sincere, bipartisan negotiations. Once again, the Obama budget leads with its chin, offering up an enormous concession to demonstrate the Administration’s sincerity to Republicans while immediately infuriating Democratic allies: chained CPI.

 

The President has made little secret of his willingness to reconsider the inflation rate by which entitlement and tax policies are determined, the exhaustively discussed “chained CPI.”  During the ill-fated July 2011 Obama-Boehner debt ceiling summit, chained CPI was put in play by the White House but proved insufficient to entice the revenue-phobic Republican Speaker into finalizing an eminently achievable deal that would have cut long term deficit projections by $4 trillion. 

 

Now, in the midst of dinner diplomacy with Hill Republicans, the President will again formally serve up chained CPI, this time evidently without having secured any Republican concession or even a commitment to join him at the table.  Many seasoned Hill veterans predict the President will be left at the altar once again, while Republicans gleefully force floor votes on chained CPI, reminding Members that “the Administration has already agreed to it.”

 

Whether due to naiveté (a little hard to believe), a genuine belief that Republicans can overcome their reflexive dislike of him (ditto), or a scheme to document GOP inflexibility (hardly necessary), Obama is trying yet again to make inroads with hostile congressional Republicans. Press spokesman Jay Carney referred to “the potential members of the common-sense [Republican] caucus” in describing the President’s outreach, but many on the Hill doubt any such Caucus exists or is likely to emerge around tax and deficit issues.  Instead, Democratic strategists are wary that the President has again put a major give on the table prematurely, and they fear he may agree to minor Republicans concessions s to secure a bipartisan agreement.

 

Congressional Republicans rejected the President’s major concession even before the budget arrived.  The chained CPI plan, snorted a key Republican staff, was “more disingenuous posturing … [that] doesn’t address the core structural problems.”  President Obama’s effort to find a budgetary lifeboat into which everyone could clamber was dismissed as “rearranging deck chairs on the Titanic.”  Senate Republican Leader Mitch McConnell prefers more sweeping reforms, like raising the eligibility age for Social Security and Medicare benefits.  Try that one out at a town hall meeting and see if it generates Public Option-like hysteria.

 

Many Democrats have much the same reaction to chained CPI.   Already, 107 House Democrats have signed letters ruling out cuts in Social Security, Medicare, or Medicaid benefits as part of a deficit deal, which of course means there is no chance of their supporting any deal that could conceivably be fashioned.  Similarly, more than half the Democrats in the Senate, including Leader Harry Reid, sent a letter to their colleagues pledging their vote against Social Security cuts “for current or future beneficiaries.”  If President Obama has a plan for passing chained CPI notwithstanding Sen. Reid’s stated opposition, it must be an extraordinary strategy.

 

Democratic Leader Nancy Pelosi (full disclosure: my former employer) has long taken a more tempered response to chained CPI, if it were designed in a way to reduce the impact on the poor.  That openness puts the former Speaker in a very different position from some in  her Caucus and leadership, not to mention Reid and many progressive groups that are threatening war with any Democrats who support chained CPI.  But Pelosi has always offered to put “everything on the table” for discussion in budget talks.  

Chained CPI does deserve a serious look, especially were its impacts on lower income Americans mitigated and were it extended to cover tax policy affecting upper income taxpayers.  It is one thing to propose policies, as do House Republicans, that undercut the essential nature of programs like Social Security or Medicare – policies like George W. Bush’s privatization proposal for Social Security, or Budget Chairman Paul Ryan’s voucher plan for Medicare, or general Republican ideas to slash Medicaid spending.  Traditional supporters of these key programs, which have so dramatically reduced poverty among seniors and improved health care for hundreds of millions of Americans, are right to rule out unproven Republican alternatives.   

But to defend as sacrosanct an outdated inflation formula has a somewhat less noble ring to it.  True, chained CPI would slightly reduce benefits (although, as noted, that impact on the poor can and should be mitigated).  But is it truly pragmatic to oppose the adjustment if the current version reflects an inaccurate methodology for assessing inflation?  Is that standing up for these vital programs, or defending a costly benefit computation notwithstanding development of a more accurate calculation, and despite serious impacts on essential programs that follow the failure to find a budget deal?

 

Small changes to the CPI calculation yield truly sizeable savings that, combined with other common sense initiatives, should be in a deficit package (raising the Social Security earnings cap, for example).  These savings could neutralize the need for additional painful sequestration cuts.  According to the Congressional Budget Office, applying chained CPI to Social Security would save over $127 billion in the next decade.  If the same formula were applied to tax policy, another $124 billion would be saved.  That’s a quarter trillion dollars from a mathematical recalculation that, in truth, would barely be noticed by most beneficiaries, especially since benefits would continue to rise, albeit at a slightly slower rate. 

 

OK, yes, seniors would have to give a bit.  Is that worth it to reduce pressure to cut Head Start, or education, or student loans, or services for special needs kids?  Or other programs that serve seniors, for that matter?  More directly, if no changes are to be made in entitlements, then Republicans are never going to agree on tax changes, and that means no budget/deficit deal and perhaps a decade of sequestration, which achieves savings by cutting the domestic programs that progressives are committed to preserving. 

 

What could be compromised in agreeing to chained CPI would be the Democratic high ground, the ability to assert (as Democrats have so effectively done) that they alone stand as the last barricade against Republican plans to destroy Social Security, Medicare and Medicaid.  Democrats certainly remember it was W’s ill-conceived privatization plan that fueled their momentum in 2005-2006 for regaining control of the House.  But Democrats have all the ammunition they will ever need to prove decisively that Republicans are gunning to end these sacrosanct programs, not  “reform” them.  And chained CPI does not “destroy” these programs. 

 

The real question is whether there is sufficient interest in a comprehensive budget deficit deal to turn off sequestration and address long term deficits in a balanced way.  If there is, and that is very much an open question, then chained CPI is one of the more reasonable and defensible entitlement changes that could facilitate a grand bargain together with additional revenues and cautious cuts in discretionary spending, which already has sacrificed the most in the running budget battle.

 April 8, 2013

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