Committee for a Responsible Federal Budget

Ways and Means Begins Work on Entitlement Reform

Jul 12, 2013

Just as they have for tax reform, the House Ways and Means Committee has begun organizing and pressing forward on entitlement reforms, starting with a discussion draft of a proposal to switch to the chained CPI. As with all of their discussion drafts, they are allowing for public comment, in this case until August 10. The draft is a welcome entrance into the debate about how to implement the chained CPI.

Switching to the chained CPI would better achieve the federal government's goal of accurately measuring inflation by better incorporating consumer preferences as the relative prices of goods change. It also is a positive for the budget, saving $340 billion over ten years. Our resource page provides more information.

The discussion draft includes a switch to the chained CPI for Social Security cost-of-living adjustments (COLAs) only, so it does not include provisions in the tax code and other mandatory programs. Ideally, a final proposal would extend to these areas as well.

In addition to the adjustment, the draft includes options for three different old-age benefit bump-ups to mitigate the effect of the chained CPI for older, more vulnerable beneficiaries. The bump-ups are from the President's budget, the Simpson-Bowles plan, and the Domenici-Rivlin plan. They are as follows:

  • President's budget: The President's bump-up starts the earliest and is the most gradual of the three. People in their 15th year on the program or reaching age 76 get a bump-up equal to 5 percent of the average retiree's benefit, phased in over ten years. Ten years after that bump-up fully phases in, the retiree is eligible for a second bump-up.
  • Simpson-Bowles: The Simpson-Bowles plan includes a five-year bump-up equal to five percent of the benefit received by a worker with average earnings. The bump-up starts after a person has been receiving benefits for 20 years.
  • Domenici-Rivlin: The Domenici-Rivlin plan is similar to Simpson-Bowles in that the bump-up is over five years and equals five percent of the average retiree benefit, but it starts at age 81.

The proposal demonstrates a few ways that the switch can protect the most vulnerable, though there are others as well. We applaud their effort to move the process forward and look forward to seeing what else they release.