ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Friday, December 13, 1996 TAG: 9612130042
SECTION: EDITORIAL PAGE: A-16 EDITION: METRO
IT'S TIME to adjust cost-of-living adjustments that long have inflated federal retirement benefits while depressing income-tax revenues. To make the fix, President Clinton and Congress need only do what they presumably were elected to do: exercise leadership.
They certainly have the evidence to justify, even to mandate, a revision in cost-of-living adjustments.
Last week, a blue-ribbon commission of economists, appointed by the Senate and led by Michael Boskin of Stanford University, released a report on flaws in the government's inflation yardstick, the Consumer Price Index. Their conclusion: The CPI no longer accurately reflects Americans' buying habits or options available in the marketplace, and so overstates cost-of-living increases by 1.1 percentage points a year. Over time, that's a huge distortion.
The news that inflation is lower than reported would normally give cause for celebration - except for the fact that Social Security and other entitlement payouts are raised every year, and tax brackets are indexed, according to the CPI. Needless to say, political landmines litter the path to slower entitlement-spending growth and higher taxes. Even so, the case for adjusting both the CPI and government indexing is compelling:
* A revised CPI would provide a truer picture of the economy. This statistic is embedded in virtually all significant economic measures. Just one example: Overstating inflation makes growth in real wages seem smaller than it has been. The quality of innumerable decisions in the economy relies on the quality of such data.
* Contrary to labor leaders' warnings, a revised CPI would help workers. Unions often argue that employees need cost-of-living raises to keep pace with inflation. A stronger argument is that workers deserve raises because they have earned them. If an inaccurate CPI means business profits (minus inflation) are in fact higher than they seem, then productivity growth also is better than it looks. CEOs and stockholders are making bundles off this fact. Workers should be let in on the party.
* As for cost-of-living adjustments in federal benefits and taxes, a one-percentage-point cut in the entitlements index would save the government an estimated $500 billion over the next decade. Though other reforms, including in entitlements, would still be needed, this one adjustment would ease considerably the task of addressing long-term fiscal challenges.
* The impact on families would be fairly modest and widely shared. With a one-percentage-point cut in cost-of-living increases, benefits would still go up - just not as much. The average monthly Social Security payment would rise by eight fewer dollars. A family of four earning $50,000 a year would pay just under $100 a year more in taxes. On grounds of fairness alone, shared sacrifice is preferable to many of the proposals put forward for balancing the budget - and adjustments could be made to protect the poor.
A cautionary note: Clinton should ask Congress to reduce cost-of-living adjustments now, while the Bureau of Labor Statistics on its own, and in its own time, decides how to fix the CPI. There is danger even in the appearance of political pressure to alter neutrally compiled, technical economic data.
There is also danger, though, in failing to point out that - with America's top economists agreeing the inflation number is overstated - those opposing its correction are the ones wanting to cook the books. Not everyone will accept changes in cost-of-living increases as just a technical issue. But the fact that some have benefited for years from a statistical error is no reason to perpetuate the error.
President Clinton and the Congress need to muster enough bipartisan will to explain the facts, and make the necessary adjustments.
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