from Renewing America

Chained CPI's Diminishing Returns for U.S. Budget

April 9, 2013

Blog Post
Blog posts represent the views of CFR fellows and staff and not those of CFR, which takes no institutional positions.

On Wednesday, President Obama will send his proposed budget to Capitol Hill. While it includes many ideas floated in the president’s previous budget plans, it proposes a switch to an inflation formula intended to reduce cost-of-living payments to Social Security beneficiaries, known as the chained Consumer Price Index (CPI), which has excited some deficit hawks and worried some Social Security defenders.

However, CFR Adjunct Senior Fellow and former director of the Congressional Budget Office Peter Orszag writes that the impact of switching indexes would not be as significant as many assume. While switching to the chained CPI is projected to curb some costs near future, its money-saving returns are diminishing. “The change may still be a good idea, but it probably won’t matter as much as expected,” Orzag writes in this article for Bloomberg.