Why Obama Is Playing With Fire By Targeting Social Security

Social Security isn't known as the "third rail" of American politics for nothing. Touch it, as President Obama is threatening in proposing to reduce federal spending by $4 trillion over the next decade, and you're likely to get fried.

That's why the White House is either very desperate in putting retirement benefits on the table in the debt-ceiling talks or very shrewd. Desperate because Republicans are nuttily -- uh, I mean, "strongly" -- opposed to raising taxes to dig the U.S. out of its fiscal hole. Shrewd because curbing Social Security payments may be politically impossible, allowing Obama to outflank the Republicans on deficit-reduction by offering cuts that have no chance of actually being made.

To that end, the President seems to be both signaling his willingness to look at the program (translation: See how fiscally responsible I am?) while also denying that Social Security is really on the chopping block (translation: See how much I love seniors?)

Chaining the CPI
But let's say Social Security is in the mix -- how might it change? One idea that's gotten a lot of ink is the government shifting to a "chained Consumer Price Index" in calculating how much retirees get every month. Currently, those payments are indexed to inflation. When the cost of living rises, so do Social Security payments.

Trouble is (and for reasons that soon get eye-glazingly eye-glazing), the current measure of CPI isn't very accurate. Critics say it overstates inflation, which results in a higher annual cost of living adjustment, or COLA, under Social Security than economic conditions warrant. Moving to a chained CPI, as Obama's deficit commission favors, would save $300 billion over the next decade.

With me so far? (If so, I almost pity you.) Still, the basic idea is simple. Using the chained CPI means Social Security benefits would grow more slowly. Indeed, whatever assurances the White House would like to make about Social Security being sacred, the fact is that COLA reductions would shrink that monthly check. And not by a little, either. Writes healthcare expert Richard (RJ) Eskow:

The average retired woman receives $890 in Social Security benefits, so the "chained CPI" cut would slash her benefits by almost $500 by the time she's 80. Here's how the cuts work out overall: By the age of 75, benefits would be cut by nearly 4 percent. By 85 that figure would be 6.5 percent and by 95 it would be 9 percent. It gets much worse for younger people, because the effect is cumulative.

Besides, proposals to cut Social Security must be seen in context of what appears to be off the table in the debt-ceiling talks. Things like raising taxes on billionaires or charging financial firms a fee for writing mounds of credit default swaps. Why ask seniors to sacrifice and not, say, your average hedge fund baron? Why should the budget be balanced on the backs of retirees by focusing on spending cuts when what the government really needs is to generate revenue?

Political "realities" shouldn't take precedence over the economic realities people face every day. If they do, zap goes that third rail.

Related:

• Why Raising the Retirement Age Is a Lousy Idea
• Wake Up, America: Spending and Tax Cuts Won't Save the Economy
• How the Deficit Commission Is Threatening Your Retirement
• Scorched Earth: What the U.S. Can learn From Deficit-Reduction in the U.K. and Germany
• Dueling Deficit Plans Ignore That We Need Federal Spending