How You Could Be Affected by Obama's Social Security Plan
President Barack Obama's offer to slow the growth of Social Security benefits would force fellow Democrats in Congress to abandon promises to shield the massive retirement and disability program from cuts as part of negotiations to avoid the year-end fiscal cliff.
Both Senate Majority Leader Harry Reid, D-Nev., and House Minority Leader Nancy Pelosi, D-Calif., pledged not to touch Social Security as part of deficit reduction talks.
Now that Obama and House Speaker John Boehner, R-Ohio, have agreed to a new measure of inflation that would reduce annual cost-of-living adjustments, or COLAs, for Social Security and other government programs, Democrats are reluctant to call it a deal-breaker.
As Obama and Boehner continued to haggle over how much to raise taxes and cut spending, White House Press Secretary Jay Carney called the new inflation measure a technical adjustment designed to make inflation estimates more accurate, and he emphasized it's Republicans who want it.
"Let's be clear. This is something that the Republicans have asked for, and as part of an effort to find common ground with the Republicans, the president has agreed to put this in his proposal," Carney told reporters Tuesday. "The president has always said, as part of this process when we're talking about the spending cut side of this, that it would require tough choices by both sides."
Boehner proposed the change earlier this month in talks with Obama, and the president included it in a counteroffer this week. (Read More: Obama, Boehner Press On.)
Carney said Obama's plan "would protect vulnerable communities, including the very elderly, when it comes to Social Security recipients."
The White House has not released details on how Obama's plan would do this. But the president's 2010 deficit commission recommended an enhanced minimum benefit for low-wage workers and an automatic increase in benefits once a person has been receiving Social Security for 20 years.
The inflation measure under consideration is called the Chained Consumer Price Index. On average, the measure shows a lower level of inflation than the more widely used Consumer Price Index because it assumes that as prices rise, consumers turn to lower-cost alternatives, reducing the amount of inflation they experience.
If adopted across the government, the change would have far-reaching effects because so many programs are adjusted each year based on year-to-year changes in consumer prices.
On average, annual increases in Social Security payments, government pensions and veterans' benefits would be about 0.3 percentage points smaller each year. Next year's COLA is 1.7 percent. Under the new measure of inflation, it would be about 1.4 percent.
Taxes would slowly increase because annual adjustments to income tax brackets would be smaller, pushing more people into higher tax brackets. Over time, fewer people would be eligible for anti-poverty programs like Medicaid, Head Start, food stamps and school lunches because annual adjustments to the poverty level would be smaller, leaving fewer people under the official poverty line.
If enacted for 2014, the change would reduce government borrowing by $223 billion over the next decade -- $158 billion in spending cuts and $65 billion in tax increases, according to the nonpartisan Congressional Budget Office. The biggest savings -- $102 billion -- would come from Social Security.
"I just don't think that's fair," Rep. James McGovern, D-Mass., said. "We've got to get serious about balancing the budget. But asking Donald Trump to pay a dollar more is not the same as taking something away from a lower income community that's just squeaking by."
Advocates for older Americans have been fighting against chained CPI for years, and they have stepped up their efforts since Boehner raised the issue earlier this month.
"Too many Washington politicians clearly hope middle-class Americans simply won't notice billions of dollars in Social Security benefit cuts," said Max Richtman, president and CEO of the National Committee to Preserve Social Security and Medicare. "I promise you. Seniors and their families will notice."
Reid has been adamant that Social Security should not be included in deficit-reduction talks, but he sidestepped a question about it Tuesday.
"This isn't going to be a situation where we're going to vote on a particular provision in the bill," Reid said. "It's going to be a framework to do something about the long-term security of this country."
Other Democratic senators were more direct.
"It doesn't warm my heart, I'll tell you that," Sen. Jay Rockefeller, D-W.Va., said of the proposal. "The whole understanding has been that we wouldn't do Social Security. That was for later."
Sen. Ben Cardin, D-Md., said, "I'm going to fight hard to keep Social Security out of this. I'm going to fight to protect our federal workforce because they've already made sacrifices. There's a lot of priorities I have. But I think we have to wait and see how the negotiations go."