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INSIGHT | VIEW FROM WASHINGTON / ROBERT A. ROSENBLATT

CPI Squabble Diverts Attention From Real Issues

March 30, 1997|ROBERT A. ROSENBLATT

What is it worth to you to balance the federal budget and add another 20 years of financial stability to the endangered Social Security system?

The price to a typical 65-year-old widow would be $3,900 in reduced Social Security benefits between now and 2005, a 9% decrease in benefits. For a middle-income family with two children, the price would be $1,400 in higher federal taxes, an income loss of 0.7%.

These are the hard numbers that our national political leaders, namely the president and Congress, should be putting before the voters. But the Washington players won't talk in clear terms. Instead, they are spouting confusion the way a frightened squid spouts ink. All the talk is about building a better consumer price index, the rough yardstick with which to measure inflation.

The annual cost-of-living increase for 42 million Social Security beneficiaries is linked to changes in the CPI. Civil service and military pensions are pegged to the index, along with federal poverty guidelines, which set eligibility for food stamps, Head Start and special nutrition programs.

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For everyone who pays federal taxes, the tax brackets and personal exemptions are adjusted each year as the CPI changes. And the CPI is also a potent figure in the private sector because millions of workers with union contracts have wages connected to it. Some landlords change their rents, and many divorce settlements adjust alimony and child support, when the new CPI numbers come out.

Everyone agrees the CPI probably overstates inflation. It measures changes each month in the cost of a market basket of goods and services purchased by urban consumers.

But the market basket today is based on buying patterns that existed between 1982 and 1984. The problem with that is that Americans eat more chicken and fish than they did a decade ago. They also go to the movies less and rent more videotapes. A new update, reflecting the way consumers behaved between 1993 and 1995, won't be ready until next year.

The CPI also does a poor job of measuring changes in quality. Computers are faster and cheaper now than in 1982, cars last longer, and CD players give better sound than tape decks.

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A special expert commission, headed by Stanford University economist Michael Boskin, estimated that the CPI overstates inflation by 1.1 percentage points a year.

Suddenly, everyone in Washington discovered the need to develop a better CPI. It may be the key to a balanced-budget deal between President Clinton and the Republican majorities in Congress. Just find a way to lop off the 1.1 percentage points recommended by the Boskin group, and budget heaven would be here.

Applying the Boskin formula would produce a staggering $1 trillion--that's right, $1 trillion--over the next 12 years. This would come in the form of reduced Social Security payments and increased federal tax revenues.

The federal budget would be balanced, and the Social Security trust fund, now expected to run short of funds in 2029, would have solvency assured until 2052.

With both the president and the Republican chieftains in Congress swearing their devotion to a balanced budget, the idea of a CPI fix was seductive. Leaks, trial balloons and proposals have been floating through Washington all year about the possibility of picking another commission or panel to come up with an improved CPI.

It looks painless on the surface. Get a commission to offer the new CPI and suddenly the budget is fixed and Social Security is rescued for another generation.

But "there is no Santa Claus here; the trillion dollars has to come from somewhere," says blunt-speaking Rep. Jim Saxton (R-N.J.), one of the handful of members of Congress who discusses the issue without obfuscation.

Change the CPI to pick up that huge pot of money and you change the lives of millions of people: smaller monthly checks for Social Security recipients and a tax boost on every family. This is the message Saxton delivers at virtually every hearing of Congress' joint economic committee, of which he is chairman.

Lamentably, Saxton is one of the few voices of honesty these days. The president and Congress should join him, come out from behind the shelter of the CPI debate and forget appointing yet another commission to get bogged down in the arcana of gathering statistics.

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If the goal of a balanced budget is worth some sacrifice, let them tell the American people the truth. If Social Security can be extended, but by giving each recipient less than expected, let the arguments begin.

The annual change in benefits and tax brackets could be the CPI minus 0.5%, or 1%, or whatever Congress and the president believe they need to balance the budget and save Social Security. You don't need a commission to do that. All it takes is a change of a few words in federal law.

But our political leaders are dithering instead of acting.

The voters deserve better from the White House and Congress. Let's have less talk about the CPI and more debate over how much we want to balance the budget, and what we are willing to pay for it.

Robert A. Rosenblatt is a business writer in The Times' Washington bureau covering health, aging and financial issues. His e-mail address is bob.rosenblatt@latimes.com

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