Obama's Chained CPI Throws Off Pols and Here's How It Works

ABC OTUS News

President Obama's outline for government spending in fiscal year 2014 includes a controversial proposal that has not only thrown the Republican Party off balance at the outset of upcoming budget negotiations but has also split his own party.

The proposal is a move to slow entitlement spending, and it goes by the name Chained CPI.

The president's budget recommends a chained Consumer Price Index, or CPI - the measure by which a heavy percentage of government spending, including Social Security and Medicare benefits, is calculated. Much of the country's projected debt is a result of future retirees collecting on entitlements that are not fiscally sustainable in the long run.

Current law calculates benefits based on CPI-W, or CPI for Urban Wage Earners and Clerical Workers, which tracks the value of the U.S. dollar.

Chained CPI adds nuance to the equation.

By indexing benefits through chained CPI rather than CPI-W, benefits would increase less quickly since it considers a consumer's decision to get stingy or extravagant as prices of everyday items fluctuate.

For example, if a middle class family decided that airfare on the shuttle from Washington to New York was too expensive as the price of jet fuel increased, that family could take a bus, at a fraction of the cost.

Chained CPI isn't a new proposal. Alan Simpson and Erskine Bowles first offered up the idea in their initial plan for deficit reduction two years ago. The duo suggested it again in February of this year. And Obama included it as part of his concessions to Boehner during fiscal cliff negotiations back in December, irking Democrats.

In a Rose Garden appearance on Wednesday, the president said, "When it comes to deficit reduction, I've already met Republicans more than halfway. So in the coming days and weeks, I hope that Republicans will come forward and demonstrate that they're really as serious, as serious about the deficits and debt as they claim to be."

In past fiscal showdowns, Republicans have slammed the White House for resisting entitlement reform, but so far, it seems Obama's play has confused the GOP's messaging machinery.

On Wednesday, Republican Rep. Greg Walden of Oregon, the chairman of the National Republican Congressional Committee, broke from the pack of Republicans who favor chained CPI, criticizing cuts to benefits as harmful for members of one of the country's most vulnerable population: senior citizens.

"I thought it's very intriguing in that his budget really lays out kind of a shocking attack on seniors, if you will," Walden, an eight-term veteran of the House, told CNN.

Those comments surprised many Republicans, prompting Speaker John Boehner to condemn Walden's comments.

"I've made it clear that I disagree with what Chairman Walden said," Boehner told reporters Thursday. "He and I have had a conversation about it, and I expect [chained CPI] is the least we must do to begin to solve the problems in Social Security."

On the other hand, Ryan, the former GOP nominee for vice president, told ABC News this week that the president's proposed cuts don't qualify as a genuine overhaul in his book, even though his own calls for reform have focused on an imbalance in the amount of benefits the government pays out versus what it takes in.

"I don't know if I would say that he cracked the door on entitlement reform," Ryan, R-Wis., said in reference to Obama's CPI adjustment. "He has proposed to change a statistic, which saves money. That is really not entitlement reform."

The chained CPI proposal has also caused heavy consternation in the president's own party, with progressives rallying against the pitch. A group of about 100 liberal and progressive activists came to Washington this week to deliver a petition to Obama, specifically opposing his cuts to Social Security payments through chained CPI.

While House Minority Leader Nancy Pelosi has saluted President Obama for his "great" budget proposal, she conceded that the House Democratic Caucus is split on chained CPI. The caucus invited experts on both sides of the issue to educate members on the divisive proposal Thursday.

"We have to learn more about it," Pelosi, D-Calif., said. "Do you feel comfortable talking about chained CPI? Do you know all of the ramifications of it, I mean, to the extent that you have an appreciation for what it does and what it does not do?

"That's what we want members to do is there to be a decision," she added. "It should not be, you know, an emotion."

But not everyone is irked this time. Marc Goldwein, senior policy director for the Committee for a Responsible Federal Budget, a bipartisan policy organization, said Obama's push for chained CPI is a good sign for how budget negotiations will go this time around.

"The president's showing that he is still open to making budget negotiations on budget reforms, and I think that's incredibly important," Goldwein told ABC News Thursday.

Goldwein applauded the measure that he said would cut spending across the federal government, but he warned more steps are necessary to close the annual budget deficit.

"If we think this is the end of the story, I think we're kidding ourselves, he said. "But it's an important start."

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