IMPACT ON SOCIAL SECURITY
BENEFITS OF PROPOSED CPI CUT

On January 30, Federal Reserve Chairman Alan Greenspan called for an adjustment to the Consumer Price Index to correct what he believes is a l.l% overstatement. According to David Langer Company, Inc., consulting actuaries, the impact of such an adjustment on Social Security benefits would be as follows:

Assuming a current annual benefit of $10,000 to a recipient and an annual CPI rate of 4%, corrected to 2.9% as Mr. Greenspan recommends, the benefit will be lowered in the year 2007 from $14,802 to $13,309, a drop of $1,493 (10%). By 2017, the accumulated reduction will be $4,198 (19%) and, in 2027, $8,858 (27%). For a normal life expectancy, the average annual reduction will be 10%.

David Langer Company has
extrapolated the effect as follows: Total benefits for the 44 million Social Security beneficiaries in 1997 are expected to be $365 billion; a 1.1 % CPI reduction will therefore amount to $4 billion. In 2007, benefits will increase with the growth in the number of recipients and 4% inflation to about $639 billion, and the cutback for the 1997 beneficiaries and new beneficiaries will be about $38 billion; greater cutbacks will follow each year thereafter.

In the opinion of the Langer company, a correction to the CPI can therefore result in a substantial redistribution of income away from Social Security recipients. It would also create a politically favored reduction in the Federal deficit and the projected Social Security imbalance. The need for totally impartial experts to make the determination of any correction is thus paramount. *