ROANOKE TIMES 
                      Copyright (c) 1996, Roanoke Times

DATE: Thursday, December 5, 1996             TAG: 9612050030
SECTION: BUSINESS                 PAGE: B-5  EDITION: METRO 
DATELINE: WASHINGTON
SOURCE: Associated Press

PLAN COULD COST TAXPAYERS, ELDERLY

The government overstates inflation, an advisory panel concluded Wednesday, proposing changes that could shave billions from the deficit but raise taxes for millions of Americans and cost Social Security recipients a chunk of their annual increase.

The panel said the Consumer Price Index exaggerates inflation by 1.1 percentage points annually and should be scraped in favor of a true cost-of-living index. The change would produce $691 billion in deficit savings over a decade.

The cost-of-living adjustments made to Social Security and other government pensions would be trimmed, and tax payments would be increased by making smaller inflation adjustments each year to tax brackets.

``It's a terrible idea,'' said Social Security recipient Marvin Windhaus, 66, a retired Jacksonville, Fla., police officer. ``The price of gasoline is going up, food is going up, and we're standing still.''

But Elaine Pietch, who lives with her husband in a retirement home in a Cincinnati suburb, said, ``I really don't think $96 a year would make much difference to us.''

The proposal would reduce the annual Social Security adjustment $8 a month in the first year it went into effect, or $96 annually, according to the Social Security Administration.

The increased tax bite would come from smaller annual adjustments to the standard deduction and income tax brackets.

By one estimate, a family of four using the standard deduction with $60,000 in taxable income would see its taxes go up by about $150 in the first year from a 1.1 percentage point trim in the CPI.

Michael Boskin, a Stanford University economist who led the panel, said the methods used by the Bureau of Labor Statistics to calculate the Consumer Price Index are failing to take into account the substitution of cheaper goods and mistakenly counting quality improvements as inflation.

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