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

DATE: FRIDAY, October 13, 1995                   TAG: 9510130054
SECTION: BUSINESS                    PAGE: B-8   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

ENJOY THAT INCREASE: BENEFITS UNDER ATTACK

Millions of Americans today learn how much their Social Security checks are going up. But future increases are in doubt: The annual inflation adjustment is under attack from powerful lawmakers.

September's consumer price index, which the Labor Department will release this morning, is the basis for several government economic shifts, including the cost-of-living adjustment for Social Security benefits effective in January.

Those pushing for change, including Senate Majority Leader Bob Dole, House Speaker Newt Gingrich and Sen. Daniel Patrick Moynihan, D-N.Y., have termed it a technical readjustment to remove an upward bias in the CPI.

Opponents contend that politicians are latching onto the CPI adjustment as a backdoor way to cut Social Security and increase taxes, something that both Republicans and Democrats have pledged not to do.

Moynihan has called for benefit increases such as Social Security to be limited to 1 percentage point below the CPI rate.

If Moynihan's position prevails in this year's budget debate, it could mean around $7 less per month for the average Social Security recipient next year. That would mean the average monthly benefit check of $702 would rise by $11 instead of around $18.

The lure of Moynihan's proposal is that it holds out the prospect of huge savings - $281 billion over seven years. That would be equal to one-third of the $894 billion the Republicans need to achieve their goal of a balanced budget by 2002.

The small adjustment can lead to such big numbers because nearly 30 percent of all federal outlays are tied to changes in the Consumer Price Index. The biggest savings would come from adjusting payments to the 43 million Americans receiving Social Security. But the CPI is also used to adjust federal welfare and pension payments.

Katharine G. Abraham, the head of the Bureau of Labor Statistics, which is responsible for the CPI, concedes that the price measurement should not be considered a true ``cost of living index.''

Instead, it is a measurement of the average change in prices paid by urban consumers for a fixed market basket of goods.

Every month, the government dispatches price checkers to 21,000 businesses located in 85 areas nationwide to gather 80,000 price quotations.

The main trouble, economists say, is that the prices being checked and the weight given to each as part of the typical consumer's budget are based on buying patterns established in 1982 through 1984, more than a decade ago.

Because of the expense involved, the government will not update this base period again until 1998. That means the CPI cannot measure such important changes in buying patterns as consumers switching to lower-cost brands or spending more at discount outlets.

While all economists agree this ``substitution'' bias occurs, the debate is over how much it causes the CPI to overstate inflation.

by CNB