White House Sees No New Inflation Threat In CPI Jump - April 12, 1996
Economists Propose Changes In Inflation Index
WASHINGTON (AllPolitics, Dec. 4) -- A panel of economists recommended changes in the way the federal government calculates the annual inflation rate, saying the current Consumer Price Index exaggerates the rate of inflation by 1.1 percent annually.
A new calculation could have a dramatic impact on reducing the federal deficit and determining Social Security benefits, retirement benefits and tax brackets, all tied to changes in the inflation index.
An adjusted index could mean slightly smaller annual increases in Social Security benefits and slightly higher income taxes, due to a slower indexing of tax brackets. The deficit would be lowered by reducing entitlement outlays and increasing tax revenues.
The five-member commission on the Consumer Price Index, which made the recommendations, offered them to the Senate Finance Committee. The commission is chaired by Michael Boskin of Stanford University, who was chairman of the Council of Economic Advisers in the Bush Administration.
CPI is currently calculated by the Bureau of Labor Statistics based on a basket of commodities and services. The bureau says it has itself eliminated "formula biases" in the CPI system, resulting in a reduction of the index by 0.24 percent over the past year.
Last year, a budget proposal by Senate moderates called for a 0.5 percent adjustment in the CPI. The Clinton Administration did not support the measure and it failed to pass, but got 46 votes in the Senate.
Both Republicans and Democrats have indicated a willingness to consider the panel's revisions, though Treasury Secretary Robert Rubin said the White House would not support any reductions that were not recommended by the Bureau of Labor Statistics.
Rubin said the CPI is an "imperfect measure of inflation. What we need to do now is to make sure that all of us approach this in a technical, scientific fashion."
Senator Daniel Moynihan (D-N.Y.), an advocate of changing the price index, says a new method of calculating the effect of inflation could reduce the federal debt by $1 trillion over 10 years.
After Social Security became a highly politicized issue during the campaign, Senate Majority Leader Trent Lott (R-Miss.) warned that the president must make the first move. "We probably would not do it alone," Lott said. "I think it's something we need to do together if it's going to be done."
Lott also said that it was unlikely the GOP would back any changes unless the White House agrees to adjust the benefit checks for retirees.
Administration officials say they do not expect to factor a reduced CPI into their budget calculations for Fiscal Year 1998. Officials say they are too far along in preparing next year's budget to be presented in February, but "shouldn't completely shut the door" to a CPI change if that becomes part of the budget negotiation with Congress.
CNN's Charles Bierbauer contributed to this report.