The Effect of Modest Adjustments to the CPI
March 19, 1997
Given the political foot-dragging on correcting the flawed Consumer Price Index, a proposal is being made to correct the inflation index by 0.5 percentage point. While the index is thought to overstate inflation by an amount somewhere between 0.8 percent and 1.6 percent, with 1.1 percentage points usually cited, neither major political party wants to take the blame for limiting increases in Social Security checks or increasing taxes -- which would be the result of an honest correction.
An immediate correction of one-half of a percentage point would, however, have very little effect on Social Security and taxes, but a substantially positive impact on the federal budget.
- Those receiving $745 per month from Social Security last year would get $765, rather than $768 -- only a $3 difference.
- After 10 years, the monthly benefit would be $1,020, rather than $1,070.
- If the income tax's personal exemption and other tax provisions were adjusted by 0.5 percent, the cumulative tax increase would be less than one percent after a decade, according to the Congressional Budget Office.
- But by 2005, the federal budget deficit would be trimmed by $51 billion -- or one-fifth of what it is projected to be.
Source: Robert J. Samuelson, "A Cautious Compromise," Washington Post, March 19, 1997.
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