December, 13 2012, 02:37pm EDT

Chained CPI Cuts Social Security Benefits while Raising Taxes on Lower- and Middle-Income Workers
A leading deficit reduction proposal is to "tweak" the official inflation measure used to annually adjust Social Security benefits, other government programs, and income tax brackets.
WASHINGTON
A leading deficit reduction proposal is to "tweak" the official inflation measure used to annually adjust Social Security benefits, other government programs, and income tax brackets.
Proponents of this proposal argue that a relatively new inflation measure, the Chained CPI, is more accurate than the current index and the decrease in benefits to the programs affected would be balanced by increased tax revenue from the wealthy. A new issue brief from the Center for Economic and Policy Research (CEPR) examines these issues and finds the opposite to be true.
The issue brief, "The Chained CPI: A Painful Cut in Social Security Benefits and a Stealth Tax Hike," points out that switching to the Chained CPI would result in cuts to already modest Social Security benefits. As well, the Chained CPI is likely not an accurate measure of the inflation rate seen by seniors. Finally, the brief shows that the Chained CPI would result in a proportionately larger increase in income taxes for lower- and middle-income Americans than for those in the top tax brackets.
As a measure of inflation, the Chained CPI has shown a rate of inflation 0.3 percentage points lower than the current index used to calculate Social Security annual cost-of-living adjustments. This slower rate would add up over time: 10 years after switching to the Chained CPI, Social Security benefits would be 3 percent less; after 20 years there would be a 6 percent cut; and after 30 years the cut would be 9 percent. The change to the Chained CPI would also cut benefits for veterans, low-income children, people with disabilities and many others who rely on government programs.
Since seniors' expenses differ from those of the general population, the Chained CPI is not a more accurate measure of inflation for retirees, as is often claimed by proponents of switching indexes. An experimental elderly index constructed by the Bureau of Labor Statistics tracks seniors' actual costs and shows a more rapid rate of inflation than the currently-used index. A main factor is that seniors spend significantly more on housing and medical care, whose costs are rising faster than those of other goods and services.
"The Bureau of Labor Statistics' experimental elderly index more accurately tracks the consumption patterns of the elderly, and it shows that inflation for seniors is actually higher, not lower, than the current measure," said Nicole Woo, Director of Domestic Policy at CEPR. "If accuracy is indeed a concern, the BLS could construct a full elderly index for annual Social Security cost-of-living adjustments."
The argument that a reduction in benefits would be offset by an increase in tax revenue from high-income earners also falls short. Switching to the Chained CPI to adjust annual income tax brackets would lead to incomes jumping to higher brackets faster, or in other words, tax increases. Congress' non-partisan Joint Committee on Taxation showed that if income taxes were indexed to the Chained CPI starting in January of 2013, by 2021, 69 percent of the gains in revenue would come from taxpayers with incomes below $100,000. Those taxpayers with incomes between $10,000 and $20,000 would see an increased tax burden of 14.5 percent while those with incomes over $1,000,000 would only see their taxes go up by 0.1 percent.
The Center for Economic and Policy Research (CEPR) was established in 1999 to promote democratic debate on the most important economic and social issues that affect people's lives. In order for citizens to effectively exercise their voices in a democracy, they should be informed about the problems and choices that they face. CEPR is committed to presenting issues in an accurate and understandable manner, so that the public is better prepared to choose among the various policy options.
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"This decision effectively rubber-stamps continued Big Pharma abuse," said one Democratic lawmaker.
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Patient advocates on Tuesday blasted the Biden administration's refusal to compel the manufacturer of a lifesaving prostate cancer drug developed completely with public funds to lower its nearly $190,000 annual price tag.
In 2021, prostate cancer patient Eric Sawyer petitioned U.S. Health and Human Services (HHS) Secretary Xavier Becerra to grant march-in rights—under which the government can grant patent licenses to companies other than a drug's manufacturer—for enzalutamide, which is sold under the brand name Xtandi by Pfizer and Japanese pharmaceutical giant Astellas.
The drug's development was 100% taxpayer-funded. Yet a one-year supply of Xtandi currently costs $189,800 in the United States, or up to five times more than its price in other countries.
HHS' National Institutes of Health (NIH) said Tuesday that it "does not believe that use of the march-in authority would be an effective means of lowering the price of the drug."
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Rep. Lloyd Doggett (D-Texas), the ranking member of the House Ways and Means Health Subcommittee, said in a statement:
Today's decision is a blow to prostate cancer patients, their families, and taxpayers. Developed with U.S. taxpayer research dollars, Xtandi costs American patients $180,000 a year—as much as six times as much as patients in other countries. This excessive price gouging cost taxpayers $2 billion to cover Medicare beneficiaries' treatment in 2020 alone. The Biden administration has missed yet another opportunity to do something meaningful to lower prescription drug costs and protect taxpayer investments.
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Tax avoidance through grantor trusts starts with the ultrawealthy putting assets into a trust with the intention of transferring them to heirs. Grantor trusts are trusts where the grantor retains control over the assets, and the structures of some of these grantor trusts allow the transfer of massive sums tax-free. Tax planning via grantor trusts, including grantor retained annuity trusts (GRATs), is a kind of shell game, with a wealthy person and their wealth managers able to pass assets back and forth in ways that effectively pass wealth to heirs while minimizing tax liability.
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Biden's Department of Labor (DOL) says in a complaint filed against Advanced Care Staffing (ACS) and CEO Sam Klein in the U.S. District Court for the Eastern District of New York that "in flagrant disregard" of the Fair Labor Standards Act (FLSA), the company "has entered into contracts purporting to require employees to complete at least three years of full-time work for ACS in order to retain their wages."
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Under Vidal's contract, Advanced Care Staffing could sue him in arbitration for damages if he quit within three years of starting work—and make him pay the legal costs, according to the complaint in federal court in Brooklyn. The conditions were so onerous that they violate human trafficking laws meant to protect people from being exploited for labor, Vidal said.
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Advanced Care Staffing did not immediately respond to an inquiry. The company has placed thousands of employees at facilities in New York and surrounding states, according to its website.
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