Lower-income retirees would lose larger proportions of Social Security than wealthy ones if Congress changes its inflation index, a U.S. non-profit says.
The Center for Economic and Policy Research said during the debate over federal budget deficits several politicians have proposed to change the formulas that determine inflation for Social Security and other government programs.
Switching to the Chained CPI would help the federal government save money by slowing increases in benefits -- yearly cost of living increases -- and raising additional tax revenue.
For example, if the switch to the Chained CPI had been made in 2001 -- and put into effect in 2002, when the average annual benefit for beneficiaries age 65 and older was less than $15,000 -- by 2012 the retiree would get a cut each year of about $650 by age 75 and a cut of roughly $1,130 each year at age 85.
Over time, changing to the Chained CPI would result in significant cuts to Social Security benefits: a cut of roughly 3 percent after 10 years, about 6 percent after 20 years, and close to 9 percent after 30 years. In addition, lower-income retirees would lose much larger proportions of their income than wealthy ones.
Congress' Joint Committee on Taxation determined if individual income taxes were indexed to the Chained CPI starting in January 2013, by 2021, 69 percent of the gains in revenue would come from taxpayers with incomes below $100,000, while those in the highest income brackets would barely be affected.
For example, workers with incomes between $10,000 and $20,000 would experience an increased tax burden of 14.5 percent, while those with incomes over $1,000,000 would just see an increase of 0.1 percent.
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