NCPA - National Center for Policy Analysis

Fixing The CPI: Winners And Losers

December 5, 1996

They may call economics "the dismal science," but debate over fixing the Consumer Price Index promises to be lively since there will be big winners and losers.

Who stands to win?

  • A correction of 1.1 percentage points downward in the CPI could save federal taxpayers $64.4 billion a year by 2006 because of reduced benefits payments.
  • The federal budget could be reduced by $148 billion by 2006 and the debt cut by $691 billion in the same period.
  • Investors could benefit by an interest rate drop of 1 to 2 percentage points and borrowers would probably find lower interest rates on mortgage, credit card and auto loans.
  • State and local governments would have to pay out less in benefit payments.

Here are some of the potential losers:

  • Workers whose employers peg wage increases to moves in the CPI.
  • Social Security and other government aid recipients would receive smaller annual cost-of-living increases.
  • Since tax rates are indexed to the CPI, taxpayers might find a reduction in the CPI rate disadvantageous.

A great many economists support the need to revise the CPI and political analysts say that it can be done if handled in a nonpartisan fashion. Proponents of limiting government spending look upon the whole issue as a once-in-a-lifetime opportunity not to be missed.

Source: Beth Belton and William M. Welch, "Fixing the CPI: The Impact," USA Today, December 5, 1996.


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