NCPA - National Center for Policy Analysis

CPI's Effect on the Deficit

December 31, 1996

Cutting the Consumer Price Index by 1.1 percent -- as economist Michael Boskin's advisory panel recommends to make up for an overstatement of inflation -- would have a considerable impact on the federal deficit.

Here are some projections from the Congressional Budget Office:

  • If we do nothing in the way of adjusting the CPI, the deficit in the 1997 fiscal year would be about $169 billion -- versus $141 billion under the Clinton budget with a 1.1 percent COLA reduction.
  • By 2000, an unadjusted budget would rack up a $193 billion deficit -- compared to $63 billion with the COLA adjustment.
  • By the year 2002, the unadjusted figure would be $150 billion -- versus a $71 billion surplus if adjusted.

Beyond the budgetary effects, the new CPI would rewrite recent economic history, experts say. The conventional wisdom holds that real income for the average American worker peaked in 1973. Boskin's data show a 13 percent rise in hourly earnings since then -- with most of the rise occurring between 1981 and 1989, when Ronald Reagan was president.

Source: Ed Rubenstein, "Right Data," National Review, December 31, 1996.

 

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