Cut, Cap And Balance Bill: Latest Republican Plan Could Lead To Debt Ceiling Compromise

Obama is proposing cutting Social Security and Medicare:

Two weeks ago, that first assumption proved true: Democrats proposed a few hundred billion in new tax revenues (a small fraction of the trillions of dollars in spending cuts Republican­s are demanding) so GOP principals threw up their hands and abandoned the discussion­s. But the second assumption isn't built on bedrock. And in recent weeks, congressio­nal aides, strategist­s, and advocates have been floating, or warning of, a stealth change to the Social Security benefit structure that has quietly been placed on the negotiatin­g table.

The proposal wouldn't just impact Social Security benefits. It would also shave off yearly increases in federal pension payouts, and result in somewhat higher tax revenues. But the ratio would be skewed toward benefit cuts by a factor of about 2-to-1 and would represent a financial hit to even the poorest retirees unless they were exempted.

The idea is to change the way Cost of Living Adjustment­s (COLAs) are calculated across the federal government­. Currently, the COLAs for tax brackets, pensions, and Social Security are tied to different measures of the Consumer Price Index (CPI).

Because spending habits change when living costs increase, some experts think these measures are too generous, and want to change all of the COLAs to a different, smaller measure of inflation: the so-called "chained-C­PI."

On the tax side, this would likely draw more revenue: Tax brackets would rise more slowly than incomes, so people would get kicked into higher brackets more quickly and, voila, more income subject to taxation.

But on the benefits side, this means money out of people's pockets, even current retirees and pensioners­. Responding to a letter of concern from House Democrats' top Social Security guy the program's chief actuary explained that moving to "chained-C­PI" would constitute an immediate 0.3 percent benefit cut. That may sound small, but the effects would compound, and "[a]dditio­nal annual COLAs thereafter would accumulate to larger total reductions in expected scheduled benefit levels of about 3.7 percent, 6.5 percent, and 9.2 percent for retirees at ages 75, 85, and 95, respective­ly."

Read the Article at HuffingtonPost