[Congressional Record Volume 142, Number 2 (Thursday, January 4, 1996)]
[Senate]
[Pages S47-S48]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                    LEGISLATING A CHANGE IN THE CPI

  Mr. KENNEDY. As the President and the congressional leaders discuss 
ways to achieve a balanced budget, one idea should be rejected out of 
hand--legislating a change in the Consumer Price Index.
  That kind of arbitrary action by Congress would break faith with the 
elderly and make a mockery of the commitment of both parties not to cut 
Social Security.
  It would raise taxes on low-income working families qualifying for 
the earned income tax credit--and other working families as well.
  It would lead to lower wage increases for millions of workers 
throughout the country at a time when one of the most serious 
challenges our society faces is the decline in the living standard for 
all but the wealthiest families.
  Such a change would be harshly regressive in its impact. It would be 
unprecedented political meddling in what has always been an impartial, 
factual determination of the CPI.
  Reducing the CPI would reduce cost of living adjustments for millions 
of Americans receiving Social Security benefits, military pensions, 
veterans' pensions, and civil service retirement. It would reduce the 
amount of Supplemental security income payments to the needy. Because 
of indexing of tax brackets, it would raise income taxes for most 
taxpayers--and reduce the earned income tax credit.
  According to the Congressional Budget Office, a 1-percent decrease in 
the change in the CPI would reduce Government spending and increase 
Government revenues over the next 7 years, for a total deficit 
reduction of $281 billion. Some may see this large sum as a magic 
bullet to balance the budget and avoid other painful choices. But it is 
a bullet aimed at millions of Americans who need help the most, and who 
don't deserve this added pain. It makes no sense to fight hard to save 
Medicare--and then attack Social Security.
  Legislating an arbitrary reduction in the CPI would clearly break the 
compact of Social Security. That compact says, ``work hard, play by the 
rules, contribute to the system, and, in return, you will be guaranteed 
retirement security when you are old.'' An essential part of that 
compact is a fair Social Security COLA, so that senior citizens can be 
sure that their hard-earned Social Security benefits will not be eaten 
away by inflation.
  Overall, more than three-fourths of the lower spending under the 
change would come from cuts in Social Security alone. Nearly all the 
rest would come from other Federal retirement programs. It is the 
elderly who will pay heavily if Congress adopts this change.
  Over the next 10 years, a 1-percent cut in the COLA would reduce the 
real value of the median income beneficiary's Social Security checks by 
$5,300. By the 10th year, the real purchasing value of that check would 
be 9 percent lower--making it even harder than it is today for senior 
citizens to stretch their limited incomes to pay the bills for housing, 
food, medical care, and other necessities.
  Reducing the Social Security COLA is a direct attack on the 
retirement benefits that senior citizens have earned. If Congress is to 
respect family values, it has to value families, especially the 
millions of elderly families all across America.
  Changing the CPI also affects the deficit by increasing taxes, 
because income tax brackets and the earned income tax credit are 
indexed to inflation. If tax brackets are not adjusted for inflation, 
taxes go up and the earned income tax credit goes down.
  Failing to adjust tax brackets hits middle income families the 
hardest. For the wealthy, the change in the CPI would have a minimal 
impact. A family earning $100,000 would see its taxes rise by one-third 
of 1 percent of its income. But for families at lower income levels, 
the differences are far more significant. A family earning $36,000 
would face a tax increase that, as a percent of income, would be more 
than four times as large. The hardest hit of all would be low-income 
working families who depend on the earned income tax credit. Twelve 
percent of the total tax increase--$13 billion--would be paid by these 
low-income hard-working families. 

[[Page S48]]

  The impact of cutting the CPI reaches well beyond the Federal budget. 
It is also a direct attack on the wages of working families. Many 
workers have CPI adjustments in their collective bargaining contracts. 
But every pay increase is affected by the CPI. If the CPI is reduced by 
Congress, wages will be lower too for virtually all workers across the 
country.
  There is no greater source of dissatisfaction in American families 
than the continuing erosion of their living standards. Except for the 
wealthy, the story of the past two decades has been ``work harder and 
earn less.'' Cutting the CPI will make a bad situation even worse, by 
putting even greater downward pressure on the wages of every American.
  Lowering the CPI has been presented as merely an overdue technical 
correction that should be supported as a matter of good government. 
This claim cannot pass the truth in advertising test.
  The technical argument for lowering the CPI has been made by the 
Boskin Commission, which was appointed by the Senate Finance Committee 
to examine the issue. The Commission issued an interim report last 
September, which identifies several biases in the calculation. The 
Commission asserted that the CPI has overstated inflation by 1.5 
percent a year. For the future, the Commission predicted that the CPI 
would be 1 percent a year too high.
  The major problem with the Commission's analysis is that the sources 
of bias it identifies are also identified by the nonpolitical 
professional economists at the Bureau of Labor Statistics in the 
Department of Labor. They have the responsibility for setting the CPI 
each year. They do so fairly and impartially. They make periodic 
corrections to take account of any biases--up or down--that affect the 
index. The Bureau already plans to reduce the CPI by about two-tenths 
of 1 percent in 1997. This reduction is already assumed in the budget 
projections for the next 7 years.
  The issue is not whether there should be changes in the CPI, but who 
should make them and how large they should be. The Boskin Commission's 
work is a poor basis for changing the CPI. As the Commission itself 
acknowledged, it did little original research. The Commission's 
membership was stacked with economists who believed that the CPI was 
overstated. According to Dean Baker, an economist at the Economic 
Policy Institute, ``All five members had previously testified that they 
believed the CPI was overstated. Economists who gave contrary 
testimony 
* * * were excluded.''
  According to Joel Popkin, another expert on the CPI, the Commission 
comprised five of the six witnesses before the full Finance Committee 
who gave the highest estimates of bias. As Mr. Popkin also pointed out, 
the interim report of the Commission falls far short of presenting 
adequate justification for its conclusions, and therefore provides no 
basis for Congress to change tax policies or entitlement programs such 
as Social Security.
  In fact, for the elderly, the group most affected by any change, the 
most authoritative study by the Bureau of Labor Statistics suggests 
that the CPI may understate rather than overstate the true increase in 
the cost of living, because of the rapid increase in medical costs for 
the elderly.
  To legislate an arbitrary change in the CPI would be unprecedented. 
In the entire history of the CPI, the Congress has never tried to 
impose a politically driven adjustment, and there is no excuse for 
imposing one now. Senior citizens and working families across the 
country depend on a fair CPI, and Congress should keep it that way.
  Mr. WARNER addressed the Chair.
  The PRESIDING OFFICER. The Senator from Virginia.
  Mr. WARNER. Mr. President, my understanding is that at this point in 
time, the Senators desiring to be recognized would request unanimous 
consent to speak for a stipulated period?
  The PRESIDING OFFICER. That is correct.
  Mr. WARNER. Mr. President, I ask unanimous consent that I may speak 
for 3 minutes and then that the Senate turn and recognize the 
distinguished junior Senator from Mississippi, the majority whip.
  The PRESIDING OFFICER. Without objection, it is so ordered.

                          ____________________