
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: TUESDAY, March 14, 1995                   TAG: 9503140129
SECTION: BUSINESS                    PAGE: B5   EDITION: METRO 
SOURCE: ASSOCIATED PRESS
DATELINE: WASHINGTON                                 LENGTH: Medium

COST-OF-LIVING RISE MAY BE REFIGURED

Federal Reserve Chairman Alan Greenspan's proposal for revising how the government adjusts Social Security and other programs for the cost of living gained support from outside experts Monday, but not from lawmakers.

Senate Finance Committee Chairman Bob Packwood, R-Ore., was noncommittal about whether his panel would consider Greenspan's suggestion to create a politically independent cost-of-living commission.

``I think it would be premature'' to say, Packwood said. ``I'm not going to make any judgments until I see all the parts of a possible [budget] package.''

Other senators on the committee praised Greenspan for raising the issue, but none embraced his plan to create a commission to judge annually how close the Labor Department's Consumer Price Index comes to measuring the cost of living. Social Security, federal pensions, tax brackets and exemptions would then be adjusted based on the commission's judgment rather than on what the CPI says.

However, both Congressional Budget Office Director June E. O'Neill and economist Robert J. Gordon of Northwestern University in Evanston, Ill., told the committee that Greenspan was on the mark.

Early this year, Greenspan touched off a political storm by saying the index overstates inflation by as much as 1.5 percentage points annually. Gordon estimated the overstatement at 1.7 percentage points a year, while the Congressional Budget Office said it is up to 0.8 of a percentage point.

Greenspan also said the CPI understates, by about 0.2 of a percentage point, the cost of living for the elderly, who spend the most on health care. He suggested a special price index be created for the elderly.

Greenspan says the overall CPI is biased upward by a number of factors. It does not fully account for improvements in quality in goods and services. Medical care and automobiles, for instance, are more expensive but much better than 20 years ago.

It also doesn't capture product switching (consumers buying more chicken when the price of beef increases) and the trend toward shopping at wholesale and discount outlets. Nor does it always account for rapid price drops after new products are introduced.

Democrats have denounced the proposal as a back-door way to cut Social Security benefits and raise taxes.

by CNB